September 5, 2017 at 3:32 p.m.

Factors conspiring to lower milk prices next year

Cheaper feed will likely mean more milk per cow

By By Ron Johnson- | Comments: 0 | Leave a comment

DUBUQUE, Iowa - Milk prices during 2014 are likely to average lower than this year. Bob Cropp, emeritus professor of agricultural economics at the University of Wisconsin-Madison, gave that prediction during the Tri-State Agricultural Lenders' Seminar held on Oct. 30 in Dubuque, Iowa.
Several factors could work together to bring prices down. One of those is lower feed costs that should improve farmers' profit margins. But that cheaper feed could mean that U.S. dairy producers will increase their milking herds by 0.5 percent, Cropp said.
In addition, milk per cow could rise next year. Cropp estimated that the increase could be at least 1.3 percent.
If milk production per cow rises, of course the nation's total milk output will also rise. The economist figured 2014 milk production could hit 205.8 billion pounds, a rise of 1.8 percent.
Another factor could dampen milk prices. "The economy continues to show slow growth, which means slow growth in domestic dairy product sales," Cropp said.
A fifth factor that could contribute to lower milk prices is the situation in New Zealand and the European Union. They are the globe's two largest exporters of dairy ingredients. Higher exports from those regions would undercut U.S. dairy exports, Cropp indicated. He said the USDA estimates that U.S. dairy exports would shrink 5.5 percent on a milkfat basis, and 2.1 percent on a skim milk basis.
Cropp offered this possible glimpse of 2014's milk prices. For the quarter January through March, the U.S. all-milk price could average $18.50 per hundredweight, while the Class III price could average $16.80.
The Class III price is what farmers get for milk that's made into cheese. Some 85 to 90 percent of all the milk produced in Wisconsin, for example, fetches the Class III price. Cropp said a Class III price of $17 per hundredweight is profitable for most farmers.
Looking at the April-through-June period next year, Cropp said the all-milk price could rise to $19.05 from the first quarter of the year. And, the Class III price could follow suit, climbing to $17.35.
For July through September, Cropp said the all-milk price could keep climbing and maybe hit $19.40 for an average. The Class III price, he added, could march upward, too, reaching $17.70.
Not unexpectedly, the period October through December could bring somewhat lower prices, with the all-milk price slipping to $19.35, Cropp said. Meanwhile, the Class III price could dip to $17.65.
For next year as a whole, Cropp said the all-milk price might average $19.10, per hundredweight. That would be 48 cents less than this year's expected $19.58.
Next year's Class III price could average $17.35, Cropp continued. If that average materializes, it would be nine cents lower than 2013's expected $17.44.
Overall, said Cropp, 2013 has brought less milk price variability. In 2012, the Class III price bottomed out at about $15 per hundredweight, in May.
The U.S. all-milk price hit its bottom in 2012 during May, too. It got as low as just more than $16.
Cropp compared milk prices in three states - Wisconsin, Iowa and Illinois. Last year in Wisconsin, the overall milk price averaged $19.38. This year it's forecast to top that mark by 55 cents, finishing at $19.93.
Iowa's average milk price this year is expected to average $20.18. That would be 94 cents above last year's $19.24.
In Illinois, said Cropp, this year's average is expected to reach $20.23. That would be 80 cents above the 2012 average of $19.43.
Looking at this past August's milk production compared to a year earlier, Cropp observed that it was higher in 10 out of 12 selected states, and lower in just two. The sharpest drop-off - 1.2 percent - came in New Mexico. Idaho also lost production in August, by 0.7 percent.
The big gainer was Iowa. Hawkeye State herds boosted their output by eight percent.
Florida posted the second-largest gain: 6.9 percent. Coming in third, with a 5.5 percent gain, was Arizona.
New York notched a gain of 4.2 percent, while Michigan increased its output 3.9 percent. Pennsylvania was close behind with a 3.5 percent gain. Next was Texas, adding 3.3 percent more milk, followed by California with a 2.7 percent gain.
Minnesota herds produced 1.9 percent more milk this past August, compared to a year earlier. In Wisconsin, the increase totaled 1.7 percent.
Hedging his forecasts, the economist offered this disclaimer: "Milk prices are very sensitive to rather small changes in milk supply or demand. Thus, final 2014 milk prices could end up quite different." Factors such as the weather in the U.S. and New Zealand, along with world demand, could boost or dampen prices.
Even without factoring the weather and worldwide demand, milk prices can change faster now than they could years ago. That's because the milk supply can change faster, too.
"Large herds with freestall barns can change the number of milk cows easier than a farm with a 40-cow barn can," Cropp reminded. And, "The number of replacements (on a given farm) is often more than adequate to grow the herd."
In addition, many farms have better facilities now. That equates to more comfortable cows, improved feed management and better herd health, and boosts per-cow milk production.
The move to confinement has also done one more thing. It has lessened seasonal changes in milk production, Cropp said.
For the U.S. as a whole, August's milk production rose 2.6 percent, compared to 2012. The September numbers will probably show higher milk output, too. The increase, Cropp said, could be "well over two percent."
Prices for 2013 are not running as high as he thought they would at the beginning of the year, Cropp admitted. He told the lenders he thought the widespread drought during the summer of 2012, and its resulting high feed prices would lower milk production this year. Higher feed prices did hurt milk output in the West, but not in the Upper Midwest of the Northeast.
Noting the uncertainty that surrounds milk prices, Cropp said, "Twenty-six years ago, I could predict the price of milk within a nickel. Today, if I get it to $5, I'm doing pretty good."
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