Tariffs taking toll on dairy markets

Bob Cropp, left, and Mark Stephenson of the University of Wisconsin.

The government shutdown left a void in market data for the dairy industry, with no reports on milk production, stocks, prices, world supply and demand and exports. Cash product prices on the Chicago Mercantile Exchange are about the only information available, and they all moved lower last week.

“Cheese and whey have kind of taken it in the hind end again,” Mark Stephenson, dairy economist with the University of Wisconsin, said in the latest “Dairy Situation and Outlook” podcast.

Barrel cheese dropped to $1.16 a pound after moving up to $1.30 earlier in the month, and block cheese moved down from $1.41 to $1.37.

Whey moved from 52 cents a pound to 42 cents. Butter lost 3 cents to $2.22 a pound. The nonfat dry milk price, while still fairly strong, went from $1.04 a pound to 99 cents.

Markets have been struggling for four years, with 2018 the worst for milk prices and dairy farmers, Bob Cropp, University of Wisconsin dairy economist, said.

The effects are increasingly being felt, judging from conversations with dairy producers and bankers, Stephenson said.

“The persistence of this downturn is really starting to take its toll,” he said.

Farms are exiting at an increased rate, people are getting discouraged about the dairy industry and cow values are really low, almost at cull cow prices, he said.

“Balance sheets are beginning to take a hit. That’s making bankers more nervous,” he said.

Things are going to be better in 2019, but not too many people are saying a whole lot better or anywhere near the level to help those balance sheets much, Cropp said.

Futures markets have dropped to average $15.40 per hundredweight for Class III milk in 2019, only about 80 cents per hundredweight higher than 2018, he said.

While he’s looking for Class III prices to hit the $16s in the second half of the year, the year’s average of not quite $16 isn’t going to help the situation much, he said.

Stephenson said he also sees a gentle improvement in milk prices but is holding out the possibility of more aggressive positive price changes in the fourth quarter.

“Part of what’s happening, I think, is that we’re working down some of these world stocks … that’s part of what’s giving life to our powder prices right now,” he said.

Prices on all products have improved in the last four Global Dairy Trade auctions, but there’s been an uptick several times in the last few years, he said.

“I’m hoping that it’s more sustained this time. I think it will be … I think there’s some legs in this,” he said.

Demand has softened in some regions of the world, but global milk production has also softened. So maybe things will pick up in the second half of the year, Cropp said.

“We haven’t got a lot to be really optimistic about, but we do see improvement, steadily through 2019,” Stephenson said.

And things could turn out better than expected; it’s happened before, Cropp said.

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