A strong Christmas season would typically end in higher milk prices, but with Class III milk prices below $14 per hundredweight of milk, markets in December offered an unwelcome ending to a margin-busting year.
What’s ahead in the new year will hinge on milk production and exports, according to dairy economists at the University of Wisconsin.
“Most of the forecasters I work with are not overly optimistic,” Bob Cropp, an economist with the University, said in the university’s latest outlook podcast.
They are projecting no more than a $1 improvement in Class III prices above 2018’s average $14.60. USDA is forecasting a range from a slight improvement to less than a $1 improvement, he said.
The agency is expecting a 1.3 percent increase in milk production year over year.
But he and fellow UW economist Mark Stephenson think production could turn out lower than USDA’s forecast.
“We’re going into pretty weak increases in milk production in this country,” Stephenson said.
In addition, a lot of people are culling cows and there are issues with corn silage quality in some regions of the country that could affect per-cow production, he said.
Even at USDA’s expected level of production, domestic sales of dairy products other than fluid milk should be positive, Cropp said.
So milk prices will depend on the export side of the equation, he said.
“Unless we solve the trade tariff we’ve got going on between China and Mexico, we’re going to have less exports next year,” he said.
That’s a big factor keeping prices down, he said.
“If it’s resolved somewhat and production’s a little slower, then I think we can do better with the forecast,” he said.
Across the ocean, the EU is pulling down intervention stocks of skim milk powder. If those were done within 2019, it could change world buying behavior — with more purchases in light of tightening supply, Stephenson said.
And maybe the world is starting to think that way, given upticks in the last couple of Global Dairy Trade auctions, he said.
In addition to lower milk production than USDA anticipates, Cropp sees a possibility for exports to do better than some people think, he said.
Combined, “that should push (milk) prices higher that just a dollar increase,” he said.
Class III prices will start the year below $15. He thinks they’ll move to the high 15s by the third quarter and get into the $16s in the fourth quarter, he said.
He’s looking for the year’s average to be closer to $16 versus the $14.60 for 2018.
“That’s higher than most are saying. Farmers need more than a dollar improvement, so I hope it does turn out better,” he said.
It was a bleak December for dairy producers, Stephenson said.
“But I think that we’ve got prices rising all the way through 2019, at a moderate rate. Maybe as we get toward the end, there’s room for a bigger breakout,” he said.