Economists predict better times ahead for dairies

University of Wisconsin professor emeritus Bob Cropp, left, and Mark Stephenson, director of dairy policy analysis at the university, say lower milk production portends higher prices.

USDA delivered some long-awaited good news for milk prices in its latest milk production report, showing producers are keeping output in check.

May’s milk production totaled 19,055 million pounds, down 0.4% year over year.

Total cow numbers are down almost 1% from a year earlier, and production per cow is on trend, Bob Cropp, dairy economist at the University of Wisconsin, said in the latest Dairy Situation and Outlook podcast.

“So we’re not producing more milk this year … without more milk we’re seeing better prices down the road,” he said.

Lower milk production is also showing up in cold storage reports and production of dairy product. The latest data show butter stocks are down 7% year over year, and butter production is down 4.8%. American type cheese stocks are down 2.4%, and America type cheese production is down 2.8%.

“There’s less milk, so less product,” he said.

Reasonable domestic demand is helping draw down stocks, Mark Stephenson, a fellow dairy economist at the university, said.

“I’m not hearing any panicking from buyers yet. But, you know, they’re keeping their eye on this; they’re getting nervous,” he said.

Tighter supplies are raising prices on dairy products and milk. The cheese market has had quite a rebound in the last week or so, Cropp said.

Cash prices on the Chicago Mercantile on Friday were $1.83 a pound for block cheese, $1.72 for barrel cheese, $2.39 for butter and $1.05 for milk powder.

Those prices are moving the futures market for Class III and IV milk higher, into the $17s per hundredweight starting in July, Cropp said.

On a global perspective, milk production isn’t really strong in most places. Stocks have been pulled down quite a bit, and other countries are feeling pretty good about milk prices, Stephenson said.

“I’m not sure that we would say we feel good about milk prices yet. But, you know, they are. They’re feeling like these are reasonable prices,” he said.

Projections for milk prices in the EU and New Zealand are roughly equivalent to $18 Class III milk in the U.S., he said.

“So I think that this is possible this year, we could look forward to that,” he said.

Higher prices down the road could stimulate milk production again. But feed costs in the EU are going to stay high at least through winter, and some producers there have reduced cow numbers. U.S. producers are also facing higher feed costs due to weather challenges impacting corn and hay, Cropp said.

The drought in Australia has reduced cow numbers, and New Zealand’s production is going to depend on the fall season, he said.

“Overall, and with U.S. production under 1% (increase), you have to look at stronger prices worldwide,” he said.

With product prices moving the way they are, he expects Class III milk to hit $18 by October or November and average $16.50 to $16.70 for 2019 — after starting below $14 in January and February.

Recommended for you