Milk prices rise as production ticks higher

Several factors may be contributing to rally in Class III futures prices

Milk production in the 24 major production states during April totaled 17.8 billion lb., a 1.6% increase from April 2019, according to the U.S. Department of Agriculture’s latest “Milk Production” report.

USDA revised its March production number to 18.5 billion lb., which was up 3.0% from March 2019. The March revision represented an increase of 115 million lb., or 0.6%, from last month's preliminary production estimate.

Production per cow in the 24 major states averaged 2,013 lb. for April, up 17 lb. from April 2019. The number of milk cows on farms was 8.85 million head, 65,000 head more than April 2019 but 4,000 head less than March 2020.

Total April milk production in the U.S. during April totaled 18.7 billion lb., a 1.4% increase from April 2019. Production per cow in the U.S. averaged 1,993 lb. for April, up 18 lb. from April 2019. The number of milk cows on farms in the U.S. was 9.38 million head, 49,000 head more than April 2019 but 4,000 head less than March 2020.

Bob Cropp, emeritus dairy market specialist at the University of Wisconsin-Extension Agriculture & Natural Resources, said the slowed milk production must reflect that producers are trying to hold down production per cow, but producers dumping milk may also have contributed.

Just a month ago, prices were looking pretty dismal, but there has been “a surprise jump up” in prices, he said. The CME Class III prices for June and July were $17.52/cwt. and $16.86/cwt., respectively, on May 26, up from lows of $10.68/cwt. and $12.80/cwt., respectively, on April 22.

In addition to the slowing production, Cropp said perhaps some of the fresh supply is tighter. Further, he said, retail sales are up, although they are not offsetting declines due to the foodservice slowdowns. The government also announced some dairy purchases.

Mark Stephenson, director of dairy policy analysis at the University of Wisconsin-Madison, said product collectively is moving, providing optimism.

However, Stephenson asked if the higher future prices are real.

Cropp said, “Looking at it, to me, I would be very cautious that these prices are going to hold at the level that you’re seeing on the futures market.”

Stephenson said COVID-19 has had a tremendously negative impact on the entire U.S. economy and other economies around the world.

Contrary to what some are forecasting, Cropp said, “It’s going to be a slow recovery.”

In addition to a slow recovery for the foodservice sector, he said, “We’re not looking for schools to open full time in the fall, which will continue to have an impact.”

Some good news is that crop farming is in better shape than it was last year at this time. However, wet weather right now may mean that first-cutting forage quality could be an issue, Cropp said.

As for prices, Cropp predicts that there will be some price improvement in the second half compared to recent months. He’s forecasting Class III prices in the $16s for the rest of the year, but “surely not the $17 [in] June and July” that the futures market is currently suggesting.

“We’ll have to see what develops, but something’s got to come into play to hold the prices where they’re at. I don’t see that this time,” he said.

However, Cropp did note that he believes USDA’s 2020 average Class III price of $13.35/cwt. is too low.

Additionally, he said some producers may want to take advantage of the price environment right now.

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