Wisconsin Ag Connection - Cropp: Milk Prices Could Increase During Second Half of 2012

Wisconsin Ag News Headlines

Cropp: Milk Prices Could Increase During Second Half of 2012
Wisconsin Ag Connection - 03/22/2012

He has said it before and he's saying it again: increases in milk production will have to slow down if prices are going to climb back up. That's the assessment of Dr. Bob Cropp, professor emeritus with the University of Wisconsin Cooperative Extension. In this monthly Dairy Situation and Outlook report, he noted that milk production will run higher than what was earlier predicted--which is making it difficult to get milk check numbers to turn around.

"In March, USDA increased its projected increase in milk production for 2012 from 1.4-percent to 1.8-percent and lowered its projected milk prices," Cropp explained. "USDA projects an average Class III price in the range of $16.35-$16.95 per hundredweight, compared to $18.33/cwt. last year, and the average all milk price in the range of $17.60-$18.20/cwt., compared to $20.13/cwt. last year."

He says higher milk prices for the last half of the year will depend upon the level of milk production. Cropp points out that it will require a slowdown in the increase in milk production from current levels, which could happen if combination of lower milk prices for the first half of the year, high feed prices and favorable cow slaughter prices encourage heavier culling of milk cows.

But Cropp says there's more factors to consider. He says cheese stocks are tighter than a year ago, and that the demand of fluid milk sales has been going down some.

"Fluid milk, which declined 1.1-percent in 2010 and another 1.7-percent last year, continued lower this year with January sales 2.7-percent lower than a year ago," Dr. Cropp noted. "But, butter and cheese sales look encouraging. Restaurant operators anticipate growth in their business which is optimistic for cheese sales. And dairy exports were a record last year totaling on a total solids basis 13.3-percent of U.S. milk production."

He says USDA projects exports for this year to be down about 9.4-percent on a fat basis and 5.3-percent on a skim-solids basis. World milk supply is also higher and global dairy product prices are lower.

"But, yet this is still a favorable export picture historically and exports could turn better than this," he said. "Compared to a year ago, January dairy exports were still encouraging. Exports of nonfat dry milk/skim milk powder were just one-percent lower, total whey proteins one-percent higher, cheese three-percent higher and lactose eight-percent higher, but butterfat was 28-percent lower."

Despite improved cheese stocks, 40-lb. cheddar cheese prices on the CME have fallen from more than $2 per pound from June to mid-August of last year to $1.56/lb. at the beginning of the year to a low of $1.46/lb. on March 6, but since then have improved to $1.5825/lb. as of March 16.

Cropp's report also indicated that the latest jump in milk production may once again put downward pressure on cheese prices. But looking ahead, he says there's still a strong probability that milk prices could turn out considerably higher for the last half of the year than what Class III futures currently show.

Other Wisconsin Headlines