Wisconsin Ag Connection - February 27, 2013
There are a few positive factors on the horizon that could lead to better milk and dairy product prices as we head into the spring and summer months. That's according to Dr. Bob Cropp with the University of Wisconsin Cooperative Extension, who noted in his monthly Dairy Situation and Outlook report that continued improvement in the economy, tighter commodity stocks and favorable U.S. export projections could all be good news for the state's dairy industry.
"Prices normally improve as we approach Easter, and milk production normally peaks around May or June giving rise to higher milk prices in summer and fall," Cropp said. "In addition, dairy cow slaughter continues to run well above a year ago, which should reduce cow numbers for at least the first half of the year. But, up to now despite heavier cow slaughter there exist and inventory of dairy replacements to increase cow numbers."
He adds that while dairy futures are showing some modest improvement in milk prices, the probability of doing better than this still exists.
"Current Class III futures show no improvement for March and don't reach $18/cwt. until June and peaks at $18.55/cwt. for August and September," he said. "I still believe $19/cwt. by September and October is still very possible. There are price forecasters who have Class III as high as $20/cwt. by then. And of course there are some who forecast lower prices expecting much stronger milk production second half of the year."
Of course, if the drought conditions that many producers suffered through in 2012 linger into this year, it will likely have a negative impact on feed costs and profitability, he says.
"I believe the probability is better for higher rather than lower prices," Dr. Cropp confesses. "But, recognizing milk prices change with relatively small changes or anticipated changes in milk production, sales or exports all forecasts are possible."
He says this challenges dairy producers and milk processor in managing price risk.