Dairy Outlook: Milk Is Money In The Bank

Milk prices, teamed with lower farm-raised feed costs, is positive news for dairy farmers.

Published on: Jan 16, 2014

Rising export demand is underpinning current milk prices even with slowly increasing production. That's the bottom line of Penn State Ag Economist Jim Dunn's January outlook.

Cheese prices have risen steadily since mid-November, driven by export demand, especially from China. While butter prices are a weaker market, increased skim milk powder demand is matching the rising inventories without lowering prices, he says.

This helps explain why December's Pennsylvania all-milk price of $23.20 per hundredweight was 20 cents higher than November's. It was the first time the all-milk price topped $23 in consecutive months since September 2011.

Those past prices were accompanied by higher feed prices. So the present price has an even better net effect, given current feed costs.

Dairy Outlook: Milk Is Money In The Bank
Dairy Outlook: Milk Is Money In The Bank

Looking ahead
January's Class III futures price is $20.06, up from December's $18.95. Currently the 2014 average Class III futures is running at $18.31 – 32 cents above the 2013 average.

Like last month, a small increase in the latest milk production report along with strong cheese futures prices make the higher cheese prices sustainable, especially for early 2014.

Prices of Class IV futures are averaging $19.95 a hundred for 2014, up significantly. The first few months are especially strong, with weaker Class IV futures as 2014 progresses.

Pennsylvania's all-milk prices for 2013 and the forecast prices for 2014 based on the futures prices are shown in the table.

The forecast all-milk prices for 2014 averages 70 cents a hundred above the average for 2013. Given lower feed prices, that's positive for dairy farmers, adds Dunn.

Gains in income over feed costs
Penn State's measure of income over feed costs rose 0.4% in December to $10.29 per cow per day. That's the highest value since 2007, due to higher milk prices.

It's important to note that the dairy margin improvements haven't prompted an increase in cow numbers. Western producers, in particular, are not adding cows, despite better margins.  The last couple years have especially hurt producers who buy most of their feed.

Watch for American Agriculturist 's 2014 Dairy Outlook in February's issue, and an analysis of the Whole Foods spat with Chobani over its Greek yogurt by Dunn and University of Wisconsin's Mark Stephenson.

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