Dairy Outlook: Milk Prices Headed Higher

Farm Bill politics and grain prices have yet to weigh in on future dairy policy and impact on milk pricing.

Published on: Jun 17, 2013

Prices across the entire dairy product mix – cheese, whey, butter and skim milk powder -- have stabilized in recent weeks. That, according to Penn State Ag Economist Jim Dunn, bodes well for milk prices at least in the near term. Here's a capsulized look at his June dairy outlook:

Growth in U.S. milk production continues to track 2012, rather than the year-over-year production increases of the past three years. The production increases are consistent with the usual seasonal

pattern, rather than expansion. That's a positive for milk prices.

Dunn's forecast for Pennsylvania's average all-milk price is $21.62 per cwt. for 2013 overall. That's $1.58 more than the 2012 average price. In total, the outlook for farm milk prices is better than last year, and much more stable.

Dairy Outlook: Milk Prices Headed Higher
Dairy Outlook: Milk Prices Headed Higher

Dairy policy still a 'haggling point'
The U.S. Senate has passed its version of the 2013 Farm Bill with major points of contention with the House version. The politics of agriculture in the House and Senate are quite different.

So, what's ultimately is signed into law is yet to be determined.  The dairy stabilization program in the Senate Bill is similar to last years. And, House Speaker John Boehner vehemently opposes it.

Grain impact on feed costs still uncertain
While corn and soybean markets have drifted since June 1, September corn is still $5.75 a  bushel. Ordinarily, this is not a dynamic period for grain prices. But that isn't the case this year, given the small expected ending stocks from the 2012 crop, and potential implications of another bad crop.

In May, Penn State's measure of income over feed costs rose by 2.5%. That halts a string of decreases, essentially offsetting April's drop. The May value is $7.40 per cow per day – almost exactly the average value of May in the past four years.

Two-thirds of the IOFC is because of higher milk price and one-third because of lower feed costs. May's PA all-milk price rose by $0.20 from April to $21.00 a hundred. The cost of feeding a cow fell by 5 cents per day to $6.25. The big driver of this was alfalfa hay, which fell by 6%. As corn and soybean meal prices each rose, the net change lowered feed costs by 0.75%.