The milk market price recovery appears to be happening, according to Jim Dunn, ag economist at Penn State University. It’s just not moving anywhere fast enough to please producers, he concedes. Here’s a recap of his recently released October Dairy Outlook.

Much of the Northeast, especially New Hampshire, Massachusetts and central New York, is still suffering extreme drought conditions. Early harvest results in much of Pennsylvania appear to be disappointing for hay and corn silage. All of this, of course, ultimately will hurt net dairy income.

TOO MUCH OF A GOOD THING: U.S. dairy herd still is producing too much milk for current market conditions.

Looking down the marketing road, Dunn sees signs of milk price relief — higher prices for producers — but not at levels producers prefer. Overall, the outlook for milk prices for the rest of 2016 and early 2017 is better, he adds.

“My estimates for the Pennsylvania all-milk price for the rest of 2016 should average $1.40 per hundredweight more than for January-August.” He also predicts still stronger Class III, Class IV and Pennsylvania all-milk prices through next June. (See price projections below.)

Why so slow?
American dairy exports remain far below 2014 levels and somewhat below 2015. Despite the strong U.S. dollar, Dunn says the international market is improving — gradually. Australia, New Zealand and the European Union have had lower milk production.

China has begun to buy again, with year-to-date purchases well above 2015 levels. Thus far, the lion’s share of China’s imports has come from New Zealand and Australia. Those purchases help milk prices worldwide by removing dairy products that would otherwise depress world prices. Even so, compared to the U.S. dollar, the weakening euro and Australian and New Zealand dollars continue to hurt U.S. export competitiveness.

More milk, more trouble ahead
The latest U.S. milk production report showed August milk production up 1.9% from a year earlier on a 30-day-month basis. That increase is problematic in the current dairy environment — tight export markets and strong U.S. dollar.

Cow numbers continue to grow slowly — up only 0.48% over last year. “Although this increase is very small, more milk production [per cow] nationally will inhibit reaching higher milk prices,” warns Dunn.