Rising Milk Prices Brighten 2014 Dairy Outlook

Milk demand should continue to strengthen farm gate prices into the first half of 2014, according to Penn State's December dairy outlook.

Published on: Dec 16, 2013

Santa Claus may be putting a little extra something under the dairy farm family's tree this season. That's if Penn State University's December dairy outlook holds.

Seasonal use plus strong exports of cheese and butter spurred higher demand going into the holidays. Skim milk powder continues to rise, rising another 5% since last month with China buying a lot of powder. Dry whey prices have also risen due to demand.

All this is why November's Pennsylvania all-milk price rose $0.23 over October's, at $22.50 per hundredweight, says Penn State Ag Economist Jim Dunn. November Class III milk was $0.61 higher, at $18.83. And December's Class III futures price is $19.11.

Rising Milk Prices Brighten 2014 Dairy Outlook
Rising Milk Prices Brighten 2014 Dairy Outlook

Average Class III futures prices for the first half of 2014 are up about $1.00 from last month, at $17.91.  "My hypothesis is that the small increase in the latest milk production report gave market participants a sense that with the strong butter demand, cheese production will remain moderate," he adds.

November's Class IV price was up $0.35 from October, at $20.52. The Class IV futures price for December is $21.44.  Looking ahead, the prices of Class IV futures average $20.88 for the first half of 2014. That's up more than $2.00 from last month.

Lower feed costs a bonus
Corn and soybeans (meal included) have moved in opposite directions, in part because of export problems in Brazil and Argentina. That could bring a big shift favoring soybean acreage in 2014.

Even so, lower corn prices have helped feed prices remain low and hold up income over feed costs, according to Dunn. Income over feed cost reflects daily gross milk income less feed costs for an average cow producing 65 pounds of milk per day.

Penn State's IOFC rose by 3.7% in November. That amounted to an increase of 36 cents per cow per day. November's $9.91 IOFC was the highest value for several years – mainly due to higher milk prices.

Pennsylvania corn prices are down once again from $4.15 to $4.02 per bushel. But hay prices rose 3%.  Soybean meal price fell by 8.7%. The November PA all-milk price rose by $0.50 from October to $22.50/cwt. The cost of feeding a cow fell to $4.72 a day.

Increased numbers of dairy cows and production have been very small so far, according to Dunn. Despite the better IOFC here in the East, high hay and meal prices have meant that western producers haven't gained the same IOFC improvements. That may weigh down herd-building there.