The futures market is estimating Class III milk prices will hit $18 a hundredweight by May or June and stay in that range for several months.
“That’s a price that probably a lot of producers would normally be able to live with. But I would also say that margins are tightening a lot,” said Mark Stephenson, a dairy economist at the University of Wisconsin.
Grain futures have been on the rise. The corn price seems to have plateaued, but soybeans have still been up, he said during the latest “Dairy Situation and Outlook” podcast.
Corn prices are $2 a bushel higher than last year, and soybeans are $5 to $6 a bushel higher, Bob Cropp, a fellow dairy economist at the university, said.
Given those feed costs, a Class III price of $18 or in the high $17s is a range that will just about get a producer’s nose above water, Stephenson said.
Cropp thinks an $18 Class III price might be a little optimistic unless milk production slows. USDA is forecasting an average Class III price of $16.90 for the year, he said.
USDA revised January milk production to a year-over-year increase of 2.4%. February’s milk production was up 2%, and there have been some major herd expansions in some states, Cropp said.
“There’s a lot of milk coming on here, which puts some downward pressure on prices,” he said.
A 2% increase year over year is a lot of milk, and exports would have to be really strong to clear products. Foodservice demand is picking up in the U.S., but the level of government purchases won’t be as high as last year, he said.
Domestic demand isn’t going to take care of the increase in dairy products. On the positive side, U.S. export prices are really competitive, he said.
Stephenson said he’s a little concerned that stocks of dairy products have been a bit high. But there are export opportunities that could move product quickly, and he thinks the U.S. will make those sales.
“And, hopefully, we don’t have too much in the way of surplus milk sloshing around,” he said.
The U.S. is still losing dairy farms, but the rate is nowhere near last year’s pace, he said.
“So that’s been a good thing. But I’m still afraid that we’ve got a whole lot of folks who are a bit on the ropes and having a hard time kind of keeping this together,” he said.
Prices for dairy products have strengthened, and Class III prices will probably increase to about $16.30 in March. Dry whey has come up 61 cents a pound from 30 cents last fall, he said.
“That increase will add about $1.60 to that Class III price,” he said.
It always takes a while, but high grain prices always pull up milk prices, Stephenson said.
“The likelihood is that we aren’t going to be in $16s range for any long periods of time,” he said.
Given these feed prices, that would bring a really poor margin, he said.