Current Milk Prices May Keep Milk Output Strong AgDairy Market Update

Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wis. He provides dairy market insight.

Current Milk Prices May Keep Milk Output Strong

Milk prices have remained entrenched in a range for Class II and Class III prices. So far this year, Class II price ranged $1.70 from high to low and Class III ranging $1.26 from high to low. Class I has faired better with a range of $3.08 due to a January price of $18.58 before falling and then stabilizing since then. Class IV had been floundering for much of the year prior to the substantial gain in butter price which resulted in a strong September price. This widened the price range this year to $2.18. Even with these price ranges it has been a long time since milk prices have remained in such a narrow range for an extended period of time.

Milk prices have been substantially lower than they were last year, but this has had little impact on milk output. Current milk production is running 1.5% above last year for the first 8 months. Profitability is very limited or nearly non-existent, but yet not low enough to increase culling thereby lowering milk output. USDA estimates milk production to increase next year to 213.0 billion pound, an increase of 4.1 billion pounds above this year’s expectation.  Reasonable feed prices and sufficient supply will ensure steady milk output for the foreseeable future.

Let’s turn the focus to dry whey and the outlook for that. This year has been a real drag for dry whey price. The weekly whey price recorded for the first week of January was 59.35 cents per pound while the most recent weekly price as recorded by the Agricultural Marketing Service was 24.30 cents per pound, a 59% decline. This has had a substantial impact on the Class III price and the All-milk price. The result has been a decrease of $2.10 in the Class III price. The full impact of the decline of whey has not been realized in Class III price due to the strong butter price. If butter price would be near the current cheese price and remain that way over the course of a month, the Class III price would be near $15.00.

Whey has had a difficult time competing on the world market with the latest export figures showing August whey exports down 21.5% from last year with year-to-date exports down 18.4%. Strong cheese manufacturing has increased available whey resulting in lower prices required to move product. Yet, even at the current average price, buyers are not storming the gates in order to purchase supply or solidify contracts. Much of the purchasing has been hand-to-mouth. It is possible that whey price could follow the pattern of nonfat dry milk. Once price begins to rise, buyers may step up to the plate in anticipation of a bottom being established. This would begin the trend of higher price. USDA does not feel very optimistic over dry whey price during the rest of this year and certainly not next year. On their latest World Agricultural Supply and Demand report, they reduced the estimate this year by a penny to the average of 38 cents per pound. For 2016, they reduced their previous estimate by 6.50 cents to an average of 29.50 cents per pound. If this comes to fruition, whey will certainly remain an anchor on milk price.

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