The dairy industry has seen a lot of lows in the past few years. The good news – prices are increasing. The question is, how much will they increase and will it be enough?
New Year Brings Low Prices
Historically, it is not unusual to see a decrease in milk prices at the beginning of the year. The Class III component prices for November and December closed at $14.44 and $13.78/cwt., respectively. Class III futures for January and February are $13.80 and $14.00/cwt.
Although it is typical to see a drop in prices at this time, producers can partially counteract these low prices. Typically, cows should be producing the most milk at the beginning of the year. Therefore, producers can help offset low prices with higher volume of milk. Trends tell us milk prices should begin to increase in March and April when milk production plateaus. The question is, how much will they increase?
According to USDA economists, dairy farmers could see slight improvements in their milk check and a growing milk supply in 2019. The USDA expects milk prices to improve $1/cwt. from 2018. Additionally, they expect the milk supply to be up nearly one and a half percent because of genetic and management improvements. The USDA forecast also predicts domestic demand to be fairly stable in the future.
Cull cow prices continue to trend downward as more animals head for harvest. This trend has been occurring since 2016.
Even with this slight increase in milk prices, many still expect a challenging year for dairy farmers. The small increase in prices is not enough to combat four straight years of low prices.
On the bright side, the new farm bill includes an improved insurance program. Farmers pay for the program to help when the gap between milk prices and feed prices reach a certain level. However, the program was delayed because of the government shutdown.
“The good news is that farmers have insurance. The bad news is that farmers even have to use insurance to make their milk check whole,” said Doug DiMento, a spokesman for Agri-Mark, Inc., a dairy cooperative in the Northeast.
Ideally, farmers would receive a milk check which would cover their costs without the use of insurance. Unfortunately, the slight increase in prices is not enough to make this happen. Many feel the program helps some, but is still too little, too late.
“A lot of farms have not been covering the cost of production for the last four years and this is probably going to be another year when they’re going to have a difficult time,” he said. “Most of the farms are out of working capital. And they’re having to borrow against that equity to continue milking.”
Global Dairy Prices
World dairy prices continue to move upward. Early in February, there was a 6.7 percent jump in prices on New Zealand Global Dairy Trade auction. Continuing with the trend, recently there was a 0.9 percent increase in prices.
This is the sixth consecutive twice-monthly auction that dairy prices have moved upward.
Other dairy products moved upward as well. Cheese, skim milk powder, butter and whole milk powder all saw increases. The only decrease came in the from of a 2.9 percent descent in lactose.
If trade negotiations continue and more doors are opened in the export market, the US dairy industry could see a big boost.
In a related Ag Nook article titled, “Managing Costs During Financial Stress” read how Dairy farmers address an increasing in hauling costs.
The dairy industry has seen losses for the past several years. Although a small increase in prices is expected, it is not enough to offset the damage done in previous years. However, it does give some promise things could be getting better. Furthermore, global dairy prices continue to inch upward. This could be a huge benefit if trade negotiations move in agriculture’s favor and dairy exports grow.
Image courtesy of feedstuffs.com