Cropp: Milk Prices Will Go Up as a Result of Drought's Effect

By CnAgri2012-10-24 19:45:54 Print

There's no denying that this summer's drought has hit the nation's farm sector hard. But Dr. Bob Cropp with the University of Wisconsin Cooperative Extension says there is a silver lining to be found within the dairy industry. In his monthly Dairy Situation and Outlook report, the professor emeritus explained that the dry weather has caused many farms to cut their herd size and pull back on feed; which in turn lowered production and pushed prices higher.

"The severe drought across much of the U.S. continues to impact milk production and, as a result, dairy product prices and milk prices continue to strengthen," Cropp noted. "USDA revised its August milk production from being 0.4-percent lower to no change from a year ago, but September's production was estimated to be 0.5-percent lower."

He says milk cow numbers, which started to decline last May, had fallen by 76,000 head by September and were 6,000 head below a year ago. And for the remainder of this year, high feed costs and the the availability of quality forages will also lead to reduced cow numbers.

"We can expect cow numbers to continue to decline well into next year," he says. "Dairy cow slaughter this year is about seven-percent higher than a year ago, with slaughter in recent weeks being as much as 10-percent higher."

Meanwhile, domestic sales of both butter and cheese continue to show growth despite higher wholesale prices. But, fluid milk continues to decline, with August sales about a half-percent lower than a year ago and year-to-date sales down 1.6-percent.

Cropp says despite rising prices, dairy exports continue to increase over the record exports last year.

"With the help of CWT, August exports of cheese were 30-percent higher."

Looking ahead into 2013, Cropp says all of these factors are already making an impact in the markets. On the Chicago Mercantile Exchange, butter averaged $1.88 per pound in September and will average about $1.90 for October. West nonfat dry milk price averaged $1.53 in September and will average close to the same for October. Nonfat dry milk prices could stay above $1.50 through April of next year, and then gradually soften to near $1.35 by year's end.

He also projects that the Class III milk price, which was $19.00 per hundred weight in September, and will reach $21.00 for October and perhaps November, before declining slightly in December.

"But, a Class III price at $19.00/cwt. or higher for the first quarter of next year and staying above $18.00 for the remainder of the year now appears quite possible."