Is There Potential for Higher Milk Prices?
August 11, 2021
The decline of actual milk prices and the decline of milk futures has not been unexpected. Strong milk output running significantly above a year ago as well as increasing inventory was expected to have an impact on prices. However, the magnitude of the decline of milk prices and Class III milk futures was not expected.
High feed prices as a result of strong demand and the lingering drought in some areas was anticipated to have an impact on overall milk production. However, that has not yet materialized. Strong exports were anticipated to have an impact, but that has not materialized. What has taken place is continued growth of milk production.
There is a dynamic across the country as far as feed supplies are concerned. Some areas have been the recipients of ongoing drought that has decimated some crops and has severely reduced the growth of other crops. Other areas of the country are the recipients of plentiful moisture that has been producing phenomenal crops and the potential for possibly record yields. The question is whether the very good areas will offset the bad areas. In the overall end result, that could be a fair assessment. However, the issue become one of logistics. Moving plentiful feed supply to areas that are deficit, costs money. This substantially increases the price of feed putting a financial strain on farms that have been struggling already. Along with the idea that those areas of the country that will have very good yields offsetting those with bad yields, we can ponder the question of the potential for reduced milk production from those areas facing the need to purchase more feed at higher prices to how much those areas with plentiful feed in close proximity will offset the losses of milk production in other areas. This is a question that is very difficult to answer and will only be answered as the growing year comes to a close and the year progresses.
Dairy exports have been very strong this year. Total dairy export for the first six months of the year are up 12.7% compared to the same period of time last year. Lest you think that this does not necessarily indicate exports are growing due to the impact of COVID-19 last year, think again. Dairy exports for the first half of this year are 30.6% above the same period in 2019. This is substantial growth and not just in overall exports, but growth in many different categories. Skim milk powder/nonfat dry milk exports for the first six months of this year were 14.9% above the same period last year and 43.2% above the same period in 2019. Dry whey exports were up 23.7% from last year and were up 41.4% over the first half of 2019. Whole milk powder increased 4.5% from 2020 and increased 40.0% over the first half of 2019. Butterfat exports showed the greatest gain for the first half of the year with an increase of 129.4% and from 2019, an increase of 95.4%. This is phenomenal growth and one that will hopefully continue. But yet even with this growth, dairy prices have not been able to show strength.
Milk output has been strong this year and there is anticipation for higher milk output again next year as estimated by the USDA on the monthly World Agricultural Supply and Demand reports. In fact, the last time milk production fell below the previous year was in 2009 and we all well remember the low milk prices that year. Much has changed in the dairy industry since 2009 which will play a role in milk production this year.
Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wisconsin. He can be reached at 877-256-3253 or through their website at www.agdairy.com.
The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is risk of loss in commodity trading may not be suitable for recipients of this publication. This material has been prepared by an employee or agent of AgDairy LLC and is in the nature of a solicitation. By accepting this communication, you acknowledge and agree that you are not, and will not rely solely on this communication for making trading decisions.