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  • ZISK

No One Knows Where the Milk Market Goes

Robin Schmahl

May 4, 2021

The huge question in the market is, “Where in milk price going?” Actually, that is a question that is on everyone’s mind every year. It is magnified this year for a number of reasons. We are still in a pandemic, but restrictions have been relaxed in many instances. This has allowed for more in-store dining at restaurants and more meetings to take place on a limited basis. Restaurant traffic has increased significantly over the past few months as people want to get out more and get their lives more back to normal. This has improved demand for dairy products as the food service industry pipeline that had been depleted, needed to be replenished to a level at which supply was readily available for demand. No that pipeline will need to be maintained.

Escalating grain prices is another reason the market is wound up. The old saying is that high corn prices means high milk prices. That correlation has been voiced numerous times over the past few weeks. Historically, there was a very strong correlation to that. But, just as the seasonal price swings of market prices have changed, so has the strong correlation of price correlations. Dairy farms have changed significantly over the past 10 year in the way they do business.

The answer to the question of where milk prices are going is that no one knows. I know that answer may seem as a cope out, but it is the truth. There are so many things that can influence the market and change the usual into unusual. All we need to do is look back to 2020 and that was very vivid. Will we have another pandemic on top of the current one? Probably not. Will we see $8.00 corn and $16.00 soybeans again? Possibly.

However, planting is underway and the market does not know the number of acres of corn and soybeans that will be planted as of yet and we are unsure of the weather the crops will receive. However, we can be sure that there will be heightened volatility in both the grain markets as well as dairy markets.

One aspect of the market that has not changed over the years and that is that high prices cure high prices. The reason for high prices is to slow demand. Alternatives will be sought or in some cases, products will just flat out not be purchased. One way or the other, the market will not run out of supply of grain, but it may be expensive to purchase.

In comparison to the last time corn prices were $7.00 - $8.00, which was back in 2012 and 2013, Class III milk prices ranged from $16.68 in July 2012 to $21.02 in October of that same year. Otherwise, Class III prices were generally in the $18.00 range.

The following year of 2014 is when we experienced Class III price reaching over $24.00. If a similar correlation can be made, current Class III futures are already in a similar price range. Thus, there may not be much upside price potential is corn price does not go much higher than $7.00 - $8.00.

This is not a prediction, but a comparison and one that we need to be mindful of. The main goal of the farm is to protect milk prices and not necessarily try to guess where the top of the market is going to be.



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