Milk production continues to surge as cow numbers grow in all but one of the major dairy producing states. California is the only significant dairy state that saw a reduction in cow numbers and production over last year. As production and cow numbers continue on an upward path, supply issues will start to take root.
“Despite low milk prices we’re still adding cow numbers – we’re up around 40,000 head since the beginning of the year,” said University of Wisconsin economists Bob Cropp and Mark Stephenson on their monthly dairy outlook video report. “But we’re starting to back into the supply chain with product, and at some point you have to wonder where it’s all going to go.” The July cold storage report showed cheese and butter stocks at historic levels.
Cheese prices are starting to reflect the high storage levels and the large amount of milk in the pipeline. Prices have been in a steep decline since early September. “Unless we have a rally back in cheese prices we’re looking at low 15’s for the Class III price in the near future,” says Cropp.
Both economists agree that the U.S. may be the only country growing in milk production, as production in other areas of the world falls off. Demand remains relatively stagnant as well, although China has reentered into dairy markets.
Despite significant domestic supplies and fickle global markets, Cropp and Stephenson see a slightly brighter future for milk prices into 2017. “It takes a very little change in supply or demand to have a significant change in price,” Stephenson says. “While we’re saying that things could be tepid for a little awhile, it won’t take too long for a tight global supply to work off inventories and start a price rally.” Cropp sees a milk price in the 16’s in 2017 and potentially hitting $17 in the fourth quarter.