Dairy cattle herd

Flat milk production should help prices stay relatively steady, an analyst says.

The big news for dairy farmers in 2019 was a significant increase in milk prices — a welcome change that’s expected to hold in the new year.

The increase in prices will probably bring the 2019 average milk price to $18.60 per hundredweight, Peter Vitaliano, chief economist with National Milk Producers Federation, said on Monday during an NMPF podcast.

Prices peaked in the fourth quarter, and it looks as though they will average $20.75 for November and December. But futures prices indicate they will back off a little over $1, he said.

“It would be nice if the prices would maintain themselves over $20 but … it’s better than last year and it’s much better than the last five years,” he said.

Prices should average about $1 per hundredweight higher than the 2019 average, he said.

“That means that the bleeding of the last several years will probably stop to some extent,” he said

It’ll depend on farmers’ individual financial situation, he said.

“But we’re not looking at a full recovery, particularly for smaller producers that basically suffered quite a bit in the last couple of years,” he said.

Milk prices are driven by butter, cheddar cheese, nonfat dry milk and dry whey, and butter was the only item that kept the last five years from being a complete disaster, he said.

Cheddar cheese prices were depressed for much of that time. More milk was produced in the U.S. than could be absorbed in domestic and world markets, and a lot of it went into cheese production — lowering cheese prices and milk prices, he said.

Prices for nonfat dry milk are driven by international conditions, and those prices were also depressed for much of the last five years, he said.

Farmers in the EU produced too much milk following the removal of production quotas, and the extra milk went into powder production.

The government bought a lot of it and put it in storage, and those stocks overhung the international market for years, he said.

Excess milk goes into cheese in the U.S. and powder in the EU. Looking to 2020, cheese and powder will continue to drive the price of milk, he said.

The U.S. cheese price is extremely sensitive to milk production. From the fall of 2018 through the summer of 2019, U.S. milk production stayed almost flat, he said.

“We finally got milk production under control, and prices responded,” he said.

Then, in September and October, production jumped an average of 1.3% above year-earlier levels and spooked the markets. Class III prices and the milk price outlook started tumbling, he said.

But November production was up only 0.5% year over year, and daily cash cheese prices on the Chicago Mercantile Exchange started to rebound, he said.

The milk production reports are having a huge influence on cheese prices, and they are having a huge influence on milk prices, he said.

“We’re going to be month-to-month on tenterhooks to see what farmers are producing in terms of milk,” he said.

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