Dairy Commodity and Milk Price Outlook for April – June 2015

Dr. Cameron S. Thraen, Associate Professor and OSUE State Dairy Markets and Policy Specialist, Department of Agricultural, Environmental and Development Economics, The Ohio State University

It will come as no surprise that dairy commodity prices have made a significant retreat from the historic highs reached in 2014.  Those commodity prices used to determine the farm gate price for milk to U.S. producers have declined as follows: nonfat and skim milk powder price, after peaking in early 2014 at $2.10/lb has retreated to the $1.00/lb; whey price peaked mid year 2014 near $0.70/lb and is now bringing $0.50/lb; cheese price experienced a double top in 2014 at the $2.30 to 2.40/lb range and now trades at $1.55/lb; butter price, after shooting into orbit, rising from $1.40/lb mid 2013 to peak at $2.85/lb in mid 2015, now brings only a meager $1.70/lb.  With these retrenchments in dairy commodity prices,  the U.S.  All Milk price has fallen from a record $25.70/cwt to $17.60/cwt for January 2015, the latest official number.

Much has been written and discussed about these price declines.  Some critical factors are: [1] world milk production response to the high prices experienced in 2014, [2] China, as a major milk powder import player at the margin, pulling back after significant inventory buildup in late 2013 and extending through 2014, [3] a return to more normal weather patterns impacting production from Australia and New Zealand., and [4] to cap it off, the value of the U.S. dollar has been on an upward rampage, increasing over 25 basis points from its weakest point back in mid-2011.  While good news for those of us buying products imported to the U.S., this is not good news for those wishing to export products from the U.S.  All U.S. agricultural products flowing into export markets are just that much more costly to the import buyer.

Looking forward, the good news, if you choose to look at it this way, is that it appears that the dairy commodity prices we now are experiencing are at or very close to the bottom of their respective price cycles.  As we get through the next month or two, these prices will begin to rebound and move higher.  Also, the strong value of the U.S. dollar is hurting U.S. exports of grains, and this in turn, is holding down market prices for corn, soybeans , and soybean meal – two main feed stocks in the calculation of the U.S. income over feed cost margin.  With U.S. national average price for corn under $4/bu, soybean meal less than $375/ton, and hay price just under $175/ ton, the income over feed cost margin appears to be near its bottom at $7.50/cwt.  Based on futures market prices and projections into 2015, this margin will begin to increase and move back toward the $10/cwt mark by the end of 2015 (shown in the chart from the Margin Protection Program Decision Tool).

Fig 1