Dairy Commodity and Milk Price Outlook

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

Items addressed in this article include:

  • Heads-up on Margin Protection Program (MPP) Payments for 2015
  • MPP Margin Forecast for 2015-2016
  • Market Outlook for 2015-2016
  • Personal Note

Heads-up on Margin Protection Program (MPP) Payments for 2015

Two key U.S. dairy commodity prices are showing signs of new life; cheese ($1.70+/lb) and butter ($1.95+/lb) are up from recent seasonal lows.  Grade A nonfat dry milk continues to be weak (under $0.90/lb).  The export market remains tepid at best. The U.S. dollar, while retreating somewhat, remains historically high.  Prices in the key grain and feed markets are at four year lows.  Corn remains below $4/bu, soybean meal under $350/ton, and alfalfa hay under $185/ton.  With this constellation of prices, it appears very likely that the USDA/FSA MPP program payments for May-June will be zero or only a few pennies. 

Using the current (6/02/2015) futures market price data on milk and feed input prices, the USDA Farm Services Agency Decision tool for MPP (http://dairymarkets.org/MPP/Tool/)  shows an anticipated May-June margin of $8.30/cwt.  Anticipated margins for the remaining three calculation periods are: July-August ($9.49/cwt), September-October ($10.41/cwt) and November-December ($10.45/cwt).  This puts the national income over feed cost margin solidly in the upper 1/3 of margins over the 2005 to 2015 period.

MPP Margin Forecast for 2015-2016

Looking out into 2016, the USDA/FSA tool shows anticipated margins staying right at $10/cwt for the first half of 2016 and then increasing slightly.  Looking back at the accuracy for this decision tool, I would conclude that given the domestic and international market conditions playing out, this forecast is likely to be a bit optimistic, but only by a small amount.  With this in mind, I would put the chances of the MPP margin falling below $9.25/cwt over the coming 10 months as slim at best.  Keep in mind that the long term average for the MPP margin is just over the $8/cwt mark.

Market Price Outlook for 2015-2016

The current Chicago Mercantile Exchange (CME) futures prices for both Class 3 and Class 4 milk show an anticipated increase in price into the last half of 2015.  The Class 3 futures price for the coming six months averages $17.50/cwt and for the following four months into 2016 at $16.80/cwt.  The Class 4 price is expected to increase strongly from the current contract lows, increasing steadily to the $16 to $17.00/cwt range over the coming 12 months.  These prices will help improve the U.S. All Milk Price outlook.  Currently, the U.S. All Milk Price is below the marks set for 2012 to 2014.  With increased strength in the Class 3 and Class 4 prices, the U.S.  All Milk Price should rebound as we move into the last half of 2015.

Price weakness continues in the international markets as the general macroeconomic woes of the Euro and the possibility of a Greece default in the European Union are being revisited.  This is causing the outlook for continued growth in the U.S. dairy export market to remain weak.  In spite of these events, the export volumes for milk powders, whey, cheese, and lactose have posted positive gains in the first quarter of 2015.  Butter and oil exports from the U.S. remain flat.  Let us hope that the European Central Bank can find a way out of their dilemma yet one more time.

For up-to-date market and policy information on the Ohio dairy industry, as well as informative charts, research papers on many industry issues, and for useful links to other sites, please visit and bookmark the Dairy Markets and Policy website: http://dairymarkets.org/ to which I contribute.

On a Personal Note

After 35 years of service to the Ohio State University, the Department of Agricultural, Environmental, and Development Economics, The Ohio Agricultural Research & Development Center, and The Ohio State University Extension, I will be entering retirement on July 1, 2015.  To all of my many colleagues and friends in the extended Ohio dairy family, I thank you for your interest and support of my work on behalf of the Ohio dairy industry.  You have made my work a joy and pleasure, and I could not ask for more.  My wife and I will remain in Westerville, and we plan to spend even more time enjoying our grandchildren.