Are milk prices headed for a recovery this summer?
While most winter weary farmers look forward to the first signs of spring, University of Wisconsin economists Mark Stephenson and Bob Cropp are looking months ahead when milk prices may well be on an upward swing.
"The ground is wet but the skies are blue and there are signs of improvement in milk prices," said Stephenson on his Dairy Situation and Outlook for March. "We're talking fall for optimism this year, not spring."
Cropp, emeritus professor in the Department of Agricultural and Applied Economics, said a slowdown in milk production, reduced cow numbers and a falloff in heifer numbers could mean good news.
"We're down 77,000 head from a year ago and 35 of 50 states had less milk last year," Cropp said. "I think production ought to keep on growing relatively slowly."
Stephenson, director of Dairy Policy Analysis, says a tightened heifer supply could play a large role in the next three years.
"Farmers have been much more disciplined about heifer they want to raise and kind of picking the best out of the herd," he said. "Our supply of heifers is tightened to the point where we won't be able to have the explosive growth that we've had in the past if we get the kind of (milk) prices that would support it."
While Cropp feels the futures market is still too soft, he feels that prices, export and domestic demand are moving in the right direction, albeit slowly.
"I think we're going to get there by April, but we could reach $16 Class III production by May or June and high $16s by the last quarter," Cropp said.
Stephenson said there are two periods of time when farmers see a surge in sales.
"One of them happens when the market seems to perceive that it's at a bottom of a price cycle and you have opportunistic buying," he said. "The other buying that can strengthen milk prices is when stocks become a little tight and production is not really robust. And if we continue on this trajectory that we're on right now, I think you could see much stronger prices in the third and fourth quarter of this year."
While the upward trend depends on how milk production evolves, Stephenson said higher prices are a very "plausible scenario".
"I'm going to say Class III prices could hit the $17 mark," he said.
Stephenson says that June 17 is a very important date for dairy farmers.
"That's when the Dairy Margin Coverage (DMC) sign up begins," he said. "It will be retroactive at the $9.50/cwt level on Tier 1 payments. You will more than cover the cost of your premium."
"It's a pretty good payment," Cropp said. "A no-brainer really."