Always in search of good news. Higher Milk prices should help.
Just Passing it along.
Stephenson Bullish on Milk Prices
Submitted by Editor on Fri, 01/15/2010 - 1:15pm.
Steve Taylor
Northern Correspondent
ITHACA, N.Y. — A Cornell University dairy economist predicts a 2010 all-milk price for New York State farmers of $17.36 a hundredweight, and perhaps 80 cents more than that for Pennsylvania dairy operators this year.
Dr. Mark Stephenson, speaking on a conference call with farmers, academicians and lenders from all over the Northeast this week, said he’s “bullish” on milk prices for the coming year, based on his analysis of data on consumer behavior, economic indicators and global market trends.
“There is some reason for optimism after what producers have been through the past 18 months,” he said. “In fact, I would guess that prices might average out better than $17.36, but we certainly won’t see the $20 milk we had in 2008.”
Stephenson’s presentation was titled “2010 Dairy Outlook for Farm Business Budgeting” and sponsored by Pennsylvania’s Center for Dairy Excellence. It included a lengthy review of the ups and downs of the dairy sector over the past decade followed by his predictions for both farm milk prices and costs for feed, fuel, fertilizer and other production inputs.
Farmers can take heart in milk prices $4 or more better than last year, but they should also be ready for volatility on the input side, especially in the corn and soybean markets where 2009’s harvest weather hindered what had been expected to be a record crop of both commodities. (Prices for both of these tumbled Tuesday on a USDA report that said total harvest volume was considerably higher than expected, however.)
Stephenson cited several risk factors that may impact milk prices over the next 12 months. These questions include:
• Will milk production continue to contract enough to prevent surpluses from developing?
• Will the slow increase in domestic demand for dairy products that is now developing continue?
• Will world demand for dairy commodities strengthen?
• What will happen with feed prices?
• Is the U.S. economy going to continue its slow recovery?
“Everything right now is going in the right direction,” Stephenson told his listeners, “as sales are strengthening, milk prices are heading up and U.S. economic indicators are improving.
“The real question is whether milk prices will keep up with rising input costs, and I think the answer will be yes.”
He suggested producers might consider hedging strategies for both milk production and input needs, although he counseled a conservative approach on both sides.
A considerable portion of Stephenson’s presentation was spent breaking down the events of the past decade, one in which milk prices took a continuous roller coaster ride. Although the most recent deep trough caused extreme financial stress all over the Northeast, it hit producers in California and Idaho much harder because of their heavy reliance on purchased feed.
The western dairies have high variable costs and low fixed costs — the opposite of the Northeast — and when their milk prices plunged they landed “in a world of hurt” that triggered declines in production that ended a long stretch of steadily expanding milk output. Wisconsin, New York and Pennsylvania have fared better, Stephenson contended, noting in particular that Wisconsin’s dairy industry, after years of contraction, is rebounding.
Stephenson also attacked some of the conventional wisdom abroad in dairy circles. Imports aren’t the major cause of depressed farm milk prices, he argued, because currently exports and imports are about even. And lower farm milk prices have made it through to the consumer in the form of dairy products that are now comparably cheaper than other grocery items in the food shopper’s cart.
The presentation didn’t directly offer a price forecast for New England producers, but as the six-state region’s milk market generally tracks closely with that of adjacent New York State they can probably consider Stephenson’s prognostications helpful to them, too.
But he also offered a word of caution to all Northeastern dairy farmers: “We’re not out of the woods yet,” he said.
