Class III is at an all-time high. Enjoy it, but be careful.
by Dennis Halladay, Hoard's Dairyman Western Editor
Dairy producers are living a milk price dream right now, even though scars from the nightmare five years ago are not fully healed.
It's a bust-to-boom turnaround of staggering proportions that producers have every right to enjoy. Go to your cows and thank them: $24 milk! Hug them. Savor the moment. Be grateful you are here to enjoy it.
Use the money wisely, but don't get accustomed to it. Because it can't last.
Milk producers knew that Wednesday's announcement of April's record Class III milk price of $24.31 per hundredweight was coming; futures prices had pointed to it for a few months. Even so, it is a staggering number that should not be taken for granted.
Before 2014, the highest price in Class III history had been $21.67 (August 2011), and the total number of months above $21 was three. The first time Class III broke the $20 barrier was June 2007 ($20.17).
Now in Dreamland today, the average price in 2014 so far is $23.04.
Pinch yourself . . . and be cautious. Class III futures prices for next March are below $18 and current events around the world are cause for much greater concern.
China's red-hot economy has been slowing since 2010, and it's still slowing this year. That has caused Rabobank International to predict weaker dairy demand by China and lower milk prices as a result.
Potentially more worrisome is escalating tension between Russia and Ukraine and economic sanctions that have begun by the U.S. and its allies.
Mohammad El-Erian, chief economic advisor for global investing giant Allianz Group, warned earlier this week that if Russia retaliates by cutting off oil sales to Europe as a whole, it could shatter the region's still-fragile economy and potentially trigger another global recession.
U.S. dairy producers remember vividly what happened during the last one in 2009, when Class III prices collapsed to less than $10 in May, June and July.
The author has served large Western dairy readers for the past 37 years and manages Hoard's WEST, a publication written specifically for Western herds. He is a graduate of Cal Poly-San Luis Obispo, majored in journalism and is known as a Western dairying specialist.
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