by Amanda Smith, Associate Editor
"Last year was a great year for dairymen," noted Mark Stephenson, University of Wisconsin-Madison, at the Midwest Forage Association's annual meeting. "Producers saw all-time high milk prices, persistent income over feed cost margins and all-time high consumer prices for dairy at retail. We also rode the wave of exports," he added.
We've now begun to see a tail off in U.S. All-Milk price, but Stephenson doesn't believe another 2009 is in the cards for us. "Strong profits encourage output. Farmers took that signal and stopped culling cows as heavily. More than 250,000 cows didn't go to slaughter that we expected should have," he said.
The product prices in our Federal Order formulas would yield Class III prices between $12 and $15, or about 50 percent of peak 2014 prices. "Dairymen are coming into a much lower price year in great shape. It likely won't feel bad enough that we suddenly slam on the production brakes and correct the market," he noted.
Stephenson also expects that the MPP (Margin Protection Program) margin will be worse than futures markets are currently forecasting. "I expect a significant decline in milk prices and anticipate Class III to drop by at least $7 and Class IV to decline by at least $8," he added. It won't be a horrible year by historic standards, but it will be much worse than 2014.
"Hay outlook is highly correlated with corn, soybean and milk prices. We can explain more than 90 percent of current hay prices by these variables alone," noted Stephenson. A $1 drop in milk prices typically translates to a $3 decline in hay prices. A $1 reduction in corn prices often corresponds to a $14 dip in hay prices. Based on current markets, Stephenson projects that there will be a $40 to $50 decline in alfalfa prices next year.
"Since the harvest is largely known for major grains, we can already predict that a drop in alfalfa prices is likely. The rising value of the dollar makes it harder to sell hay overseas. This, coupled with dock slowdowns in western ports, could further erode hay prices," Stephenson concluded.
(c) Hoard's Dairyman Intel 2015
January 26, 2015
