Mark Stephenson"On one side of the tale, East Coast and Michigan markets were dumping milk last year because of excess production and limited plant capacity," said Mark Stephenson at the Wisconsin Agricultural Economic Outlook Conference, noting that the Midwest also expanded milk production but had plant capacity to absorb the extra milk. "On the other side, the West Coast states all reduced milk flow," said the University of Wisconsin-Madison ag economist.

"A portion of the wide-ranging milk production can be explained by feed costs. Last year, Wisconsin paid $150 per ton for alfalfa hay, $3.47 per bushel for corn and $260 per ton for soybean meal," he said. "On the other side, California paid $260 for alfalfa hay, $5 for corn and $370 for soybean meal. Those prices caused Western dairy producers to take a hard look at rations and milk cows."

That feed situation could persist for some time in the West as land for alfalfa continues to shift to higher value crops. Just last year, California posted a 77-year low for alfalfa acreage with 790,000 acres despite a dairy cow population of 1.78 million head. In response to depleted hay inventories, California producers look east for hay, which raises costs in neighboring states. Aside from alfalfa, soybean meal and corn need to be trucked in from the Midwest further raising costs.

As for the 2016 milk price forecast, Stephenson was bearish believing the current futures market still remains on the high side.

"There is a $5 to $8 per hundredweight spread between New Zealand and European milk prices compared with those here," he said. "Our relatively strong U.S. economy is helping move dairy products. However, there are more dairy products on the world market than consumer demand."

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(c) Hoard's Dairyman Intel 2016
January 25, 2016
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