Tom Bailey

Lower milk production around the world, plus continued low feed prices here at home, are expected to boost operating margins for U.S. dairy operators in 2017, according to a leading analyst at Rabobank.

But don’t get too excited. Tom Bailey (pictured) says that, “While profitable, milk prices will remain uninspiring for milk producers for the next 6 to 12 months.”

Since the Dairy Margin Protection Program began in 2015, margins have become a bigger focus for many producers than milk prices alone. Computed each month by USDA, margins have exceeded $10 only once during the program ($10.15 per hundredweight in November 2015) and went as low as $5.75 this June.

But his near term forecast expects margins to be steady at just under $10 for the rest of 2016 and the first half of 2017, then get close to $11 for the second half of 2017.

Abundant crop harvests that should continue to keep feed prices low is just one reason. Another big factor is declining milk output around the world.

“We expect to see the largest contraction in global milk supply since 2009,” says Bailey. “Farmers around the world have been burned badly by low milk prices and are pretty uninspired to expand.”

He points out that of the seven biggest global dairy exporting nations, milk production in six of them has been falling in recent months. Only the U.S. is up. The most notable of the declines are occurring in New Zealand and the European Union.

He believes high global stockpiles of exportable dairy products — currently estimated at 6.7 million tons — will erode in 2017 and allow prices to rise, including in the U.S. Bailey is forecasting a Class III price average of $17.77 during the third quarter of 2017.

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(c) Hoard's Dairyman Intel 2016
October 31, 2016

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