There has been a lot of improvement lately in the milk price outlook for the rest of 2018, which is cause for a sigh of relief. And the futures market expecting the last eight months to be much better than the first four is cause for another.

But let’s not call the rest of the year “good.”

While the price outlook for 2018 has clearly turned the corner, it is still not in a great neighborhood. The rest of the year should be better, but farm profitability seems dubious.

Actual Class III prices in 2018 averaged a dismal $14.02 per hundredweight in January through April, while futures trading last Friday for May through December closed at an average of near $16.40:

January (actual) $14.00

February (actual) $13.40

March (actual) $14.22

April (actual) $14.47

May (May 11 futures) $15.23

June (May 11 futures) $15.86

July (May 11 futures) $16.06

August (May 11 futures) $16.38

September (May 11 futures) $16.65

October (May 11 futures) $16.63

November (May 11 futures) $16.50

December (May 11 futures) $16.40

A nice rebound in export sales are one reason why and the higher future prices are a much-needed improvement, but the problem is $16.40 figures to still be a losing proposition for most dairies.

Rising commodity prices – corn and soybeans both recently hit two-year highs and oil hit a three-year high – are not helping. And the U.S. average milk-over-feed margin in March was only $6.85, the lowest in nearly two years and far back of the $9.71 average during 2017.

Based upon what I’m hearing here in the West and seeing in newspaper articles about the Midwest and East, the prospect of $16 milk hasn’t been enough to prevent some dairies from throwing in the towel – voluntarily or otherwise. More of them will not be a surprise.

The first four months of this year are not the cause, but more of a tipping point after the previous 36 months. For many farms, equity that had been rebuilt in 2014 was entirely gone last year.

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(c) Hoard's Dairyman Intel 2018
May 14, 2018
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