Milk Prices: What Next?
The Class I Base Price averaged $14.27 during 2001 and just $11.01 during 2002. Through the first ten months of this year, it has averaged $10.84. What will it average during 2004?
"Like a rollercoaster ride" is the phrase most often used to describe the milk price. The annual average price only tells part of the story. Monthly prices often swing up or down a buck or two; sometimes more. This year, we have witnessed a low of $9.64 for April and, as I write this column, a high of $14.27 in October.
This Class I price ride has been fueled by cheese prices. After languishing below a $1.15 for months on end, cheese prices finally began a sustained run higher in mid-summer. They haven't looked over their shoulder since then. In fact, the block price has been setting at $1.60 since July 31.
How long can the cheese price hold forth at this level? If most forecasters are correct, it will have dropped by the time you read this. If I'm correct, it won't have declined very much; maybe not at all. That simply translates into Class I milk prices at or near current levels through the end of this year.
My Mother told me "never carry a crystal ball when you ride a rollercoaster", but here goes. Sorry, Mom.
We've only seen a cheese price of $1.60 or more a couple of other times. Most recently, the price climbed to that level early in May of 2001. Undaunted by height, it climbed to $1.72 by early August and topped out at $1.7250 in late September. Then it left stomachs churning as it dropped like a rock.
Demand couldn't handle the rarified air. Ditto back in 1999. The price hit $1.60 in mid-July and $1.97 by mid-August; $1.12 by mid-November.
The lesson learned: A cheese price of more than $1.60 is too high.
Maybe $1.60 is too high. Most customers, especially retailers, seem to be in a hand-to-mouth mode. They don't want to be holding too much inventory when the rollercoaster takes its next plunge. But, will it? I think not.
Times have been tough down on the farm. Higher milk prices won't trigger an immediate production response. Bankers haven't jumped on board. Adding more cows isn't an option for many producers. If fact, cows will continue to exit the milking herd.
More than 2,000 producers (and/or their bankers) wanted out. They submitted bids to use the CWT program. Only 300 had their bids accepted. Beef prices just hit a record high.
Feed quality issues are sending a chill down the backs of producers in most regions of the country. Mother Nature was not very cooperative this past summer. Production per cow will be in the doldrums for the next six to ten months.
On the demand side of the equations, sales are very good. Most economic indicators suggest that sales will improve. We're headed into the holiday selling season which extends through Super Bowl Sunday.
The cheese price, and therefore the Class I price, will ease lower over the next several months. We're coming around a curve and headed down, but the next hill isn't as steep and it isn't as long as those of 1999 and 2001.
My crystal ball foresees a low of $1.40 and not until late in the second quarter of next year.