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The Next Peak Milk Price

Christopher Wolf
Dept. of Agricultural, Food & Resource Economics

In
Having heard recent talk about a 3-year “price cycle” in the US dairy market, I thought it might be worth checking into further. As figure 1 demonstrates with annual average prices, there is some support for this idea.

The figure does not reveal cycles in the 1980s as the price support was interfering with milk prices. However, since the mid 1990s supply and demand, and not the price support, have largely determined price and a cycle appears to have emerged.

milkmarketgraph

The 3-year cycle seemed to hold from 1998 through 2009 with milk price peaks in 1998, 2001, 2004 and 2007. If that cycle held, then we would expect a new peak in 2010. The price will be higher in 2010 than 2009—but that is more a function of the dismal 2009 price than a cycle producing a new peak.

In fact, it looks more and more likely that 2011 will be a peak year rather than this year. However, given the propensity for milk price to make sudden turns (both up and down) in recent years, there is still time for substantial recovery in 2010 especially if there is a significant decline in milk cow numbers decline significantly in the coming months.

At the end of 2009, the price recovery looked promising with US milk cow numbers down 252,000 from the previous year.

However, after declining all of 2009, cow numbers leveled off and even grew a very small amount to start 2010 and the market reacted negatively. It appears the recovery is delayed slightly and the market has been uncertain.

On the bullish side for prices, Cooperatives Working Together reactivated the export assistance program and has the potential for more herd buyouts; and butter production and inventories are lower than 2009.

On the bearish side for milk prices: total natural cheese stocks were up 11.6% from a year earlier (with more than 983 million pounds in February) and the spring flush is likely to add to these inventories; available heifer replacements are up to 49.7 heifers per 100 milk cows; and consumption continues to reflect a sluggish US and world economy.



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