U.S. milk production is entering the spring flush, which always creates local surpluses.  Lack of markets for that extra milk in the Northeast last year led to marketing challenges, says Jim Dunn, Penn State University ag economist. That may recur this year as well, he warns.

That’s not going to help milk prices already suffering from the strong dollar and subsequent reduced access go export markets. Domestic dairy product demand is lethargic and all of our dairy exports are still affected by unfavorable currency values.

The spring 'flush' is on; more milk’s coming

The latest milk production report showed February milk production up 0.96% from a year earlier on a 30-day month basis. Milk production continues to increase slowly – only 0.4% over last year, consistent with the low milk price.

Midwestern states continue with very sizeable increases in milk production, especially Michigan. California continues to shrink.

While the currencies of the other exporters are up a bit from last month, the U.S. is still an expensive market for international buyers. As a practical matter, the western hemisphere is where we have our comparative advantage, and it is the bright spot for dairy exports.

Exports of dry milk products are the bright spot for U.S. dairy exports. As always, Mexico is a good market, but the limited Chinese imports are a continuing challenge. 

China’s economic woes continue, although there are hints of recovery. China has ended its corn inventory support program and will allow the world market to set domestic corn prices. That should increase grain purchases once inventories decrease

Milk production in the world continues to rise, with a 3% increase over last year through February. European Union milk production, which has been up since quotas ended last spring, seems to be

stabilizing. Likewise, New Zealand and Australia milk production are pretty stable.

What’s ahead for milk prices
Dunn estimates the March Pennsylvania all-milk price to be $16.60 a hundred, down $0.50 from February. April’s price should be $16.65.

The dairy futures market prices show slightly higher milk prices over the next few months, with more substantial price rises later in the year. Look for Class III prices to average $14.49 for the rest of 2016, with Class IV futures prices averaging $13.72.

The latest milk production report showed February milk production up 0.96% from a year earlier on a 30-day month basis. Milk production continues to increase slowly – only 0.4% over last year, consistent with the low milk price.

Midwestern states continue with very sizeable increases in milk production, especially Michigan. California continues to shrink.

His forecast for the 2016 average Pennsylvania all-milk price is $17.75 – $0.72 below the

2015 average. Overall, the 2016 milk price outlook will continue to be weak.

Income over feed costs
World feed inventories are high, and the South American soybean harvest is expected to be a record, so beans and corn should remain low for the foreseeable future. With that scenario, the moderate increases in milk prices shown in the futures markets for the second half of 2016 would increase IOFC.