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Milk prices stay strong – but for how long?

Short term demand lifts prices, yet caution is warranted.

Naomi Blohm

November 5, 2020

3 Min Read

Milk futures have climbed steadily for the past two months thanks to strong demand for dairy products. Class III November 2020 milk futures made a new contract high this week trading up to $24.09. The December 2020 contract made a recent high of $21.16. Strong cheese demand and export demand keeps milk futures well supported with no sign of a top.

Farm-to-families program

The government cheese buying program has been a major factor in the milk price rally. The Farm-to-families program was extended until year end, the main reason for strong November and December Class III milk futures. Cash cheese prices have been strong for over a month, which translates into strong Class III futures prices for nearby contracts.

Strong export demand

Dairy export demand has been fantastic. Dairy exports from January 2020-August 2020 were up 12.27% from that same time period in 2019. Total exports for the month of August were up 17% from August of 2019, and were just shy of an all-time record from August of 2018.

Can it continue? Much of that depends on the value of the U.S. Dollar. Essentially the dollar has been trading near a two year low, between 92.00 and 95.00 points for four months.  Presidential election results along with fourth quarter U.S. economic results will likely dictate dollar direction. 

Related:Volatility back in U.S. milk prices

Milk Production is HUGE

Thanks to better prices, dairy farmers are pumping out the milk. The September milk production report showed that total U.S. milk production came in at 18 billion pounds, which was up 2.3%!  If you are new to milk production reports, usually a 1% increase in production is considered a “big deal” and is traditionally bearish to the market price. A large, 2.3% increase in overall milk production is a reminder that once the cheese buying program stops, milk prices may suffer.

Some feel this notion may already be partially priced into the markets already based on how the deferred Class III milk futures have been trading at a substantial price discount with most 2021 futures contracts trading in the mid-$16.00 price level.

While there is no “technical” sign of a top for milk futures, be watching this market daily. The fundamentals are shifting.

 Reach Naomi Blohm: 800-334-9779 Twitter: @naomiblohm   and [email protected]

Disclaimer: The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation

Related:Give Milk Act introduced in House

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

About the Author(s)

Naomi Blohm

senior market adviser, Total Farm Marketing by Stewart Peterson

Naomi specializes at helping farmers understand how to manage cash marketing needs and understand the importance of managing basis, delivery point considerations, cash flow needs and storage capacity. She earned her Bachelor of Arts in Political Science with a minor in Agriculture Business at the University of Wisconsin in Platteville. She has a Master of Science in Adult Education with an emphasis in Ag Economics from the UW-Platteville and a Master Certificate in Global Education, from the UW-Oshkosh.

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