Milk prices expected to rise after recent oversupply

Experts say milk prices will go up after an over-supplied market led to milk dumping in the Midwest just a few weeks ago.

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Just like the current temperatures across much of the country, milk prices are also trending upward. This follows weeks of oversupply, which led to milk dumping and too many dairy cattle in the system.

Bryan Doherty, a senior market analyst with Stewart Peterson, says milk prices usually follow those summer temperatures.

“In part, because of the warm weather — certainly that has some impact,” Doherty said. “We’re going to look at our most warm stretch of the season with high humidity. And then, when you get down in the Southwest, they’ve just been cooking there for a long time. Anytime you see in a fundamental news place where you start to see headline news, usually, that’s a sign that things are finally bubbling to the surface.”

Earlier this summer, dairy producers in the Midwest were forced to dump their milk as processing plants were at full capacity. The oversupply had driven milk prices down, and farmers were looking for alternative markets.

“And so, what happens is when the market turns—the market will often find that the sellers have got their trigger points above where the market is to get out of their sold positions or shorts,” Doherty said. “You’ve got speculators already jumping on the long side, and now, when a market moves in one direction, you get some additional what I call ‘unintended purchases’. So, you get all kinds of volatility in the marketplace, but we’ve seen over the last several months, the producer has been pinched so hard that they’re making moves to become more efficient. And then lastly, you’ve got a strong cattle pricing complex, beef complex, good to move cows in that environment.”

But he does have some advice for producers.

“What worries me just a little bit is that the downtrend extended itself for a long period of time and all of a sudden we get this quick flip and we get maybe some cheese demand, we get some weather,” he said. “But those things: demand and weather, can change. It’s not necessarily a long-term vision of less supply. So, what we need to see is really probably the herd contract. I’m always a fan of when we have an ample supply situation, making sure we’re rewarding the market on those supplies because this can disappear quickly. Start hedging in or start selling into this, but do it lightly let the trend try and be your friend right now.”

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