Bob Cropp says milk prices will rise
Jean Caspers-Simmet
Date Modified: 12/01/2009 11:26 AM
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Agri News staff writer
DUBUQUE, Iowa -- Bob Cropp's sobering forecast at last year's Tri-State Agricultural Lenders' Conference, called for milk prices to drop $3 to $4 per hundredweight.
Speaking at this year's event, Cropp, professor emeritus at the University of Wisconsin, Madison, admits 2009 prices were worse than he predicted.
"Nobody anticipated the downturn we saw in 2009," Cropp said earlier this month. "In my 43 years working in the dairy industry, this is the greatest financial stress I've seen."
Cropp said he can say "with 100 percent certainty" that milk prices will slowly improve in 2010.
Cropp projects a 2009 Class III milk price of $11.37 per hundredweight and an All Milk price of $12.70 and a Class III price of $15.99 and an All Milk price of $17 for 2010. His prices are higher than USDA's forecast.
Cropp said actual dairy product and milk prices could turn out higher or lower because prices change with relatively small changes in milk production and sales.
"Critical factors will be milk per cow, number of cows, domestic sales and exports," Cropp said. "It seems each year we have surprises. In 2007 and 2008, we had higher than expected prices, and in 2009 thus far lower than expected prices."
Managing price risk will be essential, Cropp said.
In September 2008 there was an opportunity for dairy producers to lock in prices of $16 to $17 per hundredweight, but few farmers took advantage of it.
Farmers need to be cautious with risk management, Cropp said. In May 2006 Class III prices were $10.83 and averaged $11.89 for the year. By June 2007 Class III price was $21.17 and averaged a record $18.04 for the year. Some dairy farmers early in 2007 locked in Class III prices in the $14 to $15 range.
"Use of options or floor price contracts would have been a better option, of course those who did nothing faired the best," Cropp said. "As a result many dairy farmers did not take advantage as late as September 2008 of relatively high Class III prices, and suffered the full impact of drastically low prices."
Cropp said 2010 could be similar to 2007. The odds are higher that Class III prices will be better than current Class III futures than lower.
"Options and floor price contracts appear to be the best strategy," Cropp said.
The federal government took some short-term steps to help dairy producers weather low prices. USDA activated the Dairy Export Incentive Program and increased the support price from August to October. Congress approved $350 million in dairy farmer support in the ag appropriations bill with $60 million going to purchase dairy products and $290 million in direct payments.
Ag secretary Tom Vilsack appointed a dairy advisory committee to look at dairy policy. The National Milk Producers Federation has a committee looking at improving the support price, changing the MILC and CWT programs, considering revenue insurance options and a competitive pay price in federal milk orders. There are also supply management proposals being considered by some groups.