Editorial Comment Publisher/Editor



Predicting Prices Is As Easy As Predicting The Weather

Dick Groves
Cheese Reporter

May 17, 2019

These days in the highly volatile dairy business, it seems that if you really want to predict where prices will head, you might want to first consult a meteorologist. Seldom if ever has weather played a more important role in the price outlook for the dairy industry, both in the US and also globally.

That point was once again driven home by Jon Davis, chief meteorologist at Riskpulse, at last week’s ADPI/ABI annual joint conference in Chicago. Davis has been a popular speaker at the ADPI/ABI meeting for several years now, in part because his presentation tends to serve more or less as a dairy outlook presentation (although he probably didn’t mention the word “dairy” more than once or twice in his 15-minute presentation).

Davis focused not only on the US but also on the global weather situation, which is noteworthy considering how important the world market has become for the US dairy industry in recent years. And so the dairy outlook includes not only what’s happening in the US but also what’s happening in the European Union, New Zealand and Australia, among other countries, since they are the US dairy industry’s chief competitors in the global marketplace.

So in the US, it’s been, well, it’s been an interesting several months, Davis explained. This past winter (which may or may not be over) was severe across much of the West North Central region, with snowfall totals that were way above normal and temperatures that fluctuated wildly, from bitter cold to well above normal, just in short periods of time.

Meanwhile, in New Zealand, really good weather helped boost that country’s milk production late last year. Fonterra reported that its milk collection across New Zealand for the seven months to Dec. 31, 2018, was up 4 percent from a year earlier, and its December milk collection was up 5 percent from December 2017. “The mix of fine weather and rain in December saw soil moisture and pasture levels recover across most of the country,” Fonterra reported in its January Global Dairy Update. “Overall good animal health and favorable weather resulted in milk volumes ahead of last season, which was a three-year low where weather conditions and other factors had an adverse impact.”

Fast-forward a few months, and Fonterra reported that its milk collection in March was down 9 percent from March 2019. “Above-average temperatures and insufficient rainfall across many regions continued to adversely affect milk production in March,” Fonterra reported in its April Global Dairy Update.

In its most recent Dairy Quarterly report, released a few weeks ago, Rabobank noted that a “challenging milk production environment is set to continue” across the first half of 2019, and that lingering weather impacts on feed quality and quantity will continue to play out for the EU, Australia, and now New Zealand for the closing months of the 2018/19 season.

In the US, record wetness in the US is hampering fieldwork preparation and planting of summer crops, Davis noted last week. Reflecting that observation, in its weekly Crop Progress report released Monday, USDA’s National Ag Statistics Service reported that Wisconsin, Michigan and Minnesota (which rank second, sixth and eighth in milk production, respectively), had 3.0, 1.5 and 3.3 days suitable for fieldwork for the week ending May 12, which was actually an improvement from 2.6, 1.0 and 2.1 days, respectively, for the week ending May 5.

To put that in a little regional perspective, the states of California, Washington and Arizona all had 7.0 days suitable for fieldwork for the week ending May 12.

That NASS report also noted that, for the week ending May 12, Wisconsin, Michigan and Minnesota had 14, 5 and 21 percent of their corn planted, respectively, compared to the 2014-2018 averages of 46, 34 and 65 percent, respectively.

The 18 states that planted 92 percent of the 2018 corn acreage had planted 30 percent of their corn by the week ending May 12, compared to 59 percent a year earlier and 66 percent on average over the 2014-2018 period. In other words, thanks to wet, cold spring weather, planting is way behind schedule, including in some of the key milk-producing states.

“What that means for the remainder of the growing season is simply the fact that any additional stress is compounded when you have one of these bad starts” in the middle part of the country, Davis said. Over the next six months, one of the things to watch will be the wetness continuing in the US due to the lingering El Nino event.

The continuation of that wet pattern will lead to major flooding, lost acres, acreage switchover, and poor development for this year’s crops, Davis explained. In other words, the growing season will include “additional stress,” which he said will be compounded due to the bad start to the growing season in some key regions.

What all this adds up to is a very interesting growing season. Well, that’s pretty much the case every year, but based on the fact that the growing season is starting out more slowly than normal, this could be a more interesting growing season than usual.

It’s also worth remembering that, before the growing season even got underway in most of the US, milk production was down 0.4 percent in March and was up only 0.2 percent in the first quarter of this year. And milk cow numbers are down from a year earlier.

So this interesting growing season will in all likelihood translate into a very interesting year for dairy product and milk prices.


Dick Groves

Dick Groves has been publisher/editor of Cheese Reporter since 1989. He has over 35 years experience covering the dairy industry. His weekly editorial is read and referenced throughout the world.
For more information, call 608-316-3791 dgroves@cheesereporter.com

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