Pulse Price Report: Dec. 23, 2015

Crop prices (Dec. 21)

Rio Creek Feed Mill – Algoma

Fox River Valley Ethanol – Green Bay

Basis: The difference between the local cash price for a commodity and the Chicago cash price (where the Board of Trade sets national futures price).

Gas Price Averages

United States: $1.99

United States one year ago: $2.41

Wisconsin: $1.92

Wisconsin one year ago: $2.40

Northern Door: $2.00

Sturgeon Bay: $1.98

Other Commodities

Gold: $1,078.20/troy ounce

Silver: $14.28/troy ounce

Oil: $34.39/barrel

Live Cattle: $1.30/pound

Lean Hogs: $0.57/pound

Commentary: While your gallon of milk or block of cheese at the grocery store might have gone down in price by only a dime or two from last year, dairy farmers are feeling a much harder pinch in their bank accounts.

All classes of milk, Class I (beverage milk), Class III (cheese) and Class IV (butter/powder) are down from last year, with Class I selling at nearly $6 less per 100 gallons than one year ago. This equals thousands of dollars lost for dairy farmers across the country.

Prices per hundredweight in Wisconsin ($17.76) are slightly higher than the national average ($17.37), but since the cost of production does not change, dairy farmers in Wisconsin are simply seeing their profits dwindle.

The low prices are the result of a pendulum swinging that began with a drought in New Zealand and Australia.

Following the drought, there was a low supply of grains to feed cows, meaning that feeding cows to produce milk was expensive. With production costs increasing, so did the cost of the milk being produced.

But the drought ended, grains got cheap and milk was still priced high throughout 2013. After farmers recovered in 2013, they started adding more dairy cows to their fleets because milk production was still so profitable. But the pendulum swung too far toward the supply side and, with reduced exports under a stronger U.S. dollar and increasing production, there became an oversupply of milk heading into 2015.

This oversupply drove prices down to the levels we are seeing today. It is likely that diary farmers will be ridding themselves of the now unprofitable milk cows heading into the next year and the pendulum will begin to swing the other way, bringing prices of dairy up in the second half of next year.

– Jackson Parr

Sources: aaa.com, agweb.com, gasbuddy.com, cnn.money