November milk futures contracts have been gyrating since mid-September. Class III contracts, for instance, plummeted from $19.07 per hundredweight to $16.18 by early October. Then they spiked to $17.87 in a week with daily swings of as much as 20 cents.
So what happens to milk prices now? Here's what Jim Dunn, Penn State University ag economist, expects, according to his October Dairy Outlook:
The Class III futures price should average close to $17.36 for the remainder of 2011.
Class IV price should average $17.98 for the rest of the year.
Together, these values imply a Pennsylvania all-milk price for the rest of 2011 of $20.67 – $3 less than in September. For the entire year, the forecast average is $21.78 – 3.50 above the 2010 average price. In total, milk prices are expected to be considerably lower for the rest of this year, but still better than the same months in 2010.
Look for a Pennsylvania all-milk price of $19.63 per hundredweight for the first seven months of 2012. That's 42 cents under September and $2.03 less than the 2011 average for the same months.
A little good news
If feed costs remain high, margins will be squeezed in 2012. Most Pennsylvania farmers won't produce all the 2011 feed they need for next year, says Dunn. They'll have to buy at high prices to replace what they lost.
The good news – for dairy farmers, anyway – is that corn, soybean and soybean meal futures have taken hits in recent weeks. One reason is that USDA added 208 million bushels to the carry-in for the 2011-12 crop year. That's substantial, given how small carry-in was before. So it's unlikely that nearby corn prices will run lower than they are now.
For Dunn's full report, click on dairyoutlook.aers.psu.edu/reports/DairyOutlookoct11.pdf.