The Teds talk 2023 milk prices

The Milk Check

T3 and Ted Jr. got together to talk next year’s milk pricing, and they made pretty quick work of the topic. Both have bearish outlooks to start the year. After Q1, their predictions start to diverge. How far down will milk prices go? Will they jump back up above $20 next year? When? How will the market respond to recession? The duo works through Class III and Class IV supply and demand to come up with some answers. T3 expects macroeconomics to stifle demand, and Ted Jr. puts his faith in butter to maintain its position as a staple spread. They skim the surface of an exports discussion, with China in lockdown but looming. Fifteen minutes and a friendly wager later, they settle on a confident outlook for most of next year. T3: Alright. So, Dad, you tend to be bullish, especially compared to me, but lately it seems to me that you've been a little bit more bearish than me. So since we're sitting here in the middle of November, what do you think markets are going to be like in 2023? What are your thoughts right now? Ted Jr: Well, I think it's rather scary that I'm the bearish one right now and evidently you're not. T3: I'm not saying that I'm not bearish. I'm just saying I'm not as bearish as you are. Ted Jr: First of all, let's look at the overall marketplace. We've got production now on the upside in the US. Cow numbers are up. Production’s up over 1%. We're heading into a recession. I think that's generally an accepted dogma. But the international environment is also changing. The European production is starting to mosey up a little bit. And evidently, feed is moving out of the Ukraine and feed prices are not on an upward trajectory anymore. I'm not saying that the feed prices are going to go down. I guess, the point that I'm trying to make is that the dichotomy has ratcheted up to a little bit lower level. So if we go back a couple of years, pulling numbers from the air, the lower level was probably Class III somewhere around $15. And today with the corn price doubling or more, I'm going to argue that the lower level is probably somewhere around $19 on the Class III. That translates to cheese prices around a $1.90 and it translates to for whey prices to be somewhat higher than they are now, which my suspicion is even though China's got their own ration economic problems, they're still going to need to feed pigs. And then the butter market is going to be stronger than normal, but it's certainly not going to be $3. So that also would translate to a Class IV price somewhere in the $19 range. So look at where we are. We're up limit today and evidently people are buying cheese and I don't really get the feeling that cheese is all that short. I think filling the pipelines for Christmas is more than likely still the reason it's going up. But with butter and with cheese and other dairy products, when we get to Christmas time, as far as I can see, it's over. So I'm not arguing that the bottom is going to drop out and we're going to get down into the lower teens, but I'm arguing that the market is going to settle to what I consider a lower ratchet level in the $19 range. So that's the extent of my bearishness. There's obviously other things that could happen. I mean, you have a war going on in Europe and maybe the feed price situation changes and maybe a lot of cows expire and so on. T3: And actually I would agree with you. I think we'll be right about in there too. So, Dad, here's my question for you. I've got my Class III and Class IV calculator spreadsheet out. So what do you think the butter market's going to be in the first quarter? Ted Jr: I'm going to say $2. T3: What do you think the nonfat market will be? Ted Jr: It's hard to say bucking a quarter $1.30 maybe, somewhere in the area. T3: I'll put in $1.30. So if we have $2 butter in 1.30 non-fat, you're talking a Class IV price of $17.48. Let's go ahead and round it up to $17.50. Now in this case,