Hay growers serving dairy markets can expect their customers to continue dealing with plenty of income uncertainty over the next few months, says University of Wisconsin dairy economist Bob Cropp.

The basic (Class III) milk price climbed over $13/cwt in May. That’s $3 higher than the year-ago price, but still significantly lower than analysts earlier this year had been predicting for mid-2010 levels. “In January, most people thought we’d be looking at a base price of $15 by this point,” says Cropp. “But it just hasn’t happened. There’s still a lot of financial stress out there among producers. They’re not building equity at these price levels.”

An unanticipated bump in total U.S. milk production through the first five months of the year, due to an increase in cow numbers and average milk per cow, goes a long way in explaining the slow pace of the price recovery. The milk production flood led cheese makers to build their stocks to the highest levels since 1986. “As long as there’s the potential for milk production to keep rolling, cheese buyers aren’t going to be aggressively building their inventories,” says Cropp.

Even so, most analysts look for milk prices to average higher in the second half of the year, reaching $15/cwt by October and possibly $16/cwt by December. Depending on what happens with milk production, domestic dairy product sales and export demand, Cropp says prices could go even higher. “It really doesn’t take much to move the price one way or the other,” he says. “A long stretch of hot weather in the Midwest this summer could come along and slow down production, or we could see improvement in the economy that would lead to better domestic sales for dairy products. Of course, it could always go in the other direction, too.”