Exports, Milk Could Alter Price Forecasts

Vol. 141, No. 45 • Friday, April 21, 2017

Milk prices have been trending downward since last December and will likely continue through May. The Class III price was $17.40 last December, fell to $16.77 in January and was $15.81 in March. April should be around $15.15 and May at $15 or a little below $15. Prices should start to trend upward again by June.

This pricing pattern is not unusual. After strong seasonal sales of butter and cheese during Thanksgiving through Christmas sales soften, and at the same time milk production starts to increase seasonally.

Then as we move into summer milk production slows, by September schools open increasing beverage milk sales and by fall milk plants and buyers of cheese and butter start building stocks to again meet the strong seasonal sales.

Dairy product prices, with the exception for dry whey have fallen since last December.

On the CME December butter averaged $2.1763 per pound and is now $2.0675. Cheddar barrels averaged $1.6132 per pound and are now $1.3825, and 40-pound blocks averaged $1.7335 and are now $1.475. Nonfat dry milk averaged $1.0019 per pound and is now $0.8475. However, dry whey averaged $0.3844 per pound in December and has increased to $0.495 giving some strength to the Class III price.

First quarter sales of butter and cheese have softened some from a year ago, but are expected to show growth for the year. For the nine months from last June through February dairy exports have improved over a year earlier. February exports were the highest since May of 2015.

Milk production has been lower than a year ago in major dairy exporters with the exception of the US. World demand has picked up with China, Mexico and others increasing their imports. With a tighter world supply demand situation world dairy product prices have increased making US dairy products more competitive.

Compared to February a year ago, exports increased 26 percent for nonfat dry milk/skim milk powder, 8 percednt for cheese, 22 percent for total whey products, but were 55 percent lower for butterfat and 5 percent lower for lactose. On a total solids basis February exports were equivalent to 14.8 percent of milk production compared to 13.4 percent a year ago.

With relatively strong milk production stocks of dairy products have been building putting downward pressure on prices. Butter stocks grew by 27.6 percent January to February with February stocks 20 percent higher than a year ago. Natural American cheese stocks grew by 2.9 percent January to February as did total cheese stocks, and February stocks were 8.1 percent and 6.4 percent higher respectively than a year ago.

Milk production continues to run well above a year ago, but the increase is slowing.
USDA’s milk production report shows March milk production up 1.7 percent from a year ago compared to an increase of 2.6 percent for January. March cow numbers were 15,000 head higher than February and 0.6 percent higher than a year ago. The lower increase in March milk production was due to a slower increase in milk per cow. Milk per cow which was 1.9 percent higher than the previous year in January was up just 1.1 percent in March.

Milk production was up 3.6 percent in New York, 3.0 percent in Pennsylvania, 3.5 percent in Michigan, 3.7 percent in South Dakota, 1.9 percent in Iowa, 2.3 percent in Minnesota and 1.5 percent in Wisconsin.

Milk production is expected to continue to run higher than a year ago.
USDA is forecasting 2017 milk production to be 2.3 percent higher than last year. But, with expected growth in butter and cheese sales along with continued improved dairy exports milk prices are forecasted to increase starting with the month of June.

While reduced some from earlier in the year milk prices are expected to average for the year higher than last year.

The Class III price could be back to about $15.35 by June, in the $16’s by July with the $17’s possible by September giving an average for the year around $16.35 compared to $14.87 last year.

Some price forecasters have a possible Class III of $18 by August. However, Class III futures do not reach the $16’s until August and stay below $17 for the remainder of the year giving an average for the year of about $16.10. USDA forecasts Class III to average between $16.10 and $16.60.

No doubt as we move through the year and observe the actual level of milk production, dairy product sales and exports price forecasts will be revised, and that could be higher or lower than now forecasted.

It doesn’t take big changes to result in changes in milk prices. BC

Dr. Bob Cropp is the Professor Emeritus at the University of Wisconsin-Madison


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