Milk Prices To Slowly Increase

Vol. 143, No. 36 • Friday, February 22, 2019

USDA released the December milk production. January milk production will be released on March 12th and February production on March 19th.

December milk production was just 0.5 percent higher than a year ago from 49,000 fewer milk cows and just 1.1 percent more per cow. Milk production for the last quarter was just 0.5 percent higher than a year ago. Milk production for the year was up 0.9 percent from an average of 7,000 fewer milk cows and just 1.0 percent more milk per cow. Production growth below 1 percent is bullish for milk prices.

Comparing December milk production to a year ago, production was down 1.4 percent in Arizona, up 1.7 percent in California from 11,000 fewer cows but 2.3 percent more milk per cow, up 4.9 percent in Idaho from 14,000 more cows and 2.5 percent more milk per cow, down 2.8 percent in New Mexico from 7,000 fewer cows, and up 4.8 in Texas from 27,000 more cows.

In the Northeast production was up 2.1 percent in New York from the same number of cows, down 6.0 percent in Pennsylvania from 20,000 fewer cows, and down 0.2 percent in Michigan from 6,000 fewer cows. In the Midwest production was down 0.2 percent in Iowa from less milk per cow, up 1.0 percent in Minnesota from 2.2 percent higher milk per cow more than offsetting 6,000 fewer cows, up 1.4 percent in Wisconsin from 1.8 percent higher milk per cow more than offsetting 5,000 fewer cows, and up 5.5 percent in South Dakota from 4,000 more cows and 1.9 percent higher milk per cow.

States with significant declines in milk production were: Florida 7.2 percent with 8,000 fewer cows, Virginia 12.3 percent with 8,000 fewer cows, Indiana 3.7 percent with 6,000 fewer cows and Ohio 4.1 percent with 11,000 fewer cows. The decline in cow numbers reflects the financial strain on dairy producers from four years of low milk prices.

Despite the growth in milk production of less than 1.0 percent milk prices remain depressed going into 2019. The January Class III price was $13.96 and it looks like February will be around $14.00. Cheese prices are starting to show some improvement.
The 40-pound Cheddar block price was as low as $1.375 per pound in January and has improved to $1.5950. Cheddar barrels were as low as $1.16 per pound in January and have improved to $1.4175.

But, dry whey prices have weakened. In mid-January dry whey was $0.52 per pound, but are now $0.36 which has reduced the Class III price about $0.90. With butter holding near $2.25 per pound and nonfat dry milk near $1.00 the Class IV price has increased and is higher than Class III. In January Class IV was $15.48 and will be near $15.85 in February.

Looking ahead milk prices are expected to slowly increase. Domestic demand has been showing modest growth. Fluid (beverage) milk sales continue the downward trend falling another 2.0 percent in 2018. But, higher butter and cheese sales increased total domestic demand. A similar trend is expected for 2019.

November dairy exports on a volume basis fell below a year ago, the first decline since October 2017. While nonfat dry milk exports were up 13 percent to Mexico, the largest market, exports were down 22 percent to Southeast Asia, 91 percent in the MENA region and 64 percent to China. Cheese exports were down 10 percent with declines of 7 percent to Mexico, 25 percent to China, 24 percent to South Korea and 20 percent to the MENA region. Dry whey exports were down 18 percent mainly due to a 37 percent drop in exports to China. Butterfat exports were still 24 percent higher.

On a total solids basis November exports were equivalent to 13.9 percent of US milk production compared to 16.1 percent a year ago. Unless the trade war with Mexico and China is resolved we can expect 2019 exports to be lower than 2018.

With the government shutdown the latest stock report was for November 30th. At that time cheese stocks were a record high at 7.5 percent higher than a year ago. Butter stocks were 3.5 percent lower, dry whey stocks 34.6 percent lower and nonfat dry milk stocks 9.4 percent lower.

Class III futures don’t reach $15 until May and the $16’s until August and peak at just $16.35 in November. But, if the growth in milk production is no more than 1.0 percent the Class III price could improve quicker and higher than this.

USDA is forecasting for the year that milk production could increase by 1.1 percent from an average of 20,000 fewer milk cows and 1.4 percent more milk per cow. With the financial stress on dairy producers and some forage quality issues until the new crop I could see even lower cow numbers and a lower increase in milk production. With a modest growth in cheese sales the stocks of cheese will slowly improve.

While dairy exports are expected to be lower they may still be at a level to offer support to cheese and other dairy product prices. With little growth in world milk production world milk prices should increase to help US dairy exports.

I could see Class III prices in the mid-$15’s by second quarter, the high 15’s and even reaching the $16’s in the third quarter and the mid-$16’s in the fourth quarter and averaging around $15.70 compared to $14.61 last year. The Class IV price is expected to do better. Butter prices should stay well above $2.00 per pound and continued strong nonfat dry milk exports to keep nonfat dry milk prices near $1.00 per pound. Class IV prices could stay in the higher $15’s first half of the year and in the $16’s second half.


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


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