Weather, Stocks Cause Higher Feed Prices

Vol. 144, No. 1 • Friday, June 21, 2019

The good news is milk prices continue to improve. The Class III price which was as low as $13.89 in February will improve about $2.40 in June to around $16.30. The Class IV which was as low as $15.48 in January will improve about $1.30 to around $16.80 in June.

Much lower milk production is the driver for improved milk prices. For the US compared to a year earlier, April’s milk production was up just 0.3 percent with May down 0.4 percent. Cow numbers in May were 9.333 million head, down 89,000 since January or 0.9 percent lower than a year ago. The continued exiting of dairy producers and the slaughter of cows running 5.0 percent higher than a year ago is reducing the size of the dairy herd.
Milk per cow was also well below trend being up just 0.6 percent. Of the 24 reporting states 14 had fewer cows and 11 had lower total milk production.

In May two states lead the way in increases in milk production, Texas at 5.4 and Colorado at 3.6 percent. Production for other Western states were: California and Idaho up 1.3 and 1.4 percent respectively. In the Northeast production was up 1.0 percent in New York. Production was up just 0.4 percent for South Dakota with production down 0.2 for both Iowa and Minnesota and 0.4 for Wisconsin.

Lower milk production relates to lower dairy product production. Compared to a year earlier April butter production was 4.8 percent lower, American cheese production 2.8 percent lower with total cheese production just 0.2 percent higher, NDM production 2.6 percent lower and dry whey production 13.7 percent lower.

Fluid (beverage) milk sales continue the downward trend with April sales 3.1 percent lower than a year ago and year-to-date sales 2.5 percent lower.

While lower than a year ago, dairy exports are supportive of milk prices. With lower milk production exports do not need to be as high to support milk prices. For the first four months of the year exports on a volume basis were the third highest with 2018 being the highest and 2014 the second highest.

Much lower exports to China is the factor for reduced volumes. China’s retaliatory tariffs and the African swine fever resulted in April exports being 64 percent lower than a year ago. Cheese exports have held up. While April cheese exports were 1 percent lower than a year ago, year-to-date exports are 7 percent higher. April exports were down 25 percent for NDM/SMP, 71 percent for butterfat and 31 percent for total whey products. Yet on a total solids basis exports were equivalent to 14.4 percent of milk production.

The stock level of dairy products is also improving. Compared to a year ago April 30th stocks were 5.4 percent lower for butter, just 0.3 percent higher for American cheese stocks and 4.0 percent higher for total cheese stocks. However, dry whey stocks and NDM stocks were 8.9 percent and 1.6 percent higher.

Milk prices should improve further as we progress through the rest of the year. USDA now forecasts milk production for the year to be just 0.3 percent higher than 2018, the result of cow numbers averaging 0.7 percent lower and milk per cow 1.0 percent higher.

It looks like feed prices will be higher. Alfalfa hay prices will be higher. Current hay stocks are tight and there are reports of winter kill in some areas along with a challenge of harvesting quality first cutting due to wet weather. Delayed corn planting and unplanted acres means higher corn prices. Tighter feed supplies, lower quality forages along with higher feed prices will likely continue to reduce cow numbers and dampen milk per cow this fall and winter.

Butter and cheese sales are expected to continue to show modest growth. Exports will still support to milk prices. It doesn’t look like the trade dispute with China will end soon. But, in May US eliminated tariffs on steel and aluminum from Mexico and Mexico in turn eliminated its tariffs on US cheese. This could be positive for cheese exports later this year and going into 2020.

As of now we could see the Class III price in the low $17’s by August and in the mid to high $17’s by fourth quarter. Some are predicting Class III even in the $18’s. Class IV could be in the low $17’s by July and in the mid $17’s fourth quarter. If this holds true, Class III would average about $16.30 for the year compared to $14.61 in 2018 and the Class IV price would average about $17.00 compared to $15.09 in 2018.
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BC


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

 

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