Milk Prices Continue To Improve Slowly

Vol. 142, No. 45 • Friday, April 27, 2018

Milk prices continue on the path of slow recovery. The prices of butter, cheese, dry whey and nonfat dry milk will average higher in April than March increasing the Class III and Class IV prices. Comparing average April prices to March, butter on the CME could average about nine cents per pound higher, 40-pound Cheddar blocks about four cents higher and dry whey about two cents higher.

Cheddar barrels, however, will be about three cents lower. These price changes will put the April Class III price near $14.50 compared to $14.22 for March and the low of $13.40 for February. The average nonfat dry milk price could be about five cents higher. The combination of higher butter and nonfat dry milk prices will increase the April Class IV price to near $13.60 compared to $13.04 for March the low of $12.87 for February.

Milk prices haven’t been helped by the fact that milk production started the year well above a year ago. Milk production was 1.7 percent higher in January and 1.6 percent higher in February. This resulted in relatively high increases in the production of dairy products. Compared to February a year ago, production increases were: butter 4.7 percent, Cheddar cheese 5.7 percent, total cheese 4.2 percent, nonfat dry milk 12.1 percent and dry whey 14.6 percent.

This production increase has kept stocks relatively high, holding down price increases. Butter, cheese and nonfat dry milk stocks have been increasing since last December while dry whey stocks declined slightly. Latest stock data is for the end of February. Compared to February a year ago butter stocks were 2.6 percent higher, American cheese stocks 2.4 percent higher, total cheese stocks 7.2 percent higher, nonfat dry milk 23.6 percent higher and dry whey 24.8 percent higher.

Last year fluid (beverage) milk sales declined 2 percent and the growth in both butter and cheese sales were relatively week. Stronger economic growth is projected for this year which is positive for sales. January through February sales of fluid milk were 1.1 percent lower than a year ago, but it is encouraging that domestic commercial disappearance increased 2.8 percent for butter, 4.3 percent for American cheese and 3.6 percent for other types of cheese.

Improved dairy exports is providing some optimism for better milk prices. Exports have been running higher than a year earlier since July of last year. Dairy exports on a volume basis reached an all-time high in February due to increased exports to China, Southeast Asia, South America, Middle East/North Africa and Japan. Compared to February a year ago increased exports were: nonfat dry milk/skim milk powder +28 percent, cheese +7 percent, butterfat +21 percent, total whey products +7 percent with dry whey +29 percent, and lactose +27 percent. On a total milk solids basis February exports were equivalent to 17.2 percent of US milk production compared to 14.8 percent last year.

With more optimism for domestic sales and dairy exports how much milk prices improve for the remainder of the year depends a lot on the level of milk production. USDA revised down increases in milk production from 1.8 percent for both January and February to 1.7 percent and 1.6 percent respectively. Positive for continued improvement in milk prices is USDA’s estimated March milk production to be up just 1.3 percent. Milk cow numbers declined by 2,000 head, the first decline since September of last year and were just 0.2 percent higher than a year ago.

The slowdown in milk production came from a relatively small increase in milk per cow of just 1.1 percent.

USDA is still forecasting milk production for the year to end up 1.6 percent higher than last year from 0.2 percent more milk cows producing 1.4 percent more milk per cow.

It now appears the Class III price could be in the $15’s by June and in the $16’s by August or September but still averaging for the year about a dollar lower than the $16.17 average last year. The Class IV price could reach the $15’s by September, but also average for the year about a one dollar lower than the $15.16 average last year. Class III and IV futures support similar prices.

But, in April USDA was forecasting prices lower than this with Class III in the range of only $14.20 to $14.70 and Class IV in the range of only 13.25 to $13.85. BC

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


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