Several Factors Supporting Stronger Prices

Vol. 145, No. 45 • Friday, April 23, 2021

Despite relatively strong milk production growth, dairy product prices continued to show strength during April. While prices on the CME moved up and down during the month, the price of cheese, dry whey, butter and nonfat all strengthened. The 40-pound Cheddar block price was as low as $1.74 per pound, strengthened to $1.80 and currently is $1.7950. Cheddar barrels were as low as $1.5125 per pound but have strengthened currently to $1.8050. Barrels have been well below the block price but now have surpassed blocks.

Dry whey ranged from $0.63 per pound to $0.7025 and currently is $0.6825. Butter ranged from $1.8150 per pound to $1.950 and currently is $1.7925. Nonfat dry milk ranged from $1.18 per pound to currently at $1.24. The result of these stronger dairy product prices the April Class III price will be near $17.70 compared to $16.15 for March and the April Class IV price near $15.50 compared to $14.18 for March.

These stronger prices are the result of several factors. Food service which normally accounts for about 50 percent of cheese and butter sales has improved as more restaurants have more fully opened and some schools have returned to partially or full in-classroom instruction. Dairy products have been purchased under the Farmers to Families Food Box Program which was to end on April 30th but has been extended to the end of May. And there have been dairy product purchases for the Supplemental Nutrition Assistance Program (SNAP).

Dairy exports continue to increase as dairy product prices are competitive on the world market. Adjusting for leap year last year, the volume of February exports on a milk solids equivalent basis were 17.2 percent higher than a year ago. Cheese exports were up 1.1 percent, whey product exports up 33.9 percent as exports to China was up 159 percent, butterfat exports up 120.4 percent and nonfat dry milk/skim milk powder exports were up 36.1 percent.

USDA estimates production for the month was 1.8 percent higher than a year ago. Milk cow numbers continue to increase with 8,000 more than February resulting in 77,000 more cows than a year ago for an increase of 0.8. The increase in milk per cow slowed some with an increase of 1.0 percent.

There were major milk cow expansions from a year ago in Texas with 27,000, South Dakota 18,000, Michigan 14,000, Minnesota 17,000, and Indiana 17,000. This resulted in increases in milk production from a year ago of 3.9 percent for Texas, 13.4 percent for South Dakota, 3.5 percent for Michigan, 7.6 percent for Minnesota, and 10.0 percent for Indiana.

Wisconsin also added 7,000 cows and had an increase in milk production of 3.7 percent. California had 2,000 fewer cows but more milk per cow resulted in 1.5 percent more milk production. Milk production was up just 0.8 percent in Idaho and 0.5 percent in New York. For March Texas surpassed New York as the fourth leading milk production state. Milk production was considerably lower in Florida down 7.3 percent with fewer cows and lower milk per cow, Arizona down 3.1 percent also from fewer cows and lower milk per cow and New Mexico down 1.1 percent with lower milk per cow.

The level of milk production for the remainder of the year is very crucial to how milk prices will fare. USDA is forecasting a relatively strong increase in milk production for the year being up 2.3 percent higher than last year leap year adjusted. Milk cow numbers are forecasted to average 72,000 head higher or 0.8 percent and milk per cow 1.5 percent higher.

This amount of milk will be difficult to move through the domestic market and exports and maintain relatively favorable milk prices. But milk production could well slow by the second half of the year as higher feed costs could encourage heavier culling of cows and ration adjustments that reduces the increase in milk per cow.

Continued improvement in the economy, further opening of restaurants, return of fans to sports events, conferences and in-person classroom instruction all for the second half of the year would support milk prices. With some improvement in the world economy, modest increase in milk production around 1 percent for major dairy exporters like Western Europe, New Zealand and Australia, and US dairy product prices competitive on the world market should all be favorable for dairy exports this year. But unless milk production ends up less than what USDA is currently forecasting there will a lot of pressure on milk prices.

Class III futures have been somewhat volatile during the month with Class III at times in the $17’s and in the $19’s. Class IV futures have shown continued strengthening.
Currently Class III futures are rather optimistic being in the $19’s May through September and the higher $18’s October through December. If these prices are realized for Class III, the average for the year would be close to the $18.16 average last year.

One needs to recognize how important dry whey prices are. Strong exports have strengthened dry whey prices from $0.39 per pound a year ago to currently $0.6825. This strength adds about $1.80 to the Class III price.

Class IV futures are in the $16’s May through July and the $17’s August through December. USDA’s latest forecast is not this optimistic. USDA forecasts Class III to average 17.10 for the year compared to $18.16 last year. The Class IV price to average $15.15 compared to $13.49 last year.

So, uncertainty as to where milk prices will end the year continues. Unless milk production ends up lower than what USDA is currently forecasting, in my opinion $19 Class III futures are too optimistic. I could see Class III in the $17’s. I hope I am wrong, but time will tell. We will need to keep watching how things develop month to month. BC

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


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