Dairy Exports Will Be Lower in ‘15

Volume 139, No.22, Friday, November 21, 2014

Milk prices continue to show weakness from their peak back in September. Factors that are pushing milk prices lower include the increase in US milk production, holiday orders by buyers of cheese and butter are about complete, and a decline in US dairy exports.

USDA’s estimate of US milk production shows October production up 3.8 percent from a year ago, the result of 0.8 percent more milk cows and 2.9 percent more milk per cow. The September milk production increase was revised upward to 4.2 percent.

While milk production was flat at this time last year, this is a relatively high increase. Of the 23 reporting states 13 had added milk cows from year ago. Milk cow numbers have increased by 78,000 head since the end of last year. No state had less milk per cow than a year ago.

Retail sales of butter and cheese are always at seasonal highs during the holidays. Retail buyers need to build inventory for these peak sales by early November. Thus, buyer purchases are now lower resulting in lower wholesale butter and cheese prices.

World milk production continues well above a year ago for major exporters of dairy products, in particular New Zealand, Australia and the EU-28 countries. China has backed off from its very aggressive buying of dairy products on the world market earlier in the year (China was the second largest customer for the US) as they have accumulated stocks of dairy products. The Russia/Ukraine issue where Russia has banned imports from the EU-28 has disrupted EU exports.

The result of these factors has been a drop in world dairy product prices by about 50 percent from earlier in the year putting prices well below US dairy product prices. US dairy exports were setting new record highs the first half of the year and are now experiencing declines.

These lower dairy product prices will put the November Class III price near $21.75. The Class III price may be near $18.55 for December. For the year the Class III price will average near $23.40, about $5.40 higher than the $17.99 average in 2013. The November Class IV price will be near $18.05 compared to its peak of $23.89 back in August, and may be as low as $16.90 for December. The Class IV price will average about $22.10 for the year, about $3.50 higher than the $19.05 average in 2013.

The November US All Milk price will be near $23.10 compared to the peak of $25.70 back in September, and may be near $19.95 for December. The US All Milk price will average near $24 for the year, about $4 higher than the $20.05 average for 2013.

Milk prices will show further weakness, but opinions of the extent of weakness vary considerably. The record milk prices experienced in 2014 will encourage more milk production going into 2015. USDA is projecting milk production will increase 3 percent in 2015 as cows are added and with lower feed costs dairy producers feed for more milk per cow.

Dairy producers appear to be expanding cows rather slowly as replacement numbers are rather tight and of high value, and cow slaughter prices remain high. Dairy producers recognizing milk prices will be lower may be more cautious as well in expanding. So the 3 percent increase in milk production could be a little on the high side.

There is a much uncertainty as to the level of dairy exports for 2015. Milk prices are at a five-year low in New Zealand and have declined in the EU-18 countries. This may slow the increase in milk production in these major exporters.

China could come back stronger in world product purchases by the second half of the year. World dairy product prices could be at their low point and will likely show some strength as we move through the year. But, it appears that US dairy exports will be lower in 2015 than 2014.

The Class III price could be below $18 by January and in the low $17’s February through June. While earlier it looked like the Class III price could stay above $17 for all of 2015, a Class III price in the mid to high $16’s May through June could well happen before showing some strength for the last half of the year.

Some are predicting a Class III price below $16 this summer which is possible if the increase in milk production runs a good 3 percent and exports are weaker. With much lower butter and nonfat dry milk prices the Class IV price could be near $16 by January and below $16 through June with some strengthening thereafter.
While milk prices will average considerably lower, milk prices are very sensitive to small changes in milk production, milk sales and exports making final prices for 2015 in a range of possibilities.

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


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