Surprisingly Higher Dairy Product Prices
Vol. 141, No. 10 • Friday, July 22, 2016
The good news is milk prices bottomed out in May and are now improving. The May Class III was $12.76 with June increasing to $13.22 and July will be near $15.35. The Class IV price was $13.09 in May with June increasing to $13.77 and July will be near $15.10. Class III futures are in the $16s for the remainder of the year. Class IV futures reach $16 in September and stay there for the remainder of the year. But, it is uncertain if prices will hold at these levels.
These higher prices are driven by surprisingly much higher dairy product prices. Higher prices have been surprising because milk production has been relatively strong, dairy stocks have been increasing and dairy exports remain weak. The latest stock report showed May 31st butter stocks 22.5 percent higher than a year ago and 32.3 percent higher than the five year average for this date.
May 31st total cheese stocks were 12.4 percent higher than a year ago and 14.7 percent higher than the five year average for this date. Nonfat dry milk stocks were 9.9 percent lower, but 7.7 percent higher than the five year average for this date. Dry whey stocks were 15.4 percent higher. Compared to May a year ago, NDM/SMP exports were 28 percent lower, cheese 19 percent lower, butterfat 57 percent lower and total whey products 12 percent lower.
But, on the positive side sales of butter and cheese have been strong. While total cheese stocks are much higher fresh cheese has been tighter with more of the stocks aged cheese. Also Cheddar cheese production has been lower than a year ago with May production 2 percent lower. There are reports that some butter and cheese buyers report having difficulty finding product outside of contract commitments.
CME butter which averaged $2.264 per pound in June has ranged from $2.25 to $2.35 per pound in July. CME cheese prices have shown even greater strength. The 40-pound blocks averaged $1.5005 per pound in June but ranged from $1.58 to $1.68 per pound in July. And barrels which averaged $1.5301 per pound in June ranged from $1.67 to $1.7750 per pound in July. Nonfat dry milk averaged $0.8476 per pound in June and has ranged from $0.835 to $0.8975 per pound in July. Dry whey which averaged $0.2411 per pound in June has been around $0.2625 per pound.
But, unless cheese or dry whey prices increase more the Class III price will barely reach $16 and not the mid to high $16s Class III futures are showing. And unless butter or nonfat dry milk prices increase more the Class IV price will reach $15 but not the $16s Class IV futures is showing.
Whether product prices increase more in the months ahead will depend on continued strong sales and lower milk production than now forecasted. It doesn’t now look like we can expect much improvement in exports to increase prices.
USDA is still forecasting milk production this year to end up 1.8 percent higher than last year. I think the increase could end up closer to 1.6 percent. Much of dairy country is currently experiencing some extreme temperatures which could reduce milk per cow, especially if these temperatures persist.
USDA’s milk production report for June milk production showed production staying relatively strong at 1.5 percent higher than a year ago. Milk cow numbers have been rather stable at 9.37 million head April and May and increased just 1,000 head in June. June milk cows were just 5,000 head higher than a year ago. Milk production is growing due to higher milk production per cow up 1.4 percent in June. Milk production peaked in May and is now seasonally declining with June’s production 852 million pound lower than May.
Regional milk production patterns remain the same as the past few months with stronger production in the Northeast and Midwest and weaker but improved production in the West. New York’s production was 4.2 percent higher than a year ago and Michigan 5.4 percent higher.
In the Midwest production was up 2.0 percent in Iowa, 2.1 percent in Minnesota, 3.8 percent in Wisconsin and 6.6 percent in South Dakota.
In the West California’s production for the past 17 months has been running more than 2 percent lower than the year before. But, June’s production was just 1.0 percent lower due to 8,000 fewer cows and 10 less pounds of milk per cow. While milk per cow was higher, 13,000 fewer cows pushed New Mexico’s production 3.5 percent lower. But, 6,000 more cows and higher production per cow increased Texas’s production 3.8 percent. Production was up 2.8 percent in Arizona and 2.3 percent in Idaho.
Dr. Bob Cropp is the Professor Emeritus at the University of Wisconsin-Madison