Improved domestic sales and dairy exports have helped to strengthen milk prices, reports Bob Cropp, University of Wisconsin-Madison Extension dairy economist. March milk prices will end up higher than February’s. Butter and cheese prices also will average higher in March, while both nonfat dry milk and dry whey prices remain low with no increase. Higher cheese prices will increase the Class III price to around $14.30, compared to $13.40 in February.

However, stocks of dairy products remain relatively high compared to a year ago, Cropp says. “Stocks of nonfat dry milk are 50% higher than they were a year ago, and dry whey stocks are up 28%,” he says. Domestic commercial disappearance of butter during January was up 6.3%. American cheese consumption rose 3.0%, and other cheese varieties were up 2.3%, while beverage milk sales were 0.6% lower. On a total solids basis, January exports were equivalent to 13.9% of milk production, compared to 13.1% a year ago.

“Milk prices for the rest of the year will continue to depend on domestic sales, dairy exports and the level of milk production,” Cropp says. “With continued improvement in the economy, domestic sales should be positive for milk prices. Dairy exports will continue to face stiff competition for markets mainly from the European Union, as their milk production continues to show strong growth.”

As far as other major exporters, milk production is up just slightly in Australia, but lower in New Zealand and Argentina, according to the USDA. On the positive side, U.S. dairy products remain very price-competitive on the world market. U.S. prices of butter, cheese, nonfat dry milk/skim milk powder and dry whey are all lower than EU or Oceania prices.

“The world economy also is improving,” Cropp says, “so the U.S. should see some growth in dairy exports during 2018.”

A key factor to how high milk prices will go is the level of milk production. Despite low prices, production is not slowing down, Cropp says. Compared to a year ago, milk production was up 1.8% for both January and February. Milk cow numbers have increased each month since last October, for a total increase of 15,000 head. February cow numbers were 45,000 head higher than a year ago, an increase of 0.5%. Slaughter dairy cow numbers are running about 3% higher than a year ago despite very unfavorable slaughter cow prices, but dairy replacements are at a level to grow the cow herd. Milk per cow is up 1.3%.

Unless milk production slows down and/or dairy exports show greater increases, it appears milk prices will continue to improve, but slowly, Cropp says.

“The Class III milk price could improve to the $15s by July and possibly top out near $16 by October,” he says. Cropp does not see the average milk price for the year ending up higher than $15, compared to $16.17 last year. “Hopefully, lower milk production and higher exports will push milk prices higher,” he says.