Milk prices ended 2016 on a stronger note. The November Class III price was $16.76, and December Class III was $17.30, according to Bob Cropp, University of Wisconsin-Madison Extension dairy economist.

“However, with much lower Class III prices during the first six months, which averaged just $13.48, the average for the year will be about $14.85, compared to $15.80 for 2015 and $22.34 for 2014,” Cropp says. “While fluid milk sales continue to decline 0.8% lower than a year ago, butter and cheese sales were strong. Domestic commercial disappearance January through October for butter was 5.6% higher than a year ago, and cheese was 3.7% higher.”

Relatively strong milk production and lower dairy exports were responsible for the lower average Class III price, he adds.

U.S. milk production for November was 2.4% higher than a year ago. This makes two consecutive months of relatively strong milk production since the October increase was revised to 2.5%.

“The main reason for the increase in milk production is strong increases in milk per cow,” Cropp says. “November milk cows were just 0.2% higher than a year ago, but milk per cow was 2.2% higher. December milk production is up similar to November, resulting in about 212.4 billion pounds of milk for the year, an increase of 1.8% over 2015.” 

According to USDA, of the 23 reporting states, 11 had fewer milk cows in November than a year ago, but just four states had lower milk production: Florida, down 3.7%; Oregon, down 1%; Virginia, down 2.2%; and Washington, down 0.2%.

After declining from a year ago for 22 consecutive months, California’s production has run higher for three consecutive months, with November’s production up just 0.2%. There were relatively strong increases in milk production for Idaho, 3.6%; Texas, 11.4%; Kansas, 11.6%; Michigan, 5.3%; New York, 4.4%; Pennsylvania, 2.5%; Iowa, 3.9%; South Dakota, 5%; Wisconsin, 2.2%; and Minnesota, 1.3%.

Dairy exports have been lower than a year ago, but are improving, Cropp says. “October was the fifth straight month the volume of exports was higher than a year ago. Compared to October a year ago, exports of nonfat dry milk/skim milk powder were 16% higher, cheese 5% higher, butterfat 233% higher, total whey products 34% higher, and lactose 26% higher.”

Increased demand
Improved world demand by Southeast Asia, China, South Korea and others, along with lower world milk production, has strengthened world prices — all of which helped improve exports, Cropp notes. Dairy product prices on the last Global Dairy Trade were the highest in two years. Of the major dairy exporters, in the European Union, New Zealand, Australia and Argentina, milk production is running lower than a year ago. The U.S. is the only major exporter where milk production is higher.

Cropp predicts continued improvement in milk prices through 2017. “Continued relatively strong milk production may dampen the increase, but continued strong butter and cheese sales, along with further improvement in dairy exports, will strengthen milk prices,” he says. “Improved milk prices along with lower feed costs will stimulate an increase in milk production.”

USDA is forecasting milk production for 2017 to total 216.8 billion pounds, an increase of 2.1% over 2016. Milk cows are forecast to average 0.3% higher and milk per cow 1.8% higher.

“As of now, the Class III price could be in the low $16s first quarter, the mid-$16s second quarter, and in the high $16s the start of the third quarter, reaching the $17s by the end of the quarter through the fourth quarter,” Cropp says. “This would put the average for the year around $16.85, about $2 higher than 2016.”

USDA forecasts slightly lower prices, with a range of $15.85 to $16.65. Current Class III futures are much more optimistic, with Class III in the $17s all year and averaging $17.50 for the year.

“No doubt forecasts will change as we get a better idea of actual milk production and dairy exports as we move through the year. It doesn’t take major changes to result in quite different milk prices,” Cropp says.