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Serving: WI
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MORE MILK: Milk production for 2017 is expected to be 1.7% higher than last year.

Dairy product, milk price forecasts soften

Dairy Outlook: Exports decline 1.1% from last year.


The USDA both raised and lowered its milk production, dairy product and milk price forecasts for 2017 and 2018. University of Wisconsin dairy economist Bob Cropp says that forecast milk prices for the remainder of the year have softened from what was expected during August and September.

“The Class III price was $16.44 in June, fell to $15.45 in July, but increased to $16.57 in August, and was expected to continue to strengthen, reaching into the low $17s by October,” Cropp says. “But now the September Class III price will weaken to around $16.25. And it will take a rally in cheese prices to strengthen the Class III price October through December.”

The Class III price is driven by the price of cheese, dry whey and butter. The price of all three products weakened during September. On the CME, barrel cheese averaged $1.60 per pound in August, but weakened since then to $1.48 on Sept. 19. The 40-pound block price, which averaged $1.68 in August, also weakened, to $1.59. The spread between blocks and barrels was about 20 cents per pound in July, but fell to just 2 cents per pound by the end of August. By Sept. 19, it was back to 10 cents. Butter averaged $2.64 per pound in August and was $2.46 in mid-September.

USDA expects 2017 milk production to reach a record 216 billion pounds, up 300 million pounds from August’s forecast and 3.6 billion pounds higher than 2016’s record output. Milk production for 2017 is expected to be 1.7% higher than last year.

For 2018, the milk production forecast is reduced from August due to slower growth in cow inventories. USDA now expects 2018 milk production to total 220 billion pounds, down 200 million pounds from the August forecast.

Butter, nonfat dry milk and dry whey prices are predicted to be lower for 2017, while cheese prices are predicted to rise. USDA predicts cheese prices will increase from $1.62 to $1.63 per pound, while butter is expected to increase from $2.35 to $2.39 per pound. Dry whey is forecast to increase from 44.5 cents per pound to 46.5 cents per poun,d while nonfat dry milk is expected to increase from 88 cents per pound to 90 cents per pound.

The 2017 Class III price is expected to average $16.25 per cwt. Higher forecast cheese prices offset lower dry whey prices. The Class III milk price for 2018 is expected to average between $16 and $17 per cwt, according to USDA.

Exports weaken
Dairy exports have added strength to milk prices, Cropp says. “But after 12 straight months of year-over-year growth, dairy export volume declined in July.”

Exports of nonfat dry milk and skim milk powder declined 13%, the first decline since June 2016. “Nonfat dry milk and skim milk powder exports are facing competition from the European Union. However, exports of butterfat were 66% higher, and cheese was 14% higher.

“On a total solids basis, exports were equivalent to 13.4% of U.S. milk production, compared to 14.5% last year and the lowest since January,” Cropp notes.

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