The Class III price was a low $13.89 in February, improved to $17.60 in August and will be near $18.25 for September, compared to $16.09 a year ago. That’s an increase of $4.36 per cwt since February.

“Cheese and dry whey prices could still increase some as we approach the holiday season, resulting in an October Class III price near $19, with November and December staying in the $18s,” says Bob Cropp, University of Wisconsin-Madison Extension dairy economist.

Lower cheese production, tighter cheese stocks, modest growth in cheese sales and slightly higher cheese exports all contributed to higher cheese prices and improved Class III prices, Cropp notes.

“Compared to a year ago, July cheddar cheese production was 5.5% lower, with total cheese production just 0.5% higher,” he says. “Cheese prices showed continued improvement August through September.”

On the CME, cheddar barrels were $1.69 per pound at the end of July and 40-pound blocks were $1.82. Cheddar barrels improved to $1.94 per pound on Sept. 16, only to drop back to $1.78 on Sept. 18. The 40-pound block price improved to $2.37 per pound on Sept. 16, only to drop back to $2.11 on Sept. 18.

“A 40-pound block price at $2 per pound has not been seen since November of 2014,” Cropp says. “In 2014, cheese prices topped out in September, with 40-pound blocks at $2.45 per pound and barrels at $2.43, resulting in a record-high Class III price of $24.60 for September.

“Dry whey has also shown some strength since the end of July, when it was 34 cents per pound, to now 39 cents.”

Higher butter production, building stocks and lower exports have weakened butter prices. Compared to July 2018, butter production was 6% higher and July 31 stocks were 3.6% higher. On the CME, butter was $2.35 per pound at the end of July but dropped to $2.11 on Sept. 18.

“Butter prices also could still recover some as we approach the strong sales period during the holidays,” he says.

Price factors for 2019 and beyond

According to Cropp, milk prices for the remainder of this year and into next year will depend on the level of milk production, domestic sales and exports. Milk production was 0.4% and 0.2% lower than a year ago May and June, respectively, but was 0.2% higher for both July and August.

“Milk cow numbers continue to decline, with August down another 2,000 head and 0.8% lower than a year ago. Milk per cow was 1% higher than a year ago,” he says.

But milk production could be lower than this. “While milk prices are now improving, this does not offset the financial stress and loss of equity dairy farmers have experienced from low milk prices for the past four and half years,” Cropp says. “The number of milk cows may not increase. We can expect dairy farmers to continue to exit the dairy industry and not a lot of dairy herd expansions.”

Also, this year’s crop season has been a challenge, with wet and cool weather delaying planting and acres planted. Crop yields and forage quality could reduce the increase in milk per cow, he adds.

Domestic sales could weaken some if the economy slows like some predict.

“Both the consumer confidence index and the restaurant performance index have fallen,” Cropp says. “The lower volume of dairy exports this year was mostly due to lower exports to China. Lower exports of whey products and lactose accounted for much of the reduced exports to China — the result of retaliatory tariffs and the African swine fever, which drastically reduced their swine herd.”

But higher exports to Mexico, the Middle East, North Africa, South America and Southeast Asia more than offset the reduced volume of exports to China, he says.

The possible slowing of the world economy could impact exports next year, he believes.

“Mexico, European countries, South America, South Korea, China and others are experiencing slower economic growth,” he says. However, USDA is still forecasting exports to be higher next year. This is very possible since world milk production is not expected to show much growth next year, leaving opportunities for U.S. exports.

“Current dairy futures are not overly optimistic for milk prices going into next year,” Cropp says. “Class III drops below $17 by January and doesn’t reach $17 again until August, and only in the low $17s for the remainder of the year. But with a smaller increase in milk production, and a level of domestic sales and exports to support milk prices, I am of the opinion milk prices could do better than this, with 2020 milk prices averaging at least $1 or more than this year.”