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Dairy Outlook: Prices expected to trend higher starting in June.

Fran O'Leary, Wisconsin Agriculturist Editor

May 1, 2017

4 Min Read
DEMAND TO INCREASE: Sales of butter and cheese have softened some from a year ago, but are expected to show growth for the year.margouillatphotos/iStock/Thinkstock

Milk prices have been trending downward since December, and that will likely continue through early June, says Bob Cropp, University of Wisconsin Extension dairy economist. The Class III price was $17.40 per cwt last December and fell to $15.15 in April. May is near $15. Prices should start to trend upward again in June.

"This pricing pattern is not unusual," Cropp explains. "After strong seasonal sales of butter and cheese during Thanksgiving through Christmas, sales soften, and at the same time milk production starts to increase seasonally. Then as we move into summer, milk production slows. By September schools open, increasing beverage milk sales, and by fall milk plants and buyers of cheese and butter start building stocks to meet the strong seasonal sales."

Weaker demand
Cheese prices have fallen since December. On the Chicago Mercantile Exchange, cheddar barrels averaged $1.6132 per pound and are now $1.3825, and 40-pound blocks averaged $1.7335 and are now $1.475. Nonfat dry milk averaged $1.0019 per pound and is now $0.8475. However, dry whey averaged $0.3844 per pound in December and has increased to $0.495, giving some strength to the Class III price. Butter prices are still strong. Butter was $2.17 per pound in December and $2.13 per pound on April 26.

Sales of butter and cheese have softened some from a year ago, but are expected to show growth for the year. For the nine months from last June through February dairy exports have improved over a year earlier. February exports were the highest since May of 2015. Milk production has been lower than a year ago in major dairy exporters with the exception of the U.S. World demand has picked up, with China, Mexico and others increasing their imports. With a tighter world supply-demand situation, world dairy product prices have increased, making U.S. dairy products more competitive, Cropp notes. Compared to February a year ago, exports increased 26% for nonfat dry milk/skim milk powder, 8% for cheese and 22% for total whey products, but were 55% lower for butterfat and 5% lower for lactose. On a total solids basis, February exports were equivalent to 14.8% of milk production compared to 13.4% a year ago.

"With relatively strong milk production, stocks of dairy products have been building, putting downward pressure on prices," Cropp says. "Butter stocks grew by 27.6% January to February, with February stocks 20% higher than a year ago. Natural American cheese stocks grew by 2.9% January to February as did total cheese stocks, and February stocks were 8.1% and 6.4% higher respectively than a year ago."

Milk production continues to run well above a year ago, but the increase is slowing. USDA’s milk production report shows March milk production up 1.7% from a year ago compared to an increase of 2.6% for January. March cow numbers were 15,000 head higher than February and 0.6% higher than a year ago. The lower increase in March milk production was due to a slower increase in milk per cow.

Milk per cow, which was 1.9% higher than the previous year in January, was up just 1.1% in March.

Milk production is expected to continue to run higher than a year ago. USDA is forecasting 2017 milk production to be 2.3% higher than last year. But, with expected growth in butter and cheese sales along with continued improved dairy exports, milk prices are forecasted to increase starting with the month of June.

While reduced some from earlier in the year, milk prices are expected to average for the year higher than last year, according to Cropp.

"The Class III price could be back to about $15.35 by June, in the $16s by July with the $17s possible by September, giving an average for the year around $16.35 compared to $14.87 last year," he says.

Some price forecasters have a possible Class III of $18 by August. However, Class III futures do not reach the $16s until August and stay below $17 for the remainder of the year, giving an average for the year of about $16.10. USDA forecasts Class III to average between $16.10 and $16.60.

"No doubt as we move through the year and observe the actual level of milk production, dairy product sales and export price forecasts will be revised, and that could be higher or lower than now forecasted," Cropps says. "It doesn’t take big changes to result in changes in milk prices."

O'Leary is editor of Wisconsin Agriculturist.

About the Author(s)

Fran O'Leary

Wisconsin Agriculturist Editor

Even though Fran was born and raised on a farm in Illinois, she has spent most of her life in Wisconsin. She moved to the state when she was 18 years old and later graduated from the University of Wisconsin-Whitewater with a bachelor's degree in journalism.

Fran has 25 years of experience writing, editing and taking pictures. Before becoming editor of the Wisconsin Agriculturist in 2003, she worked at Johnson Hill Press in Fort Atkinson as a writer and editor of farm business publications and at the Janesville Gazette in Janesville as farm editor and feature writer. Later, she signed on as a public relations associate at Bader Rutter in Brookfield, and served as managing editor and farm editor at The Reporter, a daily newspaper in Fond du Lac.

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