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Dairy Outlook: 2019’s milk price is expected to be modestly higher.

Fran O'Leary, Wisconsin Agriculturist Editor

December 3, 2018

4 Min Read
FEWER EXPORTS: In 2019, USDA is forecasting a 6.7% decrease in dairy exports on a milkfat basis.

The Class III milk price peaked for 2018 at $16.09 in September before it fell to $15.53 in October and $14.55 in November. Bob Cropp, University of Wisconsin-Madison Extension dairy economist, projects that the December Class III price will be about $14.70.

“It looks like farm milk prices will end the year at a low level,” he says. “The Class III will average about $14.70 for the year compared to $16.16 in 2017. This would be the lowest average Class III price for the past four years.”

The low Class III price is the result of dairy product prices moving lower than was expected for this time of the year. Cheddar barrels were $1.42 per pound at the start of October, but they have since declined, sinking to $1.29 in late November. The 40-pound cheddar block price was $1.74 per pound the beginning of October and declined to $1.41 in late November.

According to Cropp, the lower Class III price is also being driven by declining dry whey prices. Dry whey was 57 cents per pound at the beginning of October and has declined steadily since. The late-November price was 43 cents per pound. Butter averaged $2.26 per pound in October. For November, butter has been as low as $2.19 per pound and as has high as $2.33. Nonfat dry milk averaged 86 cents in October, was 90 cents in early November and 88 cents by late November.

“Hopefully, strong holiday sales of butter and cheese will push prices up some, resulting in some improvement in both the projected December Class III and Class IV prices,” he says. “Butter and cheese prices normally don’t weaken like this as we approach the holiday season.”

So why the decline in prices?

“It is somewhat puzzling. Sales of fluid [beverage] milk continue its downward trend, being 2.5% lower January through September. Butter and cheese are somewhat mixed but still are higher,” Cropp notes. “Perhaps as prices fall, buyers take a wait-and-see attitude to see how low prices may fall before increasing purchases for the upcoming holidays, knowing that stocks are more than adequate to meet their needs.”

The latest stock data is for Sept. 30. Butter stocks were 10.6% higher than a year ago — with American cheese stocks just 1.5% higher and total cheese stocks 4.5% higher. Also, while September butter production was 0.1% lower than a year ago, American cheese production was 3.9% higher, with total cheese production 3.1% higher.

Tariffs taking toll
Dairy exports explain some of the weakness in dairy product prices except for butter, Cropp says.

“While September butterfat exports were 168% higher than a year ago, cheese exports were down 9%, a 20-month low,” he says. “Exports of cheese to the United States’ largest market, Mexico, was down 10% and down 63% to China, reflecting the effect of retaliatory tariffs by these two countries.”

Dry whey exports were down 6% mainly due to a 38% decline to China, the United States’ largest market. Nonfat dry milk and skim milk powder exports remain strong, being 30% higher than a year ago due to a 40% increase to Mexico. Mexico did not place retaliatory tariffs on nonfat dry milk.

“The forecast is for higher milk prices in 2019, but not to the level dairy producers are hoping for,” Cropp says.

If current Class III futures hold, the Class III price would average about a $1.20 higher than this year at $15.85. USDA is forecasting the Class III price to average $15.15 to $16.05.

“There is a good probability that Class III prices could average higher, starting in the low $15s the start of the year, improving to the higher $15s by the end of the second quarter and then moving into the $16s, reaching the higher $16s for the last quarter,” he says. “But the level of milk production and dairy exports will be determining factors.”

USDA shows October milk production slowing, which is good news for milk prices. October milk production was just 0.8% higher than a year ago compared to a 1.3% increase for September. Milk per cow was up 1.1%, but milk cow numbers were down 43,000 head since January and 30,000 from a year ago.

Cow numbers are down, due to more dairy producers than normal exiting the industry, the result of four consecutive years of low milk prices, Cropp says.

USDA is forecasting a 1.4% increase in milk production next year, from an average of 10,000 fewer milk cows, being more than offset by 1.5% more milk per cow. The 1.5% more per cow may be on the high side, considering a projected 1.2% increase this year and the possible forage quality issues in the Northeast and Midwest this winter. 

In 2019, USDA is forecasting a 6.7% decrease in dairy exports on a milkfat basis.

“While a decrease in dairy exports is not positive for milk prices, a growth in milk production of less than 1.5% should still strengthen milk prices in 2019,” Cropp says. “Any improvement in exports and/or less milk production than now forecasted would push milk prices even higher.”

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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