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Dairy Outlook: The Class III price may climb into the $17s by October.

Fran O'Leary, Wisconsin Agriculturist Editor

July 31, 2017

3 Min Read
GOING UP: Increased milk production this past spring resulted in higher cheese production that lowered cheese prices.Magone/iStock/Thinkstock

According to USDA, U.S. dairy exports were valued at $501.6 million during May, up 36% from May 2016. This is the first time in two years that the monthly value of U.S. dairy exports rose above $500 million. They were valued at $500.4 million in May 2015.

More milk, more cheese
Increased milk production this past spring resulted in higher cheese production that lowered cheese prices. Compared to the year before, cheddar cheese production in May was 6.9% higher, and total cheese production 4% higher. Cheese sales have been running higher than a year ago, but the increase has been lower than a year ago. Cheese exports have risen, with May exports 48% higher than a year ago and year-to-date exports 22% higher. But stocks of cheese have grown, with May 31stocks of American cheese 11.8% higher than a year ago and total cheese stocks 7.3% higher.

On the CME, cheddar barrels declined 18 cents per pound from the start to the end of June and averaged $1.39 for the month. The 40-pound block price declined 21 cents per pound from the start to the end of June and averaged $1.60 for the month. The good news is both barrels and blocks have increased during July. July 20 prices were $1.41 and $1.71, respectively, for barrels and blocks. But the stock of barrels has been much longer than blocks, resulting in an unusual long period, with a price spread between blocks and barrels of 20 cents or more.

Dry whey averaged 44 cents per pound in June and weakened by some 43 cents near the end of July. Butter averaged $2.56 per pound in June and has ranged from $2.58 to $2.64 during July, with the July 24 price at $2.61, according to USDA.

Milk prices have been running higher than a year ago. For the January through June period, Class III averaged $16.17, compared to $13.48 the previous year. The Class IV price averaged $15.08, compared to $13.18 a year ago. The Class III price had fallen from $16.77 in January to $15.22 in April, but increased to $16.44 in June. The Class IV price had fallen from $16.19 in January to $14.01 in April, but increased to $15.89 in June.

With the weakness of cheese and dry whey prices at the end of June and first part of July, the Class III price for July will decline to around $15.55. But with strong butter prices more than offsetting lower nonfat dry milk prices, the July Class IV prices will increase to near $16.75.

“After July, both the Class III and Class IV price should start to increase again, driven by a slower growth in milk production and continued improvement in exports,” says Bob Cropp, University of Wisconsin Extension dairy economist.

Too hot, too wet
Extreme heat in the West has negatively impacted milk production in California. Very wet conditions in the Northeast and Midwest have made hay harvest difficult and lowered its quality.

“Lower forage quality may dampen the increase in milk per cow this fall and winter,” Cropp says. “If the increase in milk production stays below 2% and exports continue to improve, milk prices will strengthen.”

USDA estimates June milk production to be 1.6% higher than a year ago. This makes two consecutive increases of less than 2%, with May up just 1.8%. Milk cow numbers have been increasing each month since October of last year.

Compared to June a year ago, milk production declined 2.1% in California. California had 13,000 fewer cows, and milk per cow was 1.3% lower, reflecting heat stress on cows.

“If milk continues to increase less than 2% and exports continue to improve, the Class III price may reach the low $17s for October and November, with an average for the year $16.45 to $16.75, compared to $14.87 in 2016,” Cropp says. The August Class IV price could be near $16.60, in the $17s from September through November, and averaging $15.90 to $16.10 for the year, compared to $13.75 in 2016.

“But any changes in milk production or exports could push these prices either higher or lower,” Cropp adds.

 

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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