USDA’s milk production report showed August milk production 1.9% higher than a year ago. The increase in August was due to 16,000 more cows than a year ago, a 0.5% increase, and 1.4% more milk per cow, according to Bob Cropp, University of Wisconsin Extension dairy economist.

"Despite some really low milk prices, milk cow numbers have been increasing," Cropp says. "Since the beginning of the year, cow numbers have increased by 40,000 head. There are plenty of replacements to increase the cow numbers, and cow slaughter has been 1.4% lower thus far this year. "

California’s milk production continues to fall below year ago levels; it was down 1.7% in August, the result of 11,000 fewer cows and 1.1% less milk per cow. But Idaho’s production was up 4.9%, with 13,000 more cows and 2.6% more milk per cow. Texas led all states with milk production up 11% from 25,000 more cows and 5.3% more milk per cow. Wisconsin's milk production climbed 2.4% per cow, but cow numbers declined 2,000.

Price pressures
"Milk prices had a good run-up, but prices aren’t holding," Cropp says. "The Class III price was a low of $12.76 in May and increased to $16.91 in August. But cheese prices have fallen, which means lower milk prices again."

 On the Chicago Mercantile Exchange, 40-pound cheddar blocks were as low as $1.27 per pound in May, but increased to $1.86 in August. Cheddar barrels were also as low as $1.27 per pound in May and increased to $1.88 in August. But cheese prices fell in September. By Sept. 20, 40-pound blocks slipped back down to $1.60 per pound, the lowest since the end of June. Cheddar barrels were $1.51 per pound, the lowest since early June, according to the USDA.

"Much lower cheese prices will push the September Class III price to around $16.30, and likely in the mid to high $15s for the remainder of the year," Cropp says. "However, current Class III futures remain in the $16s for the remainder of the year. Unless cheese prices rally, some current cheese prices don’t support $16 plus Class III."

Besides really strong increases in milk production, ample cheese stocks and lower cheese exports also factor into lower cheese prices, Cropp notes.

"July 31 American cheese stocks were10.3% higher than a year ago and 13.9% higher than the five-year average for this date. July 31 total cheese stocks were 9.9% higher than a year ago and 15.2% higher than the five-year average for this date."

July cheese exports were 6% lower than a year ago and 25.6% lower than 2014 exports. January through July cheese exports were 18% lower than a year ago and 29.1% lower than 2014 exports, according to the USDA.

Ample butter stocks and lower butter exports were also factors for lower butter prices. July 31 butter stocks were 31% higher than a year ago and 44.4% higher than the five-year average for this date. July butter exports were 33% lower than a year ago and 76.5% lower than the 2014 exports. January through July butter exports were just 5% lower than a year ago, but 75.3% lower than the 2014 exports.

July 31 nonfat dry milk stocks were 7.2% lower than a year ago, but 19.4% higher than the five-year average for this date.

"Unlike cheese and butter prices, which have been well above world prices, nonfat dry milk prices have remained price competitive," he says.

July exports were strong, being 31% higher than a year ago and 2.6% higher than 2014 exports. January through July exports were even with a year ago, but 6.6% lower than 2014 exports.

Better times ahead
"Milk prices should improve as we move into 2017 with the Class III price back in the $16s and perhaps even reaching $17 by the fourth-quarter," Cropp says. "However, current Class III futures stay below $17 for all of 2017. Domestic butter and cheese sales are expected to remain good and there are signs dairy exports will improve."

O’Leary is editor of our sister publication Wisconsin Agriculturist.