Current butter, cheese and dry whey prices will result in a February Class III price near $13.85 compared to $13.72 for January and $15.46 a year ago, according to USDA.
"The big question is where milk prices are headed for the remainder of the year," says Bob Cropp, University of Wisconsin-Madison dairy economist. "
There is nothing to rally butter, cheese and dry whey prices in the near future. Prices of butter, cheese, nonfat dry milk/skim milk powder on the Global Dairy Trade have been declining in recent trades keeping U.S. prices above world market prices and not competitive for exports, Cropp says. The exception has been nonfat dry milk. Nonfat dry milk in the low $0.70’s per pound has been competitive on the world market. December nonfat dry milk/skim milk powder exports were 36% higher than the year before setting a monthly record and putting the total for the year 2% higher than one year ago.
According to Cropp, the Class III price may not reach $14 until April or May and average in the $14’s for the first half of the year. Milk prices will strengthen for the second half of the year. Opinions now differ considerably by how much.
"A lot depends on the level of milk production," Cropp explains. "While milk prices are considerably lower, lower feed costs still result in returns over feed cost to encourage milk production. In USDA’s latest supply and demand reports the forecast milk cows to average slightly lower than 2015, but milk per cow to average 1.9% higher netting 1.7% more milk than 2015. "
Domestic sales are anticipated to continue to show growth, but a lot also depends on the level of exports, he says.
"Exports are expected to improve some during the second half of the year as world stock levels decline," Cropp notes. "But, the U.S. Export Council is of the opinion that it may take most of 2016 before exports show much improvement."
USDA predicts exports for the year on a milkfat basis to actually be 5.7% lower than 2015 and on a skim-solids basis 0.8% lower. USDA forecasts the Class III price for the year will average in the range of $14.05 to $14.75 compared to the $15.80 average in 2015. Current Class III futures don’t reach $14 until May and stay in the $15’s for the remainder of the year.
"I think there is a good chance milk prices could do better than this," Cropp says. "I think the increase in milk per cow could be less than 1.9% resulting in less than a 1.7% increase in total milk production. I also think exports during the second half of the year will improve especially for nonfat dry milk/skim milk powder and whey proteins."
But, Cropp cautions that the U.S. will face stiff competition for markets from both New Zealand and the EU.
"As of now I forecast Class III prices in the $15’s by third quarter and in the 16’s for the fourth quarter and averaging for the year in the low $15’s," he says. "But, milk prices are very sensitive to rather small changes so prices could turn out quite different than how things now look."