By Bob Cropp, Professor Emeritus
University of Wisconsin Cooperative Extension
University of Wisconsin-Madison
Dairy product prices and milk prices continue to hold up better than expected. Dairy product prices on the CME have bounced around during June, but will average a little higher for the month. On the CME butter started the month at $2.00 per pound, declined to $1.80 per pound, rebound to $1.90 and is now $1.895. Cheese prices were holding steady up until now. The 40-pound cheddar block price started the month at $1.77 per pound, declined to $1.71 per pound and rebound to $1.78. But, since then the price has fallen $0.0925 to $1.685. Cheddar barrels started the month at $1.72 per pound, declined to $1.70 and rebound to $1.755. But, like blocks it has fallen by $0.105 to $1.68. Both nonfat dry milk and dry whey have shown some weakness during the month with nonfat dry milk now at $0.87 per pound and dry whey at $0.44 per pound. The June Class III could still end up near $16.70, the highest this year. The June Class IV price will be near $13.85.
Prices have been supported by good butter and cheese sales thus far this year along with dairy product production and stock levels favorable to prices. Butter production has been below a year ago with April down 1.7% and year-to-date down 2.8%. Nevertheless, April butter stocks increased 25% from March and were 23% higher than April 2014. Yet, with the seasonal increase in the use of cream for ice cream, and declining milk production along with depressed butterfat composition during the summer some butter makers are concern as to whether butter production and butter stocks will be adequate for fulfilling seasonal sales during thanksgiving and Christmas. Thus, butter prices could stay at relatively high levels. April production of all American cheese was 2.3% higher than a year ago with cheddar cheese production 1.8% lower. American cheese stocks increased 1% from March to April but were still 1% below April 2014. Total cheese production was 1.9% higher than a year ago with year-to-date production 2.6% higher. Total natural cheese stocks increased 1% from March to April but were just 4% higher than a year ago.
Dairy exports continue below a year ago but have improved monthly for cheese and nonfat dry milk. April cheese exports were still 6% below a year ago with year-to-date exports 11% lower. Nonfat dry milk exports were actually 8% higher for April and 2% higher year-to-date. Exports have helped to prevent growing stocks of nonfat dry milk despite April nonfat dry milk production being 13.1 higher than a year ago and 11.4% higher year-to-date. April stocks of nonfat dry milk declined 1% from March and were just 3.7% higher than a year ago. Butter and dry whey exports continue well below year ago levels. April butter exports were 72% below a year ago and year-to-date 75% lower. Dry whey exports were 22% lower in April 25% lower year-to-date.
We could still experience some further weakness in both butter and cheese prices in the near months before strengthening again this fall. Milk production has been at levels in the Northeast and Midwest that has strained cheese plant capacity. Reports are that milk had been selling at discounts of $5 to as much as $7 to find a cheese plant willing to take the milk. So cheese production has been rather high in May and going into June. The situation is different in the West with California's milk production lower than a year ago. However, Class III futures were not reflecting any weakness in prices until the recent declines in butter and cheese prices. The Class III futures were above $17 July through December, but now are below $17 for the remainder of the year. Class IV futures reached the $15's by August but now remain below $15 for rest of the year. Where final prices end up depends heavily upon the pace of increased milk production in the months ahead. Also if cheese stocks build, buyers may be less aggressive in purchases for future use, thus softening price increases the second half of the year.
The pace of increased milk production doesn't appear to be picking up due to lower growth in milk production in the West offsetting rather strong growth in the Northeast and Midwest. Compared to May a year ago milk production in the West was lower by 0.2% for Arizona, 2.9% for California, 2.3% for New Mexico and 1.6% for Texas with Idaho being up 2.4%. Except for Texas which had both fewer cows and less milk per cow the declines in production were due to less milk per cow. In the Northeast milk production was up by 2.6% in New York, 3.1% in Pennsylvania and 7.6% in Michigan. Both New York and Michigan had both more cows and higher production per cow whereas the increase in Pennsylvania was all due to higher production per cow. In the Midwest increases in milk production were 4.4% in Iowa, 3.8% in Minnesota, 4.4% in Wisconsin and 8.9% in South Dakota. The increase in Minnesota was all due to more milk per cow whereas the other Midwest states had both more cows and more milk per cow. Even in the Southeast Florida had 2.2% more milk due to more cows and more milk per cow. For the U.S. as a whole May milk production was just 1.4% higher than a year ago compared to a 1.8% increase for April. While cow numbers increased by 3,000 head April to May they were just 0.6% higher than a year ago and the increase in milk per cow remains below trend at just 0.8%. Of the 23 reporting states, 5 had less total milk production, all in the West, only Oregon, Texas and Virginia had fewer cows, and 6 states had less milk per cow.
If the increase in milk production stays well below 2%, this will help to hold milk prices for the second half of the year. But, as of now with weakness in butter and cheese prices we can expect a little lower milk prices July and August with some increase again by September. But, the Class III price may not reach $17 and the Class IV $15. If hot and humid weather depressed milk per cow this summer and dairy exports improve by more than expected, than prices could be a little higher.
6.24.2015