Milk prices bottomed out in April.
The Class III price was $16.33 in January and fell to $15.22 in April. The May Class III was $15.57 and June could be near $16.40. The Class IV price was $16.19 in January and fell to $14.01 in April. The May Class IV price was $14.49 and June could be near $16.00.
For the first five months of the year the Class III price averaged $2.52 higher than the previous year and the Class IV price averaged $1.86 higher. Milk prices are expected to continue to increase and peak out in October or November. Cheese prices have remained surprisingly strong considering the level of milk production, cheese production and higher stocks levels.
For April, Cheddar cheese production was 4.8 percent more than the year before with total cheese production 3.7 percent more. April 30 stocks of cheese were 10.1 percent more than the year before. However on the Chicago Mercantile Exchange cheese prices showed some weakness in recent trades. In May, 40-pound blocks averaged $2.2684 per pound, started June at $1.7375 and are now at $1.5975. Cheddar barrels started June at $1.5325 per pound and are now $1.35. The normal spread between blocks and barrels is about 4 cents but has averaged 22 cents in June.
Barrels are long in comparison to blocks, depressing barrel prices. This wide spread should correct itself as we move into summer. Chicago Mercantile Exchange butter averaged $2.2684 per pound in May, and has ranged from $2.41 to $2.705 in June with the price now at $2.56. April butter production was 4.1 percent less than a year ago and April 30 stocks were 1.2 percent less.
The dry-whey price has weakened slightly to about $0.46 per pound. Nonfat-dry milk averaged $0.88 per pound in May and ranged from $0.90 to $0.9475 in June with the current price at $0.905. Cheese, butter, dry-whey and nonfat-dry-milk prices are all expected to improve this summer and fall, which will push milk prices to increase.
Improved exports have supported higher cheese, butter, dry-whey and nonfat-dry-milk prices. In April, U.S. dairy-export volume was more than year-ago-levels for the 11th straight month. Compared to a year ago, exports to the top-10 markets showed exports having increased 91 percent to China, 84 percent to Oceania, 69 percent to Japan, 59 percent to South Korea, 43 percent to South America, 23 percent to Southeast Asia, 9 percent to Mexico and 2 percent to Canada, but 3 percent lower to the Caribbean and 16 percent lower to the Middle East/North Africa. Exports were 9 percent more for nonfat-dry-milk and skim-milk powder, 27 percent for cheese, 30 percent for butterfat, 11 percent for whey products and 9 percent for lactose.
Dairy product prices on the Global Dairy Trade keep strengthening and making U.S. products more price-competitive. Exports are expected to continue to show improvement. World demand is expected to be stronger and increases in world milk production to be modest. Milk production had been running lower in major exporters – the European Union, New Zealand, Australia and Argentina. Milk production may start to run at more than year-ago levels by summer and fall in both the EU and New Zealand, but stronger world demand could absorb the increase.
The level of milk production will be a major factor on how much milk prices strengthen. If the growth in milk production is 2 percent or less, along with favorable domestic sales and continued improved exports, the Class III price could be in the mid $16s by July, assuming some recovery in cheese prices, and in the $17s for the remainder of the year – peaking in October in the high $17s. The Class IV price could be in the $17s beginning in August and for the remaining months.
But dairy futures are currently less optimistic for the Class III price. Class III futures do not reach the $17s until August and remain in the low $17s for the remainder of the year. The U.S. Department of Agriculture is forecasting 2017 milk production to be 2 percent more than the previous year – 2.3 percent adjusted for Leap Year – from 0.7 percent more milk cows and 1.3 percent more milk per cow – 1.6 percent adjusted for Leap Year. But the increase could well be less than 2 percent and supporting higher milk prices.
Wet weather is impacting forage quality both in the Northeast and Midwest, which could negatively affect increases in milk per cow in those regions. Milk production does appear to be slowing. Compared to a year ago, April milk production increased 2.2 percent, but May production increased just 1.8 percent.
Milk-cow numbers started to increase this past October and continue to increase. May cow numbers were 0.8 percent higher than a year ago. This past year a relatively strong increase in milk per cow, up 1.4 percent, was a major factor for higher milk production. The increase in milk per cow may be slowing, with May increasing just 1 percent. May milk production compared to a year ago decreased 1.1 percent for California and 0.2 percent for Idaho. California’s decline was due to both fewer cows and less milk per cow while Idaho’s decline was due to less milk per cow.
California’s milk production fell below year-ago levels all of 2015 with production for the year decreasing 3.4 percent, and fell below year-ago levels for eight of the months in 2016 with production for the year down 1 percent. But other western and Southwest states are experiencing increases, with May milk production up 4.8 percent in Arizona, 6.9 percent in New Mexico and 14.7 percent in Texas.
Milk production has slowed some in both the Northeast and Midwest. With no change in cow numbers but less milk per cow, Wisconsin’s production in May decreased 0.7 percent. May milk production increased 2.3 percent in New York, 2.1 percent in Pennsylvania, 4 percent in Michigan, 1.4 percent in Iowa, 2.6 percent in Minnesota and 2.8 percent in South Dakota. States with lower May milk production were Florida decreasing 0.4 percent, Oregon decreasing 3.5 percent and Washington decreasing 1.4 percent.