By Bob Cropp, Professor Emeritus
University of Wisconsin Cooperative Extension
University of Wisconsin-Madison
April milk prices continue well below a year ago. The Class III price will be near $13.65 compared to $15.81 last year and $24.31 two years ago. The Class IV price will be near $12.80 compared to $13.51 a year ago and $23.34 two years ago. Other than butter dairy product prices have shown little movement. On the CME both 40-pound cheddar blocks and barrels have been in the low $0.40's per pound most of the month and will average around $0.43. Nonfat dry milk will average about $0.70 per pound. Dry whey will average about $0.25 per pound. But, butter which fell below $2 per pound early March, reached a low of $1.92 on March 23rd, but then increased reaching $2 on April 5th, peaking at $2.17 on April 11th and has fallen back to $2.04.
We can't expect much upward price movement over the next month or two. Milk production is increasing seasonally which means higher production of dairy products. The latest dairy product report already showed higher production than a year ago for February. Butter production was 5.8% higher (adjusted for leap year) than a year ago, and cheese 4.0% higher. Domestic sales of butter and cheese remain good, but exports continue to be weak. While February butter exports were 61% higher than a year ago, they were still a fraction of the level of exports in 2014. Cheese exports were 17% below a year ago, the 17th straight month the volume of exports have lagged a year earlier. Dry whey exports were 5% lower. However, both lactose and nonfat dry milk/skim milk powder exports continue above year ago levels. Lactose exports were 13% higher and nonfat dry milk/skim milk powder was16% higher. Higher butter and cheese prices than world prices continues to attract imports. While January February imports of butter under quota were 13.5% lower than a year ago, high tier imports were 266.9% higher. Quota cheese imports were 48.4% higher and high tier 43.4% higher.
Growing stocks will keep downward pressure on dairy product prices. Compared to a year ago, February Butter stocks were 31.5% higher and 26.2% higher than the 5-year average for this date. Total cheese stocks were 10.8% higher and 13.5% higher than the 5-year average for this date. Relatively strong exports resulted in nonfat dry milk stocks to be 10.5% lower, but still 12.5% higher than the 5-year average for this date. Dry whey stocks were 20.1% higher. With growing stocks butter makers are not seeking higher levels of cream to make butter. Available storage capacity for cheese plants in the Midwest is also becoming tight.
While butter and cheese sales are expected to remain good exports are not expected to show much improvement until late in the year or early next year. World dairy product prices, with the exception of nonfat dry milk/skim milk powder, remain depressed and well below U.S. prices. World milk production continues to run well above a year ago primarily due to higher production in the EU countries. And the two largest world importers of dairy products, China and Russia remain rather in active. So the level of U.S. milk production will be a key factor for milk prices for the remainder of this year.
USDA's milk production report for March milk was not good news for milk prices. March milk production was 1.8% higher than a year ago from 0.2% more milk cows and 1.6% more milk per cow. This is a lot of milk considering milk production a year ago was also running 1.4% higher than the year before. Milk cow numbers increased monthly for each of the three month this year and were 10,000 head higher than February. Despite low milk prices producers may be keeping cows longer due to rather low slaughter cow prices. Plus, there is a good supply of dairy replacements.
California's milk production continues to run below a year ago with March production down 2.2% from 0.3% fewer cows and 2.2% less milk per cow. With just 0.7% more milk per cow and 3.7% fewer cows New Mexico's production was 2.9% lower. Texas also had 1.3% fewer cows but 3.4% more milk per cow resulted in 2.0% more milk. More cows and higher milk per cow pushed milk production up 3.2% in Arizona and 2.4% in Idaho. March milk production was well above a year ago in the Northeast. New York's production was up 5.5%, Michigan 7.7% and Pennsylvania 1.7%. Other than for Pennsylvania each of these states had more cows and higher production per cow. Milk production was also well above a year ago in the Midwest. March production was up just 0.7% in Iowa, but up 2.8% in Minnesota, 5.3% in Wisconsin and 10.9% in South Dakota. Cow numbers were unchanged in Minnesota as was milk per cow in South Dakota. This rather high level of milk production will likely stress milk plant capacity in both the Northeast and Midwest as we go through the spring flush period.
Looking ahead most price forecasters show a slow increase in milk prices as we move through the year but staying relatively low. Class III futures don't reach $14 until July and $15 until September and peaking in November in the low $15's. Class IV futures each $13 in May, $14 in July, $15 in September and also peaking in the low $15's in November. USDA now forecasts the Class III price for the year to only average between $13.65 to $14.15, the Class IV price to average between $12.90 and $13.50 and the U.S. All Milk price to average between $15.00 and $15.50. If milk production continues to show rather strong increases and exports do not improve more than now projected, these prices are quite likely. But, there is still a good possibility prices could do somewhat better than this for the second half of the year.