By Bob Cropp, Professor Emeritus
University of Wisconsin Cooperative Extension
University of Wisconsin-Madison
Declining cheese prices will result in a Class III price not seen since September and October 2009. On the CME 40-pound block cheddar cheese averaged $1.42 per pound in April, but has ranged from $1.36 per pound to $1.27 in May, the lowest since July and August of 2009. Cheddar barrels also averaged $1.42 per pound in April, but have ranged from $1.40 to $1.27 per pound in May, the lowest since March and August of 2009. The Class III price was $13.63 in April and will be near $12.75 for May compared to $16.19 last year and $22.57 in 2014.
Despite increased production and building stocks butter remains above $2.00 per pound. And with a little increase in the nonfat dry milk price, which averaged $0.74 per pound in April has been in the $0.78 to $0.82 per pound range in May, the May Class IV price will increase. The May Class IV price will be near $13.25 compared to $12.68 in April, $16.19 last year and $23.13 in 2014.
Domestic commercial disappearance of both butter and cheese remain good. Compared to March of last year butter was 10.7% higher, American cheese, however was 3.1% lower, but other cheese varieties were 8.8% higher making total cheese disappearance 3.9% higher. But, exports remain soft. While March butter exports were 26% higher than a year ago, exports were well below the record 2014 exports. Cheese exports continue to run well below a year ago, with March exports 26% lower than a year ago. Nonfat dry milk/skim milk powder exports which ran above year ago levels last year and continued above year ago levels January and February were 25% lower than a year ago in March. Dry whey exports in March were 39% lower than a year ago, the lowest volume in 16 years. On a total solids basis March exports were equivalent to 12.1% of milk production, the lowest in 14 months. But, imports of dairy products were higher and equivalent to 3.9% of milk production.
Compared to March a year ago, butter production was 8.6% higher and total cheese production 1.8% higher. Good domestic sales were not enough to offset weak exports resulting in increased stocks. Compared to March 31st stocks a year ago and the five year average for this date, butter stocks were 23.8% and 32.1% higher respectively, and total cheese stocks were 11.4% and 13.0% higher respectively. But, exports were high enough to reduce nonfat dry milk stocks 7.5%.
Unless milk production slows and/or exports improve milk prices will show a very slow recovery in the months ahead. Despite much lower milk prices milk production continues to show strong increases in the Northeast and Midwest and more than offsetting lower milk production in some Western states. Compared to last year, April milk production in the Northeast was 5.3% higher in New York, 0.5% higher in Pennsylvania, and 6.5% higher in Michigan. In the Midwest, April milk production was 3.4% higher in Iowa, 2.7% higher in Minnesota, 10.5% higher South Dakota and 4.6% higher in Wisconsin. Since milk production was running higher last year in the Northeast and Midwest the further increase this year is straining both plant capacity and storage capacity for cheese. In the West, California's milk production, which ran below year ago levels all of last year, continues to do so with April production 3.3% lower. April milk production in other Western states was Idaho 2.0% higher, Arizona 1.2%, New Mexico 3.5% lower and Texas 1.6% higher. The estimated April milk production for the U.S. was 1.2% higher from 0.2% more cows and 1.0% more milk per cow. April cow numbers were 4,000 more than March. Cow numbers have increased each month thus far this year. There is an ample supply of dairy replacements and the slaughter of dairy cows is down 1.7% from a year ago thus far this year. The lower slaughter number may be due to slaughter cow prices much lower than a year ago.
USDA is forecasting milk production for the year to be 1.8% higher than last year with little change in cow numbers but higher production per cow. But, this could change. There are predictions for a hot summer similar to the summer of 2011 which significantly reduced milk per cow in Northeast and Midwest states. But, there doesn't seem to be much optimism for improved exports this year. Milk production continues well above year ago levels in the 28 EU countries. China has started to increase imports but at a level well below what was imported during 2013 and the first half of 2014. Russia still has a ban on imports from the EU. Much lower oil prices has reduced exports to oil producing countries. So world demand remains soft resulting in depressed world dairy product prices.
USDA is not forecasting much improvement in milk prices this year. The Class III price is not expected to be any higher than $14.15 during the fourth quarter and average for the year between $13.15 and $13.65 compared to the average last year of $15.80. The Class IV price may peak at $13.45 fourth quarter and average between $12.65 and $13.25 for the year, compared to the 14.35 average last year. The U.S. average All Milk price is forecasted to average between $14.60 and $15.10 for the year compared to the average of $17.11 last year. Current Class III futures stay below $14.00 until August and peak below $15 in December. Class IV futures are a little more optimistic reaching the $14s by August and the $15s October through December. I am a little more optimistic than these forecasts based on the assumptions that milk production will increase less, domestic sales remain strong and some improvement in exports. But, yet a difficult year for dairy producers.