Summer starts next week, but milk prices are already sizzling… much to our continued pleasant surprise.
Throughout January, February, and March we watched with some dismay as Class III price futures jumped at the CME for virtually all months during 2011, projecting out to an annual average in the low-$16-per-hundredweight range in mid-January.
After averaging nearly $2 less in 2010, we were skeptical about why and how such a run-up was occurring. We searched for fundamentals that justified such bold prices, since just $16 would be the third highest annual Class III average ever. So what happened? Futures went even higher, cracking the $17 annual average barrier in mid-February. Shows how much we know.
This Wednesday, the combination of already-posted monthly Class III prices for the first five months of the year, plus CME futures prices for the other seven months (and assuming those were to actually occur), projected out to a year long average of $17.70. That's a big number, since the second highest annual Class III price average in history was $17.44 in 2008.
Tremendously strong cheese prices – 40-pound blocks closed at $2.11 per pound on Wednesday – are driving the market and also suggest the Class III price should be even higher. We hope that happens, but since prices lately have been holding or even rising with no actual sales taking place, we won't be surprised if a price correction happens soon.