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Bob Cropp, Professor Emeritus, University of Wisconsin-Madison
Near-term, milk prices for October will decline just slightly. The Class III price was $15.82/cwt. in September and will be near $15.60/cwt. for October, the result of little lower cheese and dry whey prices. However, the October Class IV price will be higher near $16.40/cwt., compared to $15.08/cwt. in September, the result of butter prices holding up and higher nonfat dry milk prices.
With the filling of holiday orders, we can expect both butter and cheese prices to fall, bringing down both the Class III and Class IV price. The Class III price could be about $15.45/cwt. by December, and the Class IV price about $14.50/cwt. We could expect further price declines in the first half of 2016. How low prices may end up will depend heavily on the level of milk production and domestic sales, because much improvement in exports is not likely until the last half of 2016.
Cheese prices could drop to around $1.60/lb., and if dry whey remains around 20¢/lb., by April and May the Class III price would drop below $15.00/cwt. If butter drops to around $1.85/lb. and nonfat dry milk stays around 90¢/lb., the Class IV price would be about $13.40/cwt.
While Class III and Class IV futures also show declines for the first half of 2016 they remain higher than this. If milk production continues to increase at less than 1% going into 2016, then milk prices will be higher. With expected domestic sales to remain solid and some improvement in exports for the second half of the year the Class III price could improve to the $16s/cwt. and even reach $17/cwt. by late fall, and the Class IV price could be in the $15s/cwt.
Dairy product sales, prices
Domestic sales of butter and cheese remain good, holding up prices, but exports continue to decline. On a volume basis, August dairy exports declined for the fourth straight month. Butter exports were down 35%, cheese down 28%, nonfat dry milk/skim milk powder down 5%, and total whey products down 18%.
Dairy product prices on the Chicago Mercantile Exchange (CME) have been unsettled, moving down and up. Butter started the month at a high of $2.70/lb., was as low as $ 2.35/lb., and is now $2.44/lb. The 40-lb. cheddar cheese price was as high of $1.80/lb. early October, and is now $1.625/lb.. Cheddar barrels were a high of $1.73/lb. in early October, and are now $1.58/lb. Nonfat dry milk started the month at a high of $1.06/lb., but has declined since and is now 86¢/lb. Western dry whey prices have been at 20¢/lb.
As holiday orders are filled, we can expect butter and cheese prices to decline.
Production, stocks and the holidays
While butter production has been lower than a year ago – 1.2% lower in August and 1.7% lower year-to-date – Aug. 31 stocks were 21.1% higher than a year ago and 9.1% higher than the five-year average for this date. However, Aug. 31 stocks took a big downturn from July 31, dropping 18%, the result of lower production and strong butter sales.
Cheese production remains strong, with August production of cheddar cheese 3.1% higher than a year ago, and 2.6% higher year-to-date. Total cheese production was 3.5% higher than a year ago in August, and 2.5% higher year-to-date. Unlike butter, stocks have been increasing, with Aug. 31 stocks of American cheese up 15.5% from July 31 and 9.3% higher than a year ago. Total cheese stocks on Aug. 31 increased 4.7% from July 31 and were 12.1% higher than a year ago.
August production of nonfat dry milk was 6.7% higher than a year ago and 8.4% higher year-to-date. With exports down only 6% and increased domestic sales, Aug. 31 stocks were 14.4% lower than July 31 and 2.3% lower than a year ago.
Aug. 31 dry whey stocks were 43.1% higher than a year ago.
Milk production
The increase in milk production is slowing. September production was just 0.4% higher than a year. Of course, there was strong production growth a year ago, with September 2014 output 4.3% higher than the year before.
September 2015 milk cow numbers declined 5,000 head from August and were just 0.4% higher than a year ago.
Milk per cow was up only slightly, at 0.1%. Total milk production year-to-date was 1.4% higher than a year ago. USDA has forecasted milk production for the year to be 1.4% higher than 2014. But, if the growth in milk production for the last three months of the year continues at this relatively small increase, total production for the year may only be up about 1.2%.
California’s production continues to decline. Milk cow numbers were down 1,000 head from a year ago, and milk per cow was down 3.5%, netting 3.6% less milk production. Idaho had 7,000 more cows, but milk per cow was up just 0.5%, netting 1.7% more milk. Milk production in New Mexico was down 2.0%, all due to less milk per cow. Texas had 8,000 fewer cows, but milk per cow was up 2.3% netting 0.6% more milk.
Michigan and New York had more cows and more milk per cow, resulting in 4.0% and 1.1% more milk, respectively. Pennsylvania’s milk production was down 1.9%, due to less milk per cow.
Iowa and Wisconsin had more cows and higher milk per cow, resulting in 2.1% and 3.1% more milk, respectively. Minnesota’s production was 2.2% higher, due to more milk per cow. South Dakota had 10,000 more cows, with milk per cow up 2.2% netting 12.6% more milk.
By Bob Cropp, Professor Emeritus, University of Wisconsin-Madison
