During January and February, cheese prices fluctuated, but the overall trend is downward. In January, a pound of barrel cheddar cheese cost $1,6803 and is now $1.60. In January, forty-pound cheddar blocks cost $2.0024 per pound and are now $1.96. Dry whey, which was in the $0.30s per pound in January, has dropped to $0.415 to $0.46 per pound in February.
As a result, Class III dropped from $20.50 in December to $19.43 in January. The February Class III will be even cheaper, hovering around $17.90. The Class III price has dropped dramatically since reaching a high of $25.21 in May.
Butter prices fell slightly in January before recovering slightly in February. Butter cost $2.3553 per pound on average in January and is now $2.38. Nonfat dry milk cost $1.2279 per pound in January and is now $1.215 per pound. The December Class IV was $22.12, but lower butter and nonfat dry milk prices in December and January pushed the January Class IV down to $20.01. The February Class IV could fall even further, to around $18.90.
What factors are influencing milk prices?
Milk prices will be determined in the coming months by the level of milk production, domestic sales, and dairy exports. As of now, these factors indicate that milk prices will be much lower in 2022.
In 2023, milk production is expected to rise by less than 1%. The USDA predicts a 0.8% increase, marking the second consecutive year of less than a 1% increase. In 2022, milk production increased by only 0.1%.
Fewer dairy replacements, higher herd culling, relatively high feed prices, and lower milk prices may reduce the average number of cows in 2023. The USDA predicts that the average number of cows will be down 24,000 from 2022, a 0.3% decrease. This is the second consecutive decrease in cow numbers, with a 0.5% or 44,000 decrease in 2022.
High feed prices have hampered the increase in milk per cow. In 2022, milk per cow increased by only 0.6%. The USDA predicts a 1.0% increase in 2023.
Milk production is currently higher than it was a year ago. January milk production was 1.3% higher than the previous year. Since last August, milk production has increased by at least 1%. Milk cows increased by 0.4%, and milk per cow increased by 0.9%.
Milk cow numbers fell by 9,000 in November and December but increased by 16,000 in January. Texas had a 24,000 increase in milk cow numbers, South Dakota had a 17,000 increase, Iowa had a 16,000 increase, and New York had a 10,000 increase.
When compared to a year ago, January milk production in the five leading dairy states was unchanged in California, 1.6% higher in Wisconsin, 2.6% higher in Idaho, 5.2% higher in Texas, and 3.5% higher in New York. South Dakota had a 9.1% increase, Iowa had a 7.4% increase, and Georgia had a 6.3% increase. Florida experienced a 11.4% decrease, while New Mexico experienced a 4.1% decrease.
Domestic dairy product consumption in 2022 was slightly lower than in 2021. While cheese sales nearly equaled those of 2021 butter, nonfat dry milk, dry whey, whey protein concentrate, and lactose decreased. Domestic consumption is expected to rise by about 1% in 2023.
Dairy exports were a major contributor to higher milk prices in 2022. The total number of exports in 2022 was a record. Exports increased by 5% in total volume, 9% for whey products, 12.5% for cheese, a record, and 41.5% for butterfat, but 5.5% lower for nonfat dry milk/skim milk powder.
The USDA predicts that exports will be lower in 2023 than in 2022. As Europe’s milk production increases, the United States will face more competition for exports. Depending on the weather, New Zealand may see increased milk production. Furthermore, there is softness in international demand, which may limit exports. Much is dependent on China. In 2022, exports to China were lower.
Dairy product production has increased over the previous year. Butter production was 3.9% higher in December of last year, and total cheese production was 2.2% higher. From November 30th to December 31st, butter and cheese stocks increased. Butter stocks were 9% higher on December 31st than a year ago, while total cheese stocks remained unchanged. There are more than enough stocks to meet current demand.
Milk prices are expected to rise in the second half of 2023.
Opinions on the level of 2023 milk prices vary greatly, but all predict significantly lower milk prices than in 2022. The USDA has reduced their price forecast. Class III averaged $21.94 in 2022, a $4.86 increase over 2021. The forecast for 2023 is $17.90, which is $4.04 less than the forecast for 2022. Class IV averaged $24.47 in 2022, a $8.38 increase over 2021. The forecast for 2023 is $18.25, which is $6.22 less than the forecast for 2022.
As the year progresses and monthly increases in milk production slow as expected, milk production reaches its normal low this summer, demand strengthens as schools reopen late summer, and butter and cheese sales reach their normal seasonal peak during the holidays, milk prices are likely to improve in the second half of the year compared to the first.
Current futures reflect this, with Class III in the $17-$18 range in the first half of the year and in the $19-$20 range in the second half. Futures prices are higher than the USDA’s forecast. Some forecasters believe the Class III could fall as low as $16 during the first half of the year. The level of milk prices in 2023 is extremely uncertain.
