Strong cheese and dry whey prices for the month of April will result in a new record high Class III price of about $24.25 for the month.
This will be the third straight month of record Class III prices. The Class III price for the first four months of the year will average about $23.12 or $5.65 higher than a year ago. The dry whey price has increased from $0.60 to $0.61 per pound to $0.65. Cheese prices have had some rather dramatic price swings during the month. On the CME, cheddar barrels started the month at $2.25 per pound, was a low as $2.075 on Apr. 9, bounced back to $2.28 on Apr. 17 and declined to $2.25 on Apr. 21. Cheddar blocks started the month at $2.385 per pound, were as high as $2.4225 on Apr. 3, reached a low of $2.165 on Apr. 10, increased to $2.28 on Apr. 14 and declined to $2.25 on Apr. 21.
These strong cheese prices are the result of good domestic sales, strong exports and lower American cheese production all of which reduced stocks. Cheese exports for the first 2 months of the year were 44 percent higher than a year ago. American cheese production for the first 2 months of the year was 0.2 percent lower than a year ago. Feb. 28 American cheese stocks declined from January and were 5 percent lower than a year ago. Total cheese stocks on Feb. 28 also were lower than January and were 5.5 percent lower than a year ago. Febr. 28 dry whey stocks were 13 percent lower than a year ago the result of 19 percent lower production for the first 2 months of the year and 7 percent more exports.
Little lower butter and non-fat dry milk prices will result in a little lower Class IV price for April. The March Class IV price was $23.66 and the April price will be near $23.20. On the CME, butter started the month at $2.01 per pound and has declined to $1.89. Non-fat dry milk was above $2 per pound all of March but has been in the high $1.90s since then. For the first 4 months of the year the Class IV price will average about $23.15 or $5.35 higher than a year ago.
Butter production for the first 2 months of the year was 3.8 percent lower than a year ago and exports of butter and milkfat were 113 percent higher. Butter sales have softened from the prior sales for Easter-Passover. While Feb. 28 butter stocks were 20 percent higher than January stocks were still 31 percent lower than a year ago. Non-fat dry milk production for the first 2 months of the year was just 0.3 percent lower than a year ago while skim milk powder production for export was up 2.7 percent. Feb. 28 nonfat dry milk stocks were 19 percent lower than a year ago.
April prices no doubt will be the peak for the year. Record high milk prices and lower feed costs than a year ago have provided dairy producers with margins conducive to producing more milk. So milk production compared to a year ago will probably increase as we move through the rest of the year. U.S. Department of Agriculture (USDA) is forecasting total milk production for the year to be 2.4 percent higher than last year, the result of more milk cows and feeding for higher production per cow. But, this could be on the high side. Rather than expanding cow numbers some producers are using improved margins to pay down debt accumulated during the severely depressed milk prices experienced in 2009 and very high feed prices the fall of 2012 and winter of 2013. Of course how crops turn out this year and resulting feed costs will be an important factor in how producers expand production later this year.
A slowdown in exports also could soften prices. With milk production much improved in New Zealand and the EU-28 countries more dairy products will be available for exports. Prices of butter, cheese, skim milk powder, whole milk powder and milk protein concentrates have already softened considerably in recent international Global Dairy Trades. This decline is lessening the competitive price advantage U.S. has been experiencing on the international market. Yet with the world demand expected to remain strong and world stocks still at low levels U.S. exports for the year could still total 14 to 15 percent of U.S. milk production. USDA is still forecasting exports on a milkfat basis to actually be 2.4 percent higher than a year ago with continued good cheese and butter exports, and exports on a skim-solids basis to be down just 2.3 percent.
Dairy futures remain quite optimistic. Class III futures do not fall below $20 until July and below $19 until October ending in December at $18.30. This compares with an average Class III price for last year of $17.99. Class IV futures do not fall below $20 until August and remain at $19-plus for the remainder of the year ending at $19.12 for December. The Class IV price averaged $19.05 for all of last year. If USDA’s increase in milk production comes to bear and exports soften, these prices will be a little optimistic for later in the year. Yet prices substantially lower than current Class III futures are not anticipated. But, we know prices can change rather quickly.
USDA’s milk production for the month of March shows a continued modest increase in milk production compared with a year ago. The estimate for the U.S. is a March increase of 0.9 percent putting production for the first 3 months 1 percent higher than a year ago.
Since last March USDA was not reporting cow numbers or milk per cow a year ago, it is not known how much of the change in milk production was due to changes in cow numbers or milk per cow.
U.S. cow numbers started to increase last December and were 3,000 head higher in March than February putting the increase since last November at 20,000. Considering a year ago March milk production for the U.S. was 0.2 percent lower than the year before the 0.9 percent increase this March is not a strong increase in milk production.
Comparing March milk production to a year ago amongst the 23 reporting states shows a complete shift from what was going on a year ago. High feed prices resulting in unfavorable margins for producers in the West was resulting in deceases in milk production from a year ago.
For example, milk production was running 3.3 percent lower in California and 4.1 percent lower in Texas with just a 0.4 percent increase in Idaho. This March milk production is up 3.7 percent in California, 6.4 percent in Texas and 1.7 percent in Idaho. A year ago in the Midwest milk production was running well above a year ago.
For example, production was up 4.9 percent in Iowa, 2.3 percent in Minnesota and 3 percent in Wisconsin. This year production is down 3.4 percent in Iowa, 3.8 percent in Minnesota and 1.6 percent in Wisconsin.
We do not have data as to what is going with cow numbers but lower quality forage and cold weather no doubt negatively impacted milk per cow. The situation is similar in the Northeast with milk production a year ago running 3.5 percent higher in Michigan, 1.8 percent higher in New York and 2.3 percent higher in Ohio. This year production is up just 0.3 percent for Michigan, no increase for New York and down 4.8 percent for Ohio.
Looking ahead we can expect cow numbers to continue to increase and milk per cow to improve particularly in the Midwest and Northeast with a new crop of better quality forages. Producers have already slowed cow slaughter with slaughter numbers through March 9.4 percent lower than a year ago. But, the growth in increases in milk production will come on slow which could result in USDA’s 2.4 percent increase in milk production for the year being on the high side. With this slower growth in milk production milk prices also will probably decline slower.
Source: Agriview