Class III milk price drops below $16

Dairy Outlook: Weaker cheese prices are to blame for the milk price decline.

After increasing in September, milk prices declined in October.

“The Class III price was $14.95 in August and increased in September to a high for the year at $16.09,” says Bob Cropp, University of Wisconsin Extension dairy economist. “But it looks like October may be closer to $15.60.”

The weakening of cheese prices is responsible for a lower Class III price. Cheddar 40-pound blocks were as high as $1.70 per pound in early September and averaged $1.65 for the month. But as of Oct. 19, blocks had fallen to $1.47 and may average around $1.60 for the month. Cheddar barrels have fallen rather sharply, Cropp says.

“Barrels were as high as $1.64 per pound in early September and averaged $1.45 for the month,” he says. “Barrels have fallen to $1.25 and may average around $1.33 for the month. If it was not for the continued strengthening of dry whey prices, the Class III price would be even lower.”

Dry whey averaged 52 cents per pound in September and continues to strengthen, with a current price around 57 cents. Dry whey has increased by more than 25 cents since early in the year, adding more than $1.50 to the Class III price.

Butter was $2.32 per pound at the end of September and averaged $2.25 for the month. Butter is now $2.26 per pound and may average around $2.28 for October.

With the upcoming holiday season, cheese and butter buyers normally build stocks to meet the strong seasonal demand. As a result, butter and cheese prices increase. But according to Cropp, this does not appear to be happening.

“Stocks held by butter and cheese manufactures have tightened some but are more than adequate to fulfill demands by butter and cheese buyers,’ Cropp says. July 31 stocks compared to a year ago were 3.5% higher for butter and 3.3% higher for total natural cheese. Nonfat dry milk and dry whey stocks are well below a year ago, down 21.3% and 21.7% respectively, according to USDA.

Dairy exports have been a positive factor for milk prices, Cropp says.

“Despite retaliatory tariffs imposed by Mexico and China, dairy exports continue to run above a year ago,” he explains. “A 64% increase in exports of nonfat dry milk-skim milk powder to Mexico was a major factor for higher August exports. In total, nonfat dry milk-skim milk powder exports were 26% higher. But August cheese exports were 7% lower due to a decline of 21% to Mexico and 40% to China.”

Dairy exports increase Total whey exports were still 2% higher despite a 26% decline to China. Butterfat exports were 56% higher. On a total milk solids basis, August exports were equivalent to 16.8% of milk production compared to 15% a year ago, according to USDA.

“Unless cheese prices rally, November and December Class III prices will stay below $16,” Cropp says. Currently, Class III futures are in the mid-$15s. For the year, the Class III price may average around $14.95, compared to $16.16 in 2017.

There is considerable uncertainty for milk prices in 2019, Cropp says.

“Butter and cheese sales should show continued growth,” he says. “The level of milk production will be a major factor. September milk production was estimated to be 1.3% higher than a year ago. USDA is forecasting a 1.5% increase in milk production. With this level of milk production, milk prices in 2019 will average higher than 2018. The level of dairy exports will be a major factor as to how much higher.”

USDA is forecasting 2019 exports to be 6.7% lower on a milk-fat basis and 2.2% lower on a skim-solids basis. For the first four months of 2018, the Class III price averaged just $14.02. Class III price for the first four months in 2019 should be at least in the mid-$15s, and should show continued improvement in the following months, reaching the $16s the last half of the year, Cropp says.

Wet weather last spring and this fall in the Northeast and Midwest may have resulted in lower forage quality that could reduce per-cow milk production this winter.

“USDA is forecasting a slight increase in cow numbers, which may not happen,” Cropp says. “So, the increase in milk production could turn out to be less than the predicted 1.5% increase, which would push milk prices higher. No doubt, price forecasts will change from month to month as milk production and dairy exports become known.”


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