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Cropp: November dairy situation and outlook

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By Bob Cropp, Professor Emeritus

University of Wisconsin-Madison

 

Milk prices may have peaked for the year in October. 

 

The October Class III price was $21.02/cwt., and it now looks like the November Class III price will be about $20.80/cwt., falling lower in December. Dry whey prices have held up trading in the 60¢-65¢/lb. range, but cheese prices have declined, lowering the Class III price. On the CME, cheddar barrels were as high as $2.08/lb. late October, started Nov. 1 at $2.00/lb., but continued to decline and were $1.7225/lb. as of Nov. 19. The 40-lb. cheddar blocks were as high as $2.12/lb. in late October, started  Nov. 1 at $2.11/lb., but also continued to decline and were $1.8250/lb. as of Nov. 19.  

 

The Class IV price was $18.54/cwt. in October and will about $18.70/cwt. for November, and may hold near this level for December. While CME butter averaged $1.9086/lb. in October and will average lower in November at about $1.85/lb., nonfat dry milk prices have strengthened, trading in the $1.49-$1.53/lb. range, giving some strength to the Class IV price.

 

With lower cheese prices, Class III prices on the futures market also show weaker prices in 2013, falling below $19/cwt. by January, but staying above $18/cwt. through November, with December dropping slightly below $18.00/cwt. 

 

But, there is a good probability that prices could end up higher than this. Recently cheddar cheese production has been below a year ago, with September production 2.7% lower, and total cheese production just 0.3% higher. And, with cheese stocks tighter, along with favorable domestic sales and cheese exports, cheese prices ought to hold at levels above a year ago at least through the first half of the year. 

 

Sept. 30 stocks of American cheese were 4.8% lower than a year ago, with total cheese stocks 4.9% lower. 

 

Cheese prices and other dairy product prices will also be helped by milk production, which is not expected to increase in 2013, and is actually running lower than a year ago in the California, the second-largest cheese producer and largest producer of butter and nonfat dry milk.  

 

In September California's cheese production was 6% lower than a year ago. Some forecaster still have a Class III price in the high $19s/cwt. during much of the first half of 2013, and even reaching above $20/cwt. by summer.  Assuming dry whey prices will hold, an average cheese price near $2.00/lb. would give a $20/cwt. Class III price; at $1.90/lb. about $19.45/cwt.; at $1.85/lb. about $18.95/cwt.; and at $1.80/lb., about $18.50/cwt. As of now, cheese prices in the $1.80-$1.90/lb. range seem quite possible for the first half of the year.

 

Since dairy exports are more than 13% of milk production on a total solids basis, a significant drop in exports  could lower dairy product prices and milk prices. With dairy product prices higher than world prices, exports have slowed after peaking in May. However, total exports of all dairy products on a volume basis remain well above a year ago. September cheese exports were 17% higher than a year ago and 21% higher year-to-date. September exports and year-to-date exports for other products were: butterfat, -36% and -22%; nonfat dry milk/skim milk powder, -13% and +6%; dry whey, -21%  and - 10%; whey protein concentrate, +21% and +72%; and lactose, -1% and +7%.

 

But, with milk production running lower in two major exporters, U.S. and the European Union, and world demand holding, U.S. exports should still remain favorable through 2013, especially for milk proteins. USDA estimates exports for 2013 to be just 3.3% lower on a fat basis and 2.3% lower on a skim-solids basis.

 

If the trend in milk production continues, this will support stronger milk prices than what are currently indicated by Class III futures. USDA's release of U.S. milk production shows production dropping below a year ago for two consecutive months (September down 0.6%, but October down just 0.1%).

 

Cow numbers started to decline in May and were down 84,000 head as of October, which put the number 0.3% below a year ago. October milk per cow was up just slightly, resulting in the decline in milk production.

 

As in recent months, the pattern of regional milk production was the same, with the major declines in milk production in the West, and both the Northeast and Upper Midwest with increases.  In the West, with the exception of Idaho, which had an increase of 1.6% in milk production compared to a year ago, October milk production was down by 4.5% in Arizona, 3.5% in California, 2.4% in New Mexico and 5.0% in Texas. California cow numbers fell from September and were just 2,000 head more than a year ago. Each of the other states had fewer cows than a year ago. Arizona and Idaho had increases in milk per cow of 1.8% and 1.6% respectively, but milk per cow was 3.6% lower in California, 5.9% lower in New Mexico, and 4.0% lower in Texas. 

 

In the Northeast, increases in October milk production were 2.7% for New York and Michigan, and 2.6% for Ohio; but a decrease of 0.3% for Pennsylvania. Increases in milk production for Upper Midwest states were 2.0% for Iowa, 2.9% for Minnesota, and 4.7% for Wisconsin.

 

Alfalfa hay prices continue to increase.  While still high and above a year ago, both corn and soybean meal prices have softened some. Current milk prices are also higher, but margins remain tight. With higher feed costs and lower milk prices in the West than compared to the Northeast or Upper Midwest, the regional pattern in milk production now experienced will likely continue into 2013. 

 

Robert Cropp

racropp@wisc.edu

University of Wisconsin-Madison

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