The Idaho situation extends beyond the farm. Over the past five years, new plant investment has created increased competition for milk. With Class IV prices topping Class III, milk has been pulled from cheese vats. With flat milk production and increased yogurt and Class IV capacity, cheese plants have been the ones caught short. Moreover, cheese plants in the state have been making less commodity cheddar – the product that matters in the price discovery arena.
Adding further support for cheese prices is a sustained bid from the world market. Export demand remains robust, with U.S. cheese exports reaching a new all-time high in January at 70.8 million pounds. Consequently, Gouda and white cheese production levels have been raised in order to meet this demand. While not just an “Idaho problem,” the net effect is less cheddar with manufacturers positioning themselves to serve the international buyer.
As cheese prices soared, powder prices have plateaued or even, by some measures, lost some ground. Depending on the metric, U.S. prices near the end of the first quarter were not that different from those that prevailed when the year began. Reported USDA prices for the Central States moved just 4¢ higher, leveling off near $2.11/lb. At quarter-end, survey prices were about the same, with the National Dairy Products Sales Report’s weighted average price gaining about 7¢ from January’s $2.03 average.
International markets have softened. European skim milk powder prices have slipped 2.6% since January and now are on par with U.S. values for the first time since December. In addition, whole milk powder is also down 1.5%. Prices in New Zealand followed suit. On the GlobalDairyTrade (GDT) bi-monthly auction, the price of skim milk powder slipped 2.2% while the price of whole milk powder fell 10%.
Meanwhile, the butter market has lingered somewhere in between. Butter prices have rallied to be sure, with spot values at the CME now hovering around $1.90/lb., up 20¢ since the start of the year. Exports remain an on-going theme, given about a 30¢ price gap between the U.S. and prevailing world markets.
Markets with benefits
While end-users lament the current high prices, producers couldn’t be more pleased. Dairy farmers worldwide are realizing some of their highest all-time returns. In the U.S., the all-milk price averaged $24.70/cwt. in February, beating the previous record by $1.20. And with the underlying commodity markets moving higher since then, the March and April numbers seem poised to ratchet still higher. The U.S. all-milk price has exceeded the $20 mark for the past six months.