Strong cheese and dry whey prices in April will result in a new record high Class III price of about $24.25/cwt. for the month, 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/cwt. or $5.65 higher than a year ago.
Cheese prices have had some rather dramatic price swings during the month. Chicago Mercantile Exchange (CME) cheddar barrels started the month at $2.25/lb.; was a low as $2.075/lb. on April 9; bounced back to $2.28/lb. on April 17; and declined to $2.25/lb. on April 21. Cheddar blocks started the month at $2.385/lb.; was as high as $2.4225/lb. on April 3; reached a low of $2.165/lb. on April 10; increased to $2.28/lb. on April 14; and declined to $2.25/lb. on April 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 two months of the year were 44% higher than a year ago. American cheese production for the period was 0.2% lower than a year ago. Feb. 28 American cheese stocks declined from January and were 5.0% lower than a year ago; total cheese stocks were also lower than January and 5.5% lower than a year ago.
The dry whey price has increased from 60¢-61¢/lb. to 65¢/lb. Feb. 28 dry whey stocks were 13% lower than a year ago, the result of 19% lower production for the first two months of the year, and 7% more exports.
Little lower butter and nonfat dry milk prices will result in a little lower Class IV price for April. The March Class IV price was $23.66/cwt., and the April price will be near $23.20/cwt. For the first four months of the year the Class IV price will average about $23.15/cwt., or $5.35 higher than a year ago.
On the CME, butter started the month at $2.01/lb. and has declined to $1.89/lb. Nonfat dry milk was above $2.00/lb. all of March, but has been in the high $1.90s since then.
Butter production for the first two months of the year was 3.8% lower than a year ago, and exports of butter and milkfat were 113% higher. Butter sales have softened from Easter/Passover sales. While Feb. 28 butter stocks were 20% higher than January, stocks were still 31% lower than a year ago.
Nonfat dry milk production for the first two months of the year was just 0.3% lower than a year ago, while skim milk powder production for export was up 2.7%. Feb. 28 nonfat dry milk stocks were 19% lower than a year ago.
April prices no doubt will be the peak for the year. Record high milk prices and lower feed costs have provided dairy producers with margins conducive to producing more milk. So, milk production compared to a year ago will likely increase as we move through the rest of the year. USDA is forecasting total milk production for the year to be 2.4% 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. And, 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 could also soften prices. With milk production much improved in New Zealand and the European Union-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% of U.S. milk production. USDA is still forecasting exports on a milkfat basis to actually be 2.4% 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%.
Dairy futures remain quite optimistic. Class III futures don’t fall below $20/cwt. until July, and below $19/cwt. until October, ending in December at $18.30/cwt. This compares to an average Class III price for last year of $17.99/cwt.
Class IV futures don’t fall below $20/cwt. until August, and remain at $19/cwt. plus for the remainder of the year, ending at $19.12/cwt. for December. The Class IV price averaged $19.05/cwt. 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 March milk production report shows a continued modest increase in milk production over a year ago. The U.S. estimate increased 0.9%, putting production for the first three months 1.0% higher than a year ago. (Due to sequestration) USDA was not reporting cow numbers or milk per cow a year ago, so 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 March 2013 U.S. milk production was 0.2% lower than March 2012, the 0.9% increase this March is not a strong increase in milk production.
Comparing March 2014 milk production among the 23 reporting states shows a complete shift from what was going last year. 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% lower in California and 4.1% lower in Texas, with just a 0.4% increase in Idaho. This March, milk production is up 3.7% in California, 6.4% in Texas and 1.7% in Idaho.
A year ago in the Midwest, milk production was running well above a year ago. For example, production was up 4.9% in Iowa, 2.3% in Minnesota and 3.0% in Wisconsin. This year, production is down 3.4% in Iowa, 3.8% in Minnesota and 1.6% in Wisconsin. We don’t 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% higher in Michigan, 1.8% higher in New York and 2.3% higher in Ohio. This year, production is up just 0.3% for Michigan, no increase for New York and down 4.8% for Ohio.
However, 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. Cow slaughter has already slowed, down 9.4% through March compared to a year ago. But, the growth in increases in milk production will come on slow, which could result in USDA’s 2.4% increase in milk production for the year being on the high side. And, with this slower growth in milk production, milk prices will likely also decline slower.
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