By Bob Cropp, Professor Emeritus
University of Wisconsin-Madison
With milk production flat the last two months of 2013 and increasing just 0.4% for the year – coupled with record dairy exports totaling 15.5% of U.S. milk production on a total solids basis – the milk supply-demand situation remains rather tight. The result is record cheese prices and record milk prices for February.
On the Chicago Mercantile Exchange, 40-lb. cheddar blocks were a record high $2.36/lb. on Feb. 4, and cheddar barrels a record high $2.32/lb. on Feb. 5. And with dry whey at 61¢/lb., the February Class III price will be near $23.15/cwt., up $2 from January and a record.
With nonfat dry milk trading more than $2/lb., the February Class IV price will be near $23.35/cwt., up more than $1 from the January’s $22.29/cwt. and also a record. Both the Class III and Class IV prices are more than $5 higher than February a year ago. The January U.S. all milk price was $23.20/cwt., and will be about $25/cwt. for February, also a record and more than $5 above a year ago.
With feed prices a lot lower than a year ago, dairy producers are experiencing strong margins (returns over feed costs). This will help dairy producers to recover financially after receiving very depressed milk prices in 2009 and tight margins the last half of 2012 and the first half of 2013, resulting from the drought of 2012 causing very high feed prices.
The latest Dairy Product production report and Dairy Stocks report are for December. Compared to a year ago, cheddar cheese production was 2.8% lower, with total American cheese production 2.2% lower. American cheese stocks have declined each month since May, and, as of Dec. 31, stocks were 2.6% lower than a year ago. The production of other cheese types were much higher than a year ago, increasing total cheese production by 2.3%. But strong cheese exports resulted in total cheese stock as of Dec. 31 being 1.4% lower than a year ago.
December butter production was 6.9% lower than a year ago. Lower butter production and strong exports pushed Dec. 31 butter stocks 27.2% lower than a year ago. December nonfat dry milk production was 20.8% lower than a year ago, as more skim milk powder was produced for exports. Skim milk powder production was up 52.4%. Producing 82% butter and skim milk powder for export has tightened both the supply of butter and nonfat dry milk for domestic use, which has kept prices strong.
The big question is how long can milk prices stay at these record levels? As of now, cheese, butter and nonfat dry milk supplies are rather tight. Dairy exports also remain strong. These two factors appear to be holding up butter and cheese prices. Butter and cheese prices have fallen, but are still holding at rather high levels. CME butter was $1.90/lb. back on Jan. 28, fell 13¢ to $1.77/lb., but gained a penny on Feb. 20 to $1.71/lb. CME cheddar barrel cheese declined 25.25¢ from its record of $2.32/lb., to $2.0675/lb., but gained 4.25¢ on Feb. 20 to $2.11/lb. on an unfilled bid. CME 40-lb. block cheddar cheese fell 25.25¢ from its record of $2.36/lb., to $2.1075/lb., but also increased on Feb. 20 by 2.25¢ on an unfilled bid, to $2.13/lb.