Milk prices most likely peaked for the year in March. The March Class III price was $19.40, up $2.40 from February and $5.92 from January. The March Class IV price was $19.41, up $1.01 from February. A drop in cheese prices beginning in mid-March means lower April milk prices. On the CME, barrel cheese fell from $1.98 per pound early March to a low of $1.51 on April 7th. Cheddar blocks fell from $2.02 per pound early March to $1.5775 by April 4th. The good news is prices have recovered some since then. However, the week of April 18th is showing some weakness again. As of April 19th barrels were $1.5825 per pound and blocks to $1.62. Nevertheless, the April Class III price will be down about $2.70 from March to near $16.70. The April Class IV price will increase over March to near $20.00 due to continued strong nonfat dry milk prices.

The outlook for milk prices appears a little brighter than a month ago with some strengthening of cheese prices. The following factors may be contributing to brighter cheese prices. While February American cheese production was 2.6% higher than a year ago cheddar production was actually down 0.6%. Italian cheese production was 6.6% higher giving a 4.1% increase in total cheese production. While February 28th cheese stocks were 4.0% higher than a year ago, American cheese stocks fell 2.5% from January to February and total cheese stocks fell 1.6%. Good domestic sales, especially Italian cheese as evident by its strong production, and exports were a key factors. February cheese exports were a record high on a daily-average basis, more than double prior-year levels. Year-to-date exports were 99% high than a year ago.

Both improved butter prices and nonfat dry milk prices contributed to a higher Class IV price. CME butter, which declined slightly from $2.00 per pound on March 31st to $1.97, has recovered back to $2.00. Western nonfat dry milk prices continue to trade in the range of $1.55 to $1.59 per pound. Despite butter stocks increasing 16.7% over January levels, stocks were still 31.7% lower than a year ago and the lowest for this date since 2005. Domestic butter sales have remained favorable and butterfat exports increased sharply in February being up 163% from a year ago. Nonfat dry milk/skim milk powder exports were also active in February being up 132% from a year ago.

Milk prices should reach its low in April and May and begin a seasonal increase peaking again in September or October. Class III prices could be above $17 by June and peaking near $18.00 by September. The Class IV price is likely to be in the range of high $19's to $20 until fall. While this is a much brighter price outlook that what appeared back in March caution is to be noted. Dairy product prices and in turn milk prices are highly sensitive to new market information. Beverage milk sales, which accounts for about 28% of total milk use, is not helping to support milk prices. February sales of conventional beverage milk product sales was 2.6% lower than a year ago with total organic beverage milk products 23.0% higher (organic products were 3.7% of total beverage sales) netting a 1.9% decline in total beverage milk sales. Thus,   

for this brighter price picture to materialize domestic sales of cheese and butter, and dairy exports need to hold up as well as milk production showing relatively small growth, that is less than 2%. However, USDA's report on March milk production did not indicate milk production has started to slow. Revised U.S. milk cow numbers showed estimated cow numbers actually increased by 1,000 head in February and are estimated to be up another 17,000 head in March. March cow numbers were 0.8% higher than a year ago, and with 1.4% more milk per cow total milk production was 2.2% higher.

Western states are adding milk cows. Cow numbers have been below year ago levels in California until March where there were 1,000 more than a year ago. For other Western states cow numbers compared to a year ago were up 10% in Arizona, 7.8% in Colorado, 3.7% in Idaho, 3.4% in New Mexico, 2.0% in Washington, 3.9% in Texas and 4.3% in Kansas. Cow numbers for some other stated were up 4.4% in Florida, no change in New York, up 0.4% in Pennsylvania, 0.2% in Minnesota and 0.5% in Wisconsin. Despite dairy cow slaughter being about 9% higher than a year ago January through March more than an adequate number of dairy replacements allows for a growth in the nation's dairy herd. Attractive prices for slaughter cows also help in purchasing replacements.

With the increase in cow numbers total milk production was also up substantially in several states. Compared to a year ago the following states had increases in milk production of: Arizona 8.6%, California 3.1%, Colorado 8.6%, Idaho 3.7%, New Mexico 3.4%, Texas 7.0%, Kansas 5.7%, and Florida 6.3%. Increases were much less in the Northeast and Upper Midwest with increases of 3.1% in the New York but down 0.7% in Pennsylvania, and down 1.5% in Minnesota with Wisconsin up 1.3%.

Source: Bob Cropp, Professor Emeritus University of Wisconsin Cooperative Extension University of Wisconsin-Madison