Bob Cropp, professor emeritus at the University of Wisconsin-Madison, offers the following comments on the current dairy situation and outlook.
“Farm milk prices have shown strong increases since the beginning of the year. Class III increased from $13.48 in January to $17.00 in February and will be above $19.00 for March. Class IV increased from $16.42 in January to $18.40 in February and will be near $19.70 for March. The U.S. Average All Milk price increased from $16.70 in January to $18.40 for February and will be near $19 for March. But, these prices most likely will be the peak for the year. While butter, nonfat dry milk and dry whey prices are holding up cheese prices turned sharply down. CME butter has been at $2.12 per pound since March 7 before showing some weakness on March 16. As of March 18, butter was $2.07. Western nonfat dry milk has been in the range of $1.48 to $1.68 and dry whey $0.45 to $0.52. On the CME 40-pound cheddar blocks peaked at $2.02 on March 3, started to show some weakness on March 8 and declined sharply on March 14 and as of March 18 blocks had fallen $0.335 to $1.685. Likewise, CME cheddar barrels peaked at $1.98 on March 3, showed some weakness on March 10 and as of March 18 barrels had fallen $0.28 to $1.70. Near month Class III futures responded with sharp declines as well.
“It now looks like the Class III price will be well below $17 by April and could be in the low $16′s from May to early fall and then recover to the high $16′s or higher. The continuation of strong exports of nonfat dry milk and dry whey are anticipated and should hold up prices of these products to mid summer or early fall. Class IV could approach $20 by April and remain in the $19 range to early fall before falling in the $17 to $18 range. Dry whey could stay in the $0.40 to near $0.50 range until fall which will help to support the Class III price.
“This decline in cheese and Class III prices was not un-expected. Cheese and Class III prices peaked at levels that were unexpected based on the level of cheese stocks, cheese production and the level of milk production. Cheese exports were 60 percent higher in 2010 than the year before and 96 percent higher in January than a year ago which helped to support cheese prices. But, 2010 cheese exports are just 3.7 percent of cheese production while January exports improved to 4.7 percent of production. Cheese production has been well above a year ago with January production of cheddar cheese up 5.6 percent and total cheese production up 5.0 percent. Cheese sales have held up quite well despite higher prices. But, yet American cheese stocks increased slightly from December to January and were 9 percent higher than a year ago as of January 31st and total cheese stocks 7 percent higher, the most for this date since 1987.