It seemed as if the cheese market had turned a corner and would trend higher. It was anticipated that the lows were behind, and price could trend higher. However, the weakness of Class III futures over the past two weeks suggests otherwise. Granted, the lows may be in, but that does not mean prices will continue to trend higher. Class IV futures have fared much better as butter price continues to provide support.
USDA had its annual Agricultural Outlook Forum on February 15th and 16th with the outlook for the U.S. dairy industry being presented. The report indicated Class IV prices would remain much stronger than Class III prices. The expectation is for the average Class IV price this year to be $20.20, an increase of $1.08 per cwt over 2023. This compares to an estimate for the Class III price of $17.10 for this year, an increase of $0.08 per cwt over 2023.
The anticipation is for the butter price to remain strong and to trend higher. The recent strength of international butter prices has improved the potential for U.S. butter to become more competitive on the international market thereby increasing demand. Butter exports for 2023 had been substantially below the previous year If export demand improves significantly, butter price will move higher than it currently is and potentially back to the highs of 2023 or higher. Butter inventory closed 8% lower in 2023 from the previous year. This combination along with good domestic demand should provide continued support for butter. Traders anticipate stronger prices as more premium has been added to butter futures in contracts through the end of the year. Currently, the October butter futures contract is anticipating an average price of $2.92 per pound. It was only a few weeks ago that futures were in line with the underlying cash showing little to no premium in the market.
During the Annual Outlook Forum, USDA was not quite as optimistic about cheese prices. They project an average price of $1.69, which would be nearly $0.07 per pound below 2023. They cite that the increase in cheese production capacity since 2018 will keep sufficient cheese available for demand both domestically and internationally. However, whey demand has improved and may continue to do so as global demand for whey is higher and domestic demand has improved. This will help to provide some support for the Class III milk price.
Of course, the estimates for milk prices can change substantially as many factors impact milk production. One aspect of the industry that is of concern for many farms is the tight dairy replacement heifer market. This is an issue that will not be corrected over a short time. Heifer prices continue to increase which is also increasing the price of good milk cows. Dairy cattle slaughter has declined compared to the previous months and the previous year as good cows are moving between farms rather than going to slaughter when farms exit the business of producing milk.
The Agricultural Outlook Forum released the expectations for grain production and grain prices for the year. USDA estimates lower grain prices and increasing ending stocks for the 2024/25 crop year. They estimate corn planted acres at 91.0 million with a yield of 181.0 bushels per acre. Last year, there were 94.6 million acres and a yield of 177.3 bushels per acre. Ending stocks are estimated at 2.532 billion bushels with an average price of $4.40 per bushel which is $0.40 per bushel lower than this year. Soybean planted acres are expected at 87.5 million with a yield of 52.0 bushels per acre. This is compared with 83.6 million this year and a yield of 50.6 bushels per acre. Ending stocks are expected to reach 435 million bushels. The average soybean price is expected to decline by $1.45 to an average of $11.20 per bushel. This is good news for feed prices. However, milk prices often follow corn prices historically. Not always directly, but there is a strong correlation.
For more on milk prices, read:
- Milk Prices See Little Recovery: Weaker Supply Balanced by Slower Demand
- America’s Heifer Shortage is Preventing Expansion. Is the Big Money for Beef-on-Dairy a Factor?
- 2024 Milk Production Forecast Reduced, All-Milk Price Looks More Encouraging
- Production Remains Strong Despite Fewer Cows, Just Take a Look
Robin Schmahl is a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Robin’s office is located in Elkhart Lake, Wisconsin. Robin may be reached at 877-256-3253 or through the website www.agdairy.com.
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