Milk prices are falling. Class III price peaked in May at $25.21, fell to $22.52 in July and August will be around $20. Class IV price peaked in June at $25.83, declined to $25.79 in July and August will be around $24.70.
Slightly higher milk production and inflation, as well as a slowing economy that is dampening domestic demand, are factors for the decline. Milk production, which was 0.9% lower a year ago from January to May, was only 0.1% lower in June with a 0.2% increase in July. Inflation and a slowing economy reduced restaurant traffic, which slowed cheese and butter sales.
Cheese, Class III lower whey price
Dairy product prices weakened in the last half of July to early August and have since firmed somewhat. Falling cheese and whey prices have driven down the price of Class III. The price of the 40-pound block of cheddar averaged above $2 a pound from March through July with a high of $2.3399 for April. The block price started in August at $1.7850 per pound, has been rising and falling since with today at $1.82.
Cheddar barrels also averaged $2 a pound from March through July with a high of $2.3567 in May. Barrels started August at $1.7959, have been rising and falling since with today at $1.8950.
The price of dry whey averaged $0.5373 per pound in May, fell to $0.4694 in July and has been $0.44 to $0.45 since then.
Butter maintains Class IV price
Higher butter prices offset some of the lower skim milk powder prices to maintain the Class IV price. Butter averaged $2.9546 a pound in June and $2.95 in July. Butter hit $3.06 a pound in early August, fell to $2.9350, but this week it was $3.02.
Skim milk powder averaged $1.8286 a pound in June and fell to $1.6984 in July and today at $1.5325. With the seasonal decline in milk production and strong holiday butter and cheese sales, butter and cheese prices could rebound, pushing up Class III and IV prices in October and November.
Butter stocks are tight. Shares as of July 31 were 21% lower than a year ago and had fallen 5% since June. Cheese inventories as of July 31, however, were 5% higher than a year ago and up 1% from June.
Dairy exports support milk prices
Rising dairy product exports supported milk prices. June exports in volume were 9% higher than last year and set a new record with January-June volume 17% higher. June cheese exports increased by 23% and butter by 63%.
Lower milk production in Western Europe, New Zealand and Australia and competitive US prices in the global market were the main factors behind the increase.
Milk price outlook
Milk prices are expected to fall on average in 2023. The level of milk production, domestic sales and exports of dairy products will determine by how much. With last year’s milk production lower than a year ago, milk production for the rest of this year will increase and continue into next year.
The 0.2% increase in milk production in July was the net result of 67,000 fewer dairy cows, down 0.7% and 0.9% more per cow. The number of dairy cows increased each month from January to May, but decreased by 4,000 in June with an increase of 1,000 in July.
Of the 24 reporting states, only 10 had more dairy cows than a year ago, with 25,000 more in Texas and 20,000 more in South Dakota. Milk production from a year ago for the top five states was: +2.2% for California with 4,000 more cows, Wisconsin -0.3% with 6,000 fewer cows, l ‘Idaho +1.5% with 2,000 more cows, Texas 6.0% and New York no change with 7,000 fewer cows. South Dakota leads all states with a 13.1% increase in milk production.
Input costs keep production under control
High feed and other input costs, rising cost of construction materials, labor shortages and fewer dairy replacements will curb the increase in milk production next year. The USDA projects a 1.1% increase in milk production from an average herd of 15,000 additional cows or a 0.2% and 1.0% increase in milk per cow.
This level of milk production would support milk prices. Uncertainty exists about the economy and the level of inflation, as both can affect domestic demand. Dairy exports expected to increase next year, milk production expected to show no or very limited growth in Western Europe with possible improvement in New Zealand leaving export opportunities open for the United States
US prices should remain competitive in the global market. It is unclear whether the global economy will slow down and affect exports to China. Although milk prices are likely to be lower next year, prices are expected to remain relatively high. The future for dairy products could be a little optimistic.
Currently, Class III futures start the year in the $20 range and stay in the $19 range for the rest of the year. Class IV futures are in the $20s through September, then into the $19s. The USDA is also optimistic. Their forecast is for a Class III average of $21.60 this year, down from $17.08 in 2021 and an average of $19.70 next year. Class IV is expected to average $23.95 this year, up from $16.09 in 2021 and $20.35 next year.
But a lot can change over the next year.
Cropp is Professor Emeritus at the University of Wisconsin Cooperative Extension, University of Wisconsin-Madison.