Strong export demand, tight milk supplies for cheese manufacturing in some parts of the country and the advent of the holiday-buying season has dairy analysts at the University of Wisconsin more bullish on milk prices than the futures market.
While domestic cheese sales are somewhat mixed, favorable export cheese prices point to Class III milk prices that could hit $18.50 per hundredweight in October, said Bob Cropp, professor emeritus with the University of Wisconsin Cooperative Extension in his latest Dairy Situation and Outlook podcast.
Milk supplies for cheese production in the Northeast and Upper Midwest were tight in August and September, with some cheese plants paying as much as a $2.50 per hundredweight premium for spot purchases and other cheese plants running at lower capacity, he said.
With Thanksgiving and Christmas quickly approaching, buyers are going to have to start purchasing product for the holiday season, and the cheese market could take off. Most industry reports are calling for higher demand and better prices. But cheddar cheese has to get to $1.84 a pound to realize a Class III price in the mid to high $18s per hundredweight, he said.
Disappearance of cheese and butter stocks has improved and could improve further. The butter market has taken off, driving butter prices to $1.60 per pound and Class IV milk prices to hit $20 per hundredweight.
Both powder and butter markets have been strong due in large part to export opportunity, said Mark Stephenson, director of dairy policy analysis at the University of Wisconsin.
“We’ve had some real strong recoveries there. Exports have been incredible,” he said.
Exports are holding up despite the drop in the general economies of some countries, such as China – which has dropped below double-digit growth. Demand for dairy products and improving diets there, however, continue to increase, he said.
Most industry forecasters are more bullish on milk prices than the futures market for the next several months but become more bearish on into 2014, Stephenson said.
“I think they’re kind of anticipating we’ll be our own worst enemy and produce more milk then markets really want,” he said.
USDA’s milk production report for August showed a 2.6 percent growth over August 2012 and an increase for five consecutive months. That’s not bullish for milk prices, Cropp said.
It appears producers are adding cows. With a good harvest, feed prices are going to be cheaper, and if producers continue to increase the herd, it will put pressure on milk prices in 2014, Cropp said.
But there are surprises every year, and a lot could happen between now and then. A lot will also depend on next year’s feed crops and exports, which are likely to drop off a bit with New Zealand’s production expected to return, he said.
“I think we have to conclude the odds are we’re going to have a lower average milk price in 2014 than in 2013,” he said.
Nonetheless, he thinks Class III milk prices in first quarter 2014 will remain in the $17s per hundredweight as opposed to the $16s forecasted in the futures market, he said.