Tight cheddar cheese supplies are fueling Class III milk prices to the highest level in nearly five years.
USDA’s announced price for Class III in federal milk marketing orders was $18.72 per hundredweight in October, and the November futures price is above $20.
Cash prices on the Chicago Mercantile were at $2.15 a pound for block cheese and $2.32 for barrel cheese Nov. 1. Barrel prices have increased 67 cents a pound and blocks have increased 20 cents a pound in the last five weeks
There’s some “pretty exciting stuff” going on, Matt Gould, dairy analyst with Dairy Market Analyst, said.
Cheddar cheese stocks that were at an all-time high in the first part of the year have been drawn down and are reported as tight, and cheddar cheese production continues to be constrained, he said.
“Milk is still in short supply in the Midwest,” he said.
Associated Milk Producers Inc. announced it is shutting down its American-style cheese plant in Minnesota, citing a big decline in producer numbers. In addition, Land O’Lakes is closing its cheese plant in Orland, Calif., he said.
“Cheese exports aren’t very good, but domestic retail sales have been solid,” growing 2% to 3%, he said.
That and tight supplies of cheddar are driving Class III prices, he said.
Class IV milk prices have also been climbing, with the CME cash price for nonfat dry milk at nearly a five-year high on Nov. 1 at $1.18 a pound.
The biggest driver is that the massive powder inventories in the EU are gone. Those inventories, at more than 800 million pounds, have been overhanging the market since 2015, he said.
The situation for 2020 is setting up for the highest milk prices on average since 2014, he said.
“The next five years is going to be a lot better than the last five,” he said.
In 2016, it was hard to see the light at the end of the tunnel. Now the industry is back to profitable milk prices after five years, he said.
The EU lifted its quotas on milk production in 2015, and producers increased supply. But that can only happen once, and supply growth around the world is constrained, he said.
Prices for replacement heifers are a good barometer of producer sentiment, and they are improving. In Pennsylvania, the price of a springer heifer was $800 to $900 last spring. Now it’s $1,600 to $1,650, he said.
“It is nice to be able to talk about better times ahead for dairy farmers,” he said.
The story will be a little different across the country, but Midwest producers have or will soon be receiving their first milk check in years for $20 per hundredweight, he said.
Milk prices are finally profitable, but that doesn’t mean there will be a windfall, he said.
“We’ve had a tough, tough half decade. It’s been heartbreaking,” he said.
Producers will probably pay off debt, feed lines of credit and operating loans, he said.
“A lot of that’s got to get paid back,” he said.