Dairy markets stuck in holding pattern

Class III milk prices in 2018 could end up being the lowest in four years and aren't expected to break out of the $14 range until the second quarter of next year.

Dismal dairy markets have been see-sawing, with prices up a little one month and down a little the next, and two university economists see nothing in the near future that will break that pattern.

“We seem to be range-bound,” Mark Stephenson, director of dairy policy analysis at the University of Wisconsin, said in the latest Dairy Situation and Outlook podcast.

“There’s been no piece of news that gives us any comfort to, I think, make a really big statement about where prices are going,” he said.

The latest cold storage report shows U.S. stocks of American cheese are up 10 percent year over year. Total cheese stocks are up 8 percent, and butter stocks are up 6 percent, Bob Cropp, a dairy economist with the university, said.

Retaliatory tariffs are taking a toll on exports, with cheese exports to Mexico down 10 percent and to China down 60 percent in September, he said.

Dry whey exports to China were down 6 percent, dropping the dry whey price from 55 cents a pound to 42 cents and taking as much as 70 cents from Class III milk prices, he said.

The cash price for barrel cheese was $1.24 a pound on Friday and block cheese was at $1.33, he said.

“Those are terrible prices,” he said.

While there’s plenty of cheese around, prices have dropped more than he would anticipate, given slowing production and holiday demand, he said.

Stephenson agreed, saying “I don’t think the fundamentals would reflect that we should have prices where they are here. And yet it’s not just our U.S. prices that are poor.”

Prices at the Global Dairy Trade auction have been really off the last couple of sessions, he said.

Those prices have declined for seven trades in a row, with cheddar cheese trading at $1.47 a pound and butter trading at $1.65 a pound at the last auction, Cropp said.

Back in the U.S., it looks like the Class III milk price will be about $14.60 per hundredweight for November, and the December futures price is $14.30. If that holds, Class III will average about $14.60 for 2018, the lowest average in the last four years, he said.

“So you look down the road, if you look at futures, it’s not very optimistic at all,” he said.

That Class III price is in the $14s for the first quarter, moving into the 15s and barely hitting the $16s in August, he said.

“I think the futures markets are too soft. I’m still optimistic that we’ll do a little better than that,” he said.

But it doesn’t look like there’ll be the kind of rebound in milk prices that dairy farmers would like to see, he said.

“I wish it was better news, but it’s been a pretty painful year and we need some good prices to recover from that. And it doesn’t look like it’s going to happen,” he said.

Markets just seem range-bound in prices with a little more product than the world wants and some unfriendly trade practices, Stephenson said.

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