Milk prices depressed

Backlogs of butter and cheese are contributing to depressed milk prices, a University of Wisconsin economist says.

U.S. dairy farmers continued to rein in year-over-year increases in milk production in November, but markets aren’t responding.

Cow numbers have been declining since June and were down 38,000 head in November compared to a year earlier. Production per cow increased, but total milk production was only up 0.6 percent year over year, according to USDA National Agricultural Statistics Service.

Production increases below 1 percent would normally be bullish and translate into much stronger prices than current markets, Bob Cropp, economist with the University of Wisconsin, said in the latest "Dairy Situation and Outlook" podcast.

But U.S. stocks of butter and cheese are relatively high. At the end of October, American-style cheese stocks were up almost 10 percent year over year, all cheese stocks were up 12 percent and butter stocks were up 6 percent, he said.

“With that level of stocks, we’ve seen a continued decline in the price of butter and cheese in November and into December,” he said.

Stocks of nonfat dry milk and whey were 20 percent lower year over year but still above 2016 levels, he said.

The nonfat dry milk price is holding due to strong exports, which were up about 19 percent in October due to strong sales to Mexico and Southeast Asia.

Despite Mexico’s retaliatory tariffs on U.S. cheese, Mexican buyers bought 31 percent more U.S. cheese in October than a year earlier, he said.

U.S. dairy exports to China, which is also embattled in a tariff war with the U.S., were down 56 percent in October. The biggest factor was a 40 percent drop in imports of U.S. whey. China is the largest buyer of that product, he said.

So the whey price has dropped from more than 55 cents a pound in October to 44 cents a pound, he said.

“That shaved ... about 90 cents off that Class III (milk) price,” he said.

Recent cash prices on the Chicago Mercantile Exchange were $2.18 a pound for butter, $1.41 a pound for block cheese and $1.33 a pound for barrel cheese. It looks like the December Class III milk price is going to be below $14 per hundredweight to possibly $13.85, he said.

“That’s terrible,” he said.

That’s going to put the year’s average Class III price at $14.60 to $14.65 compared with the average $16.16 in 2017. Milk prices have been low for four years, but this is going to be the lowest average over the four years, he said.

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