Class III price rises as milk production slows

posted Sept. 4, 2018 8:05 a.m. (CDT)
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by / Heidi Clausen, Editor |

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Farm-gate milk prices headed back in the right direction Aug. 29 with the U.S. Department of Agriculture’s announcement of class and component prices for the month. The Class III price for milk produced in August is $14.95 per hundredweight, up 85 cents from July but down $1.62 from August 2017. This is the third best price so far for 2018.

The Wisconsin all-milk price for July was $15.30 per hundredweight, according to the latest agricultural prices report from the National Agricultural Statistics Service. This was down $1.20 from the previous month and $1.80 lower than July 2017. The U.S. all-milk price for July was $15.40, which is 90 cents lower than the month before. All 23 major milk-producing states saw a lower price compared to June. The biggest declines were in Wisconsin and Oregon, which both were down $1.20. New Mexico and Michigan reported the lowest prices in the U.S, at $14.10 and $14.20, respectively.

Slower growth in U.S. milk production and cow numbers, combined with reduced milk output per cow due to the summer heat, are making for a more bullish-looking dairy market, which bodes well for prices paid to farmers, according to Bob Cropp, UW-Madison dairy economist emeritus, who discussed the dairy outlook in his monthly podcast. Michigan production is no longer growing, he said, and butter stocks are tightening.

Despite the negative impact of retaliatory tariffs this summer, U.S. dairy exports have remained strong, utilizing more than 16 percent of the nation’s milk production, Cropp said. He said the market overreacted this summer to the tariffs, and UW dairy economist Mark Stephenson pointed out that exports don’t simply “go to zero” because of them.

“The demand is simply too large and there aren’t additional supplies elsewhere to cover that product,” he said.

Domestic dairy product sales also continue to look favorable. At the same time, global milk production has not been growing as quickly as it had been due to issues in some countries, such as drought in Germany, so world prices could strengthen.

While large cheese inventories continue to drag on milk prices, he said, he looks for the Class III price to head higher, into the mid- to upper-$15s this fall, and doesn’t rule out $16 by October or November.

“If production stays like it is ... that’s got to boost that price a little bit,” Cropp said, adding that while the dairy market still doesn’t look great, “things look a little better.”

Both spot and futures markets have been leaning more to the bullish than bearish side recently, according to Stewart-Peterson’s “Market 360” issued Aug. 24.

“The fact that dairy cow numbers on-farm fell 8,000 head in July from a year ago with production growth below trend-line at just 0.40 percent supported prices,” the report stated. “Also, the fact that spot whey pushed into new all-time highs with spot cheese turning back higher helped, as well. September milk closed above the prior August high.

“It looks like the market is starting to price some premium back into the nearby contract months, which could take the lead once August falls off the board. This would be bullish,” the report continued. “If cheese can make another new high, it should keep the market supported.”

Sarina Sharp of the Daily Dairy Report said Aug. 24 that the combination of high slaughter volumes and cheap heifers suggests that contraction in the U.S. dairy herd continues, while “across the pond,” scorched pastures and dwindling feedstocks are prompting a similar uptick in cull rates.

“Growth in milk output in the world’s two largest dairy regions is likely to slow just as demand for dairy seems to be ramping up,” Sharp said. “At long last, the dairy industry may be able to sustain a rally that makes milking cows worthwhile.”

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