“The stronger Class III price is the result of cheese prices strengthening the end of April into May and higher dry whey prices at 64 cents per pound,” says Bob Cropp, University of Wisconsin-Madison Extension dairy economist. “A year ago, dry whey was 39 cents per pound. The higher dry whey price has added about $1.45 to the Class III price.”
The stronger Class IV price is the result of higher average butter and nonfat dry milk prices, Cropp says. While butter and nonfat dry milk prices are holding, cheese prices have taken a sharp downturn, which means a weaker Class III price in June. On the CME, the 40-pound cheddar block cheese price has fallen 23 cents per pound, from $1.81 in mid-May to $1.58. Cheddar barrels have fallen 15 cents per pound, from $1.78 in mid-May to $1.62 on May 26.
“The higher cheese prices in early May were driven by stronger demand,” Cropp says. “There were cheese purchases under the Farmers to Families Food Box program, which expires the end of May.”
COVID-19 easing
“With improvement in the COVID-19 situation, some schools have returned to classroom instruction and restaurants are more fully open, which has increased food service sales,” Cropp explains. “As we approach the grilling season, the demand for processed cheese increases.”
But cheese prices may be under pressure from relatively high cheese production and cheese stocks. Compared to a year ago, cheddar cheese production for March was up 7.8% and total cheese production rose 4.8%.
March 31 American cheese stocks and total cheese stocks were up 7.1% and 6.7% from a year ago, respectively. Also, these stock levels were higher than February stocks.
What’s ahead?
The forecast for milk prices remains cloudy and uncertain, according to Cropp. “Further opening of restaurants and a move to more in-classroom instruction this fall, as well as conventions, conferences and attendance at sports events returning to more normal, all support stronger milk and dairy product sales,” he says.
Dairy exports look positive as the world economy improves and major export markets like Mexico and China increase purchases, he notes. Currently U.S. prices for butter, nonfat dry milk-skim milk powder and cheese are very competitive with Oceania and Western Europe. But dry whey prices are above world prices.
However, milk production needs to slow down to support milk prices. USDA’s latest forecast has 2021 daily milk production up 2.4% from 2020, the result of an average of 82,000 more milk cows and 1.5% more milk per cow. But with considerably higher feed costs, the increase in milk production could slow by the second half of the year, with increased culling and smaller increases in milk per cow.
Several states had relatively high increases in April milk production over a year ago: South Dakota 13.4%, Indiana 11.4%, Texas 7.7%, Minnesota 6.9%, Colorado 6.0%, Kansas 5.4%, Wisconsin 4.6%, Michigan 4.5%, California 4.1% and New York 2.9%. Except for New York, which had no increase in cow numbers from a year ago, and California with 1,000 fewer cows, all other states added a lot of cows.
Current Class III futures are rather optimistic. Class III is in the low $19s from July through October before dropping to the $18s for November and December.
“It will take a combination of lower milk production, strong domestic sales of dairy products and continued strong exports for these prices to materialize,” Cropp says.
Current butter, cheese and dry whey prices put the Class III price in the $17s. USDA’s latest price forecast has the Class III price averaging just $16.85 for the year, compared to $18.16 last year.
