Milk prices may average higher for 2013 than 2012

2012-12-27T11:58:00Z Milk prices may average higher for 2013 than 2012BY BOB CROPP, UW-EXTENSION Agri-View
December 27, 2012 11:58 am  • 

Milk price are headed lower for December and perhaps for January of next year driven by lower dairy product prices, particularly for cheese and butter. On the CME cheddar barrels were $2 per pound on Nov. 1, had declined to $1.7025 by Dec. 3, and are now down to $1.6375. Cheddar blocks were $2.11 per pound on Nov. 1, had declined to $1.76 on Dec. 3, and are now $1.72. Various factors may explain this price decline.

More milk available for cheese production as well as higher milk components has increased total cheese production, particularly in the East and Midwest. Compared to a year ago, October cheddar cheese production was up 6.2 percent and total cheese production up 3.1 percent. Lower milk production reduced California’s cheese production by 5.4 million pounds or 2.8 percent. But, this was much more than offset with Wisconsin’s cheese production up 11.7 million pounds or 5.3 percent. Other states having strong increases over a year ago were: Idaho 6.0 percent, New York 5.0 percent, Minnesota 8.4 percent, Iowa 4.7 percent, New Mexico 4.6 percent and South Dakota 11.3 percent.

Another factor for lower cheese prices was exports. Compared to a year earlier cheese exports have been higher with October exports 13 percent higher and January through October, 20 percent higher. But the October exports were nearly a third lower since peaking in May. U.S. cheese exports have been affected by prices higher than world prices. Price assistance by the CWT program has helped exports. In August, for example Oceania cheddar cheese was $1.61 per pound, well below the U.S. price. But, since then U.S. cheese prices have come down while Oceania prices have increased to now over $1.80 per pound making for more attractive U.S. exports.

Finally holiday orders have been filled and it is not unusual for cheese prices to decline some in December. However, positive for cheese prices is stocks of cheese which were still tighter than a year ago with October 31st stocks 6.2 percent lower than a year ago.

Dry whey prices have held firm in the $0.61 to $0.665 per pound range. While exports have been about 9 percent lower than a year ago, exports still accounted for 48 percent of dry whey production. In addition, with the level of exports and domestic use Oct. 31 stocks were 37 percent lower than a year ago. The Class III price is supported by these strong whey prices. Yet, the Class III price which peaked at $21.02 in October, declined to $20.83 in November will be down to about $18.65 for December.

CME butter which was $1.89 per pound on Nov. 1 has been around $1.59 for most of December but has declined to now $1.56. Butter exports which have been well below year ago levels, down 18 percent January through October, had strong October exports being 43 percent higher than a year, and the highest since May. Oct. 31 butter stocks were 11 percent higher than a year ago. And like cheese, holiday orders have been filled.

Nonfat dry milk prices have been firm trading in the $1.51 to $1.55 per pound range. However, exports have weakened. October exports were 5 percent lower than a year ago and the lowest since July 2010. Yet Oct. 31 stocks were 15 percent lower than a year ago. The combined butter and nonfat dry milk prices will yield a December Class IV price around $18.00, down from the $18.66 in November.

As we look into 2013, we could see some further weakening of milk prices. The January Class III price could be near $18.00 with little change for the Class IV price. But, we can expect some price recovery by February as cheese demand is usually relatively strong for the month and cheese and butter buyers may need to refill their stocks. Class III futures still remain rather flat from February on trading in the $18.35 to $18.75 range, but there is still the potential for higher prices by summer and fall. It depends heavily upon the level of milk production, and the level of milk production will hinge heavily upon 2013 crop conditions and resulting feed prices.

November milk production was somewhat surprising. U.S. milk production was unchanged from a year ago in August, 0.6 percent lower in September and just 0.1 percent lower in October. But November’s production was 1.0 percent higher, the net result of 0.2 percent fewer milk cows, with milk per cow 1.2 percent higher. Milk cow numbers, which started to decline in May, actually increased by 7,000 head in November.

The regional pattern of milk production remained the same as recent months, with most Western states having lower milk production and production up in the Midwest and Northeast. California’s production was 2.3 percent lower, but surprisingly had increased the number of milk cows by 2,000 head from October. Milk production was down 2.0 percent for Arizona, 4.0 percent for New Mexico, and 3.7 percent for Texas. Idaho remained the exception in the West with production up 2.3 percent. In the Midwest milk production showed relatively strong increases with production up 4.7 percent for Wisconsin, 4.5 percent for Minnesota and 4.0 percent for Iowa.

Milk cow numbers were unchanged from a year ago for Minnesota but 0.4 percent higher for Wisconsin and 2.5 percent higher for Iowa. Increases in milk per cow were also strong with increased of 4.2 percent for Wisconsin, 4.6 percent for Minnesota and 1.4 percent for Iowa. Perhaps with the drought in these states the quality forages now being fed are of good quality impacting milk per cow, but later into 2013 lower forages may be fed slowing increases in milk per cow. In the Northeast, New York’s production was up 3.2 percent, 4.4 percent in Michigan, 4.5 percent in Ohio and 0.4 percent for Pennsylvania.

But with milk prices weakening some for December and January and feed prices still high, U.S. milk production is not likely to show relatively strong increases, at least for the first half of next year. Although a small increase in cow numbers did occur for November, cow numbers are still likely to average lower for 2013 versus this year. And with still high feed prices margins for dairy producers may still not be at levels that would suggest any strong increase in milk production. With world milk prices increasing, some U.S. dairy exports ought to remain favorable. It now looks like milk prices will average higher for 2013 than this year. But there exists much uncertainty where milk prices will end up, particularly by summer and fall.

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