milk being poured into a glass PointsStudio/iStock/Thinkstock
PRICES RECOVER: Class III milk prices ended 2016 at $17.40, compared to a low of $12.76 in May.

Dairy exports finish 2016 on high note

Economist Bob Cropp predicts Class III milk price will average $2.30 more in 2017 than in 2016.

Dairy exports improved the last quarter of 2016. Compared to the year before, December exports were up 3% for nonfat dry milk and skim milk powder, 16% for cheese, 27% for butterfat, and 43% for whey products, according to Bob Cropp, a University of Wisconsin-Madison dairy economist.

"Nonfat dry milk/skim milk powder prices were competitive on the world market all of 2016," Cropp says. As a result, nonfat dry milk/skim milk powder exports for the year were 8% higher than in 2015, and actually 10.6% higher than the previous record set in 2014. Nevertheless, stocks of both butter and cheese grew during December. Compared to the previous year, Dec. 31 stocks were 12.8% higher for butter and 5.3% higher for cheese.

Stronger milk prices
Milk prices ended 2016 at a high for the year, Cropp says. December Class III was $17.40, compared to a low of $12.76 in May. While milk production continues to increase at a relatively high level, the peak demand for cheese and butter during the holidays is over, so some weakening of milk prices is expected for the start of this year.

"As expected under these market conditions, cheese prices have declined," Cropp says.

On the CME, 40-pound cheddar blocks were a high of $1.85 per pound in early February, but declined during the month to $1.53 per pound. Cheddar barrels were a high of $1.71 per pound in early February, but declined to $1.60 by the end of February, according to USDA. Last December, the available supply of fresh 40-pound cheddar blocks was rather tight, resulting in a block price well above the cheddar barrel price. A more normal price relationship between blocks and barrels is about 4 cents per pound.

Offsetting some of the decline in cheese prices is higher dry whey prices. Dry whey was about 44 cents per pound in January and has improved to about 49 cents, which adds about 30 cents to the Class III price. The Class III price for February should be about $16.85. Despite relatively high butter stocks, the CME butter price continues well above $2 per pound, averaging $2.16 per pound in February.

"Milk prices are expected to stay much more favorable than last year for all of 2017," Cropp says. "Domestic sales of butter and cheese are expected to continue to show growth. Milk production by four of the five leading exporters — European Union, New Zealand, Australia and Argentina — is expected to continue below year-ago levels at least for the first half of the year, with only modest increases as a possibility for the last half of the year." The U.S. is the fifth-largest exporter and will continue to show relatively strong increases in milk production.

Increased demand by China and others is expected, pushing up world dairy product prices, according to Cropp. With these conditions, continued improvement in dairy exports is expected. The level of milk production will be a key factor in how much milk prices improve over 2016.

With relatively low feed prices and improved milk prices, Cropp says the industry can expect the average number of milk cows to increase in 2017 and further improvement in milk per cow. USDA is forecasting the average number of milk cows to increase 0.4%, and milk per cow to increase 1.9%, resulting in an increase in total milk production of 2.3%.

Cropp predicts the Class III price to be in the low $16s through about May, and then increasing to the $17s, with high $17s and even low $18s by October or November. That would mean an average for the year of $17.15, compared to $14.87 last year.

"How dairy exports actually perform over the next couple of months and the level of milk production will provide better insight for milk prices during the year," he says.

O'Leary is editor of Wisconsin Agriculturist, a Penton Ag publication.

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