Milk prices will show further weakness in May and be down considerably from the March peak, yet prices are much improved over a year ago
The May Class III price will be near $16.45/cwt., down about 45¢ from April and $3.00 less than March, but about $3.00 higher than a year ago.
The Class IV price continues to show strength, with May near $20.00/cwt., up about 30¢ from April and $4.70 higher than a year ago. The advanced Class IV price continues to be the mover of Class I.
The May Class I mover was announced at $19.75/cwt., $5.95 higher than a year ago. The U.S. all milk price will average near $18.50/cwt. for May, down about $1.20 from April and almost $2.00 less than the peak in March, but still about $3.50 higher than a year ago.
We could see some strengthening of milk prices beginning as early as June. The Class III price could well be above $17/cwt. and reach near $18/cwt. by September or October. The Class IV price is likely to stay close to $20/cwt. until fall, before declining to the low $19’s or high $18’s by year’s end. This price strength hinges on future milk production, domestic sales and continued strong dairy exports. While fluid milk sales continue to run more than 1% below a year ago, cheese and butter sales continue to run higher. Dairy exports have added strength to nonfat dry milk, cheese and butter prices. Compared to year ago, first quarter exports of nonfat dry milk/skim milk power were more than double; total cheese exports 86% higher; and butter exports almost double. On a total solids basis, about 13% of U.S. milk production was exported.
During May, butter and cheese prices on the CME have shown small decreases and increases from one trading session to another. Butter peaked at $2.095/lb. early May, fell to a low of $1.925/lb. on May 12, but as of May 18 it recovered to $2.07/lb. Cheddar barrels peaked at $1.66/lb. in early May, fell to $1.6425/lb. on May 13, but as of May 18 was $1.6625/lb.. The 40-lb. cheddar blocks peaked at $1.65/lb. in early Ma,y fell to $1.62/lb. on May 11, but returned to $1.6675/lb. as of May 18.
Butter production has picked up some from a year ago, with March production 12.4% higher. As a result, March 31 butter stocks were 4.2% higher than a month earlier, but still 26.3% below a year ago and 29.4% below the 5-year average for this date. March production of cheddar cheese was 6.1% lower than a year ago, with total cheese production 2.4% higher. With good domestic sales and strong exports, March stocks of American cheese declined 1.0% from a month earlier, and were just 2% higher than a year ago. Total cheese stocks declined just slightly from a month earlier and were still over 1 billion lbs., and 2.8% higher than a year ago.
So, with both favorable domestic sales and strong exports, the level of milk production will be a key to where milk prices will head this summer and fall. The growth in milk production was expected to slow with the high feed prices. Feed prices will remain high, with some relief when the new crop is harvested. Hay stocks are very tight in the West, with May 1 stocks 63% below a year ago in both California and Idaho, the lowest since 1999 and 2001 respectively. California and Idaho were paying 90% and 72% more for hay than a year ago, respectively. Hay stocks were also considerably lower than a year ago in the Northeast, but higher in the Upper Midwest. Hay prices for the U.S. averaged 38% higher. The new hay crop will soon be available and prices ought to subside. But, despite higher feed prices returns over feed cost remain positive and dairy producers have been producing all the milk they can in an attempt to recover from the losses incurred during the severely depressed milk prices experienced in 2009.
USDA’s release of April milk production shows the growth in milk production may be slowing. April milk production for the U.S. was estimated to be up just 1.5%from a year ago. This is the smallest increase this year. The slow-down in production was due to a smaller increase in milk per cow, up just 0.7% from a year ago. Milk cow numbers have been increasing month-to-month since beginning last October. The increase from March to April was 8,000 head, putting the number of cows at 0.9% more than a year ago. Of the 23 reporting states, 17 had more milk cows than a year ago, and 13 had less milk per cow. Only six states experienced a decline in milk production.
The milk production growth in the Western states continues to outpace the rest of the country. A smaller increase in milk per cow slowed California’s increase to 2.6%, compared to 3.1% in March. Smaller increases in milk per cow also slowed the growth in Arizona and New Mexico production compared to March. But, Idaho and Texas continued with higher levels of growth, at 4.6% and 7.2% respectively.
No change in cow numbers and just 0.8% more milk per cow netted New York with just 0.8% more milk. Pennsylvania had a few more cows, but 1.2% less milk per cow netted 0.8% less total milk production. In the Upper Midwest, both Minnesota and Wisconsin have been experiencing increases in milk production from more cows and more milk per cow. But, lower milk per cow has meant less milk compared to a year ago for two consecutive months in Minnesota. Production was down 0.9% in March and 1.9% in April. Wisconsin’s production was up just 0.8% in March and down 0.1% in April.
If milk production continues at this slower growth, it increases the probability that milk prices can hold near current levels and, in fact, show strength this summer and fall. The outcome of this year’s crops will be a key factor for feed prices this fall and coming winter and will have a bearing on the number of milk cows, milk per cow and total milk production going into 2012.