Wisconsin Ag Connection - Cropp: Dairy Prices Still at Record Highs, But For How Long?

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Cropp: Dairy Prices Still at Record Highs, But For How Long?
Wisconsin Ag Connection - 09/23/2014

Strong domestic sales and exports are continuing to drive the price of milk and other dairy products to levels never seen before. But Bob Cropp points out in his monthly Dairy Situation and Outlook Report that it is anyone's guess as to how long these levels will be sustained. The professor emeritus with the University of Wisconsin Cooperative Extension said opinions differ as to how quickly and how far prices will fall once we wrap up this year and enter into the next.

"High prices could eventually temper domestic sales of butter and cheese," Dr. Cropp said. "World prices of butter, cheese, skim milk powder and whole milk powder have fallen substantially and are now well below U.S. prices making U.S. products less competitive on the world market."

He adds that the lower world prices are a result of increased milk production in all major exporting countries. Plus, China is backing off from its very aggressive buying earlier in the year.

During the past month, butter on the CME averaged $2.59 per pound in August, showed strength all month reaching $3 per pound on September 12 and increased to $3.06 per pound on the 19th. Cheddar barrels averaged $2.18 per pound in August, started the month at $2.36 per pound and had increased to 2.43 per pound as of last week.

"The Class III price for September will be near $24.55, $2.30 higher than August, the highest this year and $6.40 higher than a year ago," he said.

But Cropp warns that July butter and dry whey exports already dropped below year ago levels, which means the prices will not remain this high for much longer. Cheese exports were still 18-percent higher due to fulfilling previous contracts, but new orders have also softened.

"By December we could see butter prices around $1.90 per pound and near $1.70 early into 2015. Cheese could be about $1.95 per pound by December, $1.80 early into 2015 and in the mid-$1.70s by summer."

If realized, these prices would put the Class III price near $19.30 for December, around $18 by January and in the $17s by spring and summer.

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