Wisconsin Ag Connection - Cropp: Milk Prices Have Likely Peaked for 2011

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Cropp: Milk Prices Have Likely Peaked for 2011
Wisconsin Ag Connection - 04/25/2011

Dairy producers are finally starting to realize a positive cash flow on their balance sheets, but unfortunately, milk prices may have already peaked for the year. That's according to this month's Dairy Situation and Outlook report by Dr. Bob Cropp, professor emeritus with the University of Wisconsin-Extension. He says the March Class III price of $19.40 is well above levels seen in a long time. But the cheese markets are starting to show some signs of weakness--indicating a slightly lower milk check in the months ahead.

"As of April 19 (cheese) barrels were $1.58 per pound and blocks to $1.62.," Cropp pointed out. "Nevertheless, the April Class III price will be down about $2.70 from March to near $16.70. The April Class IV price will increase over March to near $20.00 due to continued strong nonfat dry milk prices."

Cropp says the outlook for milk prices appears a little brighter than a month ago with some strengthening of cheese prices.

"While February American cheese production was 2.6-percent higher than a year ago cheddar production was actually down 0.6-percent," his report stated. "While February 28 cheese stocks were 4.0-percent higher than a year ago, American cheese stocks fell 2.5-percent from January to February and total cheese stocks fell 1.6-percent. Good domestic sales, especially Italian cheese as evident by its strong production, and exports were a key factors. February cheese exports were a record high on a daily-average basis, more than double prior-year levels. Year-to-date exports were 99-percent high than a year ago."

Meanwhile, milk prices should reach its low in April and May and begin a seasonal increase peaking again in September or October. If that happens, the Class III prices could be above $17.00 by June and peaking near $18.00 by September, according to Cropp. And the Class IV price is likely to be in the range of high $19 to $20 range until fall.

"While this is a much brighter price outlook that what appeared back in March caution is to be noted," Cropp said. "Dairy product prices and in turn milk prices are highly sensitive to new market information. Beverage milk sales, which accounts for about 28-percent of total milk use, is not helping to support milk prices."

He says February sales of conventional beverage milk product sales was 2.6-percent lower than a year ago with total organic beverage milk products 23-percent higher--netting a 1.9-percent decline in total beverage milk sales.

"Thus, for this brighter price picture to materialize domestic sales of cheese and butter, and dairy exports need to hold up as well as milk production showing relatively small growth, that is less than two-percent."

Dr. Cropp concludes that with the increase in cow numbers around the country, total milk production will likely increase in several states.

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