The outlook for dairy in Wisconsin

Posted at 1 p.m. on February 25, 2021

By Bob Cropp, Professor Emeritus UW-Madison Extension

MADISON - February milk prices will end a little weaker than January. Class III will drop below $16 to around $15.60 compared to $16.04 in January. Class IV will be around $13.30 compared to $13.75 in January.

Cheese prices have been moving up and down all month and will average lower for the month than the January average of $1.5141 per pound for cheddar barrels and $1,7470 for 40-poind cheddar blocks. Currently barrels are $1.3825 per pound and blocks $1.57. Dry whey continued to show strength since October when the price was in the high 30’s per pound.

Currently dry whey is $0.5475 per pound. This strength has added about $0.90 to the Class III price but not enough to offset lower cheese prices.

Butter averaged $1.3496 per pound in January. Butter reached a low of $1.21 per pound the start of February and increased to $1.55 on February 19th but has now fallen to $1.4875.

While butter will average a little higher in February the nonfat dry milk price weakened some from an average of $1.1808 per pound in January to the current price of $1.090 which explains a weaker Class IV price in February.

Where milk prices head for the remainder of the year remain uncertain and cannot be forecast with a high degree of probability because milk prices can change a lot and quickly with any change in supply or demand.

Crucial will be the level of milk production, and how soon the COVID-19 virus comes under control and things start to return more to normal. The level of dairy exports will also be important.

Milk production was running three percent higher than a year ago in November and December. Milk production slowed to just a 1.6 percent increase in January. Milk cow numbers started to increase month to month back in July and increased another 8,000 December to January. January milk cows were nine-tenths of a percent higher than a year ago.

But the slow down in milk production was due to just a 0.6 percent increase in milk per cow which in recent months was running two percent.

Looking at the top five dairy states milk production which had been running above year ago levels fell 0.7 percent in California and 0.3 percent in Idaho due to lower milk per cow. Milk production was 3.1 percent higher in Wisconsin, 5.3 percent in Texas and 0.7 percent in New York.

January milk production in other key states showed production up 10.1 percent in Indiana, 9.6 percent in South Dakota, 5.7 percent in Colorado and Minnesota and 4.3 percent in Michigan.

Each of these states had expanded cow numbers from a year ago. Florida experienced a 5.1 percent decline in milk production as did eight of the other 24 selected states.

While milk production has slowed it is still at a level to put downward pressure on milk prices. Milk production is likely to slow as we move through the year. Lower milk prices and higher feed costs will tighten margins over feed cost which could slow the increase in milk per cow. The January cattle inventory showed dairy replacements expected calve within the next 12 months two percent lower than a year before.

So, cow numbers may stop increasing by second half of the year. USDA is forecasting cow numbers to average for the year 0.6 percent higher than 2020 with milk per cow up 1.4 percent resulting in 2021 milk production up 1.9 percent from 2020. That is a lot of milk and will keep pressure on milk prices.

The COVID factor

It looks some what encouraging that new cases of the COVID-19 virus are slowing and more will be vaccinated by summer. If so, restaurants should become more fully open, and with the possibility of in person learning in schools and sports returning coming this fall food service will strengthen improving butter and cheese sales.

But the return to normal maybe slow as consumers are reluctant to return fully to pre-virus consumption patterns.

The level of government purchase of dairy products is not likely to be at the level of last year. The Farms to Families Food Box Program runs through April. It is uncertain if the program will be extended. There remain other government programs where dairy products will be purchased for school lunch and food banks. Anyway, the sale of milk and dairy products should strengthen as we move through the year.

Dairy exports were very positive for milk prices in 2020. Dairy exports on a milk solids equivalent volume basis were up 12.9 percent and set a record high. Exports were 16 percent of U.S. milk production compared to the previous record of 15.5 percent set back in 2013.

For the year nonfat dry milk/skim milk powder exports were up 15.9 percent with strong sales to Southeast Asia, whey products up 23.9 percent as China resumed increased imports, butterfat exports up seven percent and cheese exports down just 0.1 percent.

Dairy exports in 2021 could continue to be a favorable factor for milk prices. The price of nonfat dry milk/skim milk powder, cheese and butter are currently very price competitive on export markets.

The dollar also remains weak to other currencies.

Milk production in other major exporters is increasing but over all appears to be less than one percent. So, there will be some additional product available to compete with the U.S. And COVID-19 has slowed economies of most countries. But USDA is forecasting for 2021 increased butter and whey product exports with continued strong exports of nonfat dry milk/skim milk powder.

Stock levels remain at a relatively high level and need to be drawn down for stronger milk prices.

Compared to a year ago, January 31st stocks of butter were 33 percent higher, American cheese three percent higher and total cheese three percent higher.

Butter stocks had increased 20 percent from December but cheese stocks were about at the same level as December.

Currently Class III futures are below $16 for February and March, returning to the low $16’s by April and in the low to mid $17’s May through December. Class IV dairy futures reach $14 by March, $15 by June and the low $16’s October through December as butter prices are expected to increase.

Such a price pattern for now seems reasonable with improved milk prices the second half of the year as milk production slows, milk and dairy product sales improve, and dairy exports are positive. But the possibility that milk prices could end up higher or lower than this remains.