Current Cheese Prices Won't Support Milk Price Increases - Cowsmo

Current Cheese Prices Won’t Support Milk Price Increases

Current cash prices for cheese simply won’t support the optimistic, plus $16 level for Class III dairy futures, say Wisconsin dairy economists Bob Cropp and Mark Stephenson.

They made their comments today in their monthly webinar following USDA’s June production report released last week.

August 2016 Class III futures are approaching $17, and prices remain above $16 all the way through December 2017. However, barrel cheese is trading at $1.75/lb and block cheese is trading at $1.68. “Even at these prices, they won’t generate a $16 Class III price,” says Cropp.

“I continue to see milk prices in the $15 range…, and it will take a further rally in cash prices [to get it to the $16s],” he says. “I’m more in the low $15s.”

Cropp’s Class III average for 2016 is about $14.50/cwt, about a $1 less than last year. The reason is the low prices at the beginning of the year.

Stephenson agrees. “Futures markets are a bit more optimistic than I could be, and it’s mostly because of fundamentals,” he says. “I still think we have a lot of product in inventory… and we’re not seeing the export sales we need for a full recovery.”

Barrel cheese is currently selling at a 9¢/lb. premium to block. Normally, blocks have a 3 1/2¢/lb premium over barrels. “That is saying that if there is any tightness in the market, it’s for fresh product,” says Stephenson. “And I don’t know how long that can be sustained.”

“I don’t think we can have a full recovery until our exports pick up a bit more,” he adds. “We’re consuming a great deal of product internally, but either we have to tamp down supply here or we have to have the opportunity for more export sales.”

Both Cropp and Stephenson believe 2017 will bring better milk prices. But the question is when: Will prices rebound after the first of the year, or will it take until spring for prices to strengthen?

By Jim Dickrell
Source: Farm Journal’s

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