University of Wisconsin economists Cropp and Stephenson
May 23, 2018

Class III Prices Headed to $16+, Maybe $17

 |  By: Jim Dickrell

April’s milk production report released last Friday shared some earlier-than-expected good news, says Wisconsin dairy economists Bob Cropp and Mark Stephenson. Milk production nationally climbed just 0.6%.

 

“[Friday’s report] caught me a little by surprise. We’ve been expecting milk production to slow at some point, but didn’t think it would happen quite this quickly,” says Stephenson.

 

“In the Midwest, Minnesota was down 2% and Wisconsin was down almost 1%,” says Cropp. Production slowed in the Northeast and eastern Corn Belt as well. New York was down 2.4%, Pennsylvania was down 1.7%, Ohio was off 2.5% and Michigan was down 1.4%.

 

The reason this is important is that it indicates the spring flush, likely to come this month and next, won’t be as great as in recent years. And that will mean plant capacities won’t be as stressed and pressure on premiums won’t be as intense, say both economists.

 

Perhaps one of the greatest uncertainties facing dairy farmers the rest of this year are trade talks and negotiations going on with NAFTA and China.

 

Mexico, for example, is 40% of our dairy export market and takes a huge chunk of U.S. dairy milk powder exports. We’re already losing some milk powder sales to Mexico due to Canada’s Class 7 program. And if we don’t get a deal on NAFTA, the European Union and Canada could take over some of our cheese sales to Mexico, too. “Any loss of sales to Mexico would not be positive for our milk prices,” says Cropp.

 

On the other hand, cheese sales to China have rebounded. That’s positive, as long as it continues and is not disrupted with further talk of a trade war with the Chinese.

 

Nevertheless, slowing milk production this spring bodes well for milk prices later this summer and fall. “By July, we could see $16 Class III prices,” says Cropp. “We’re already seeing some Class IV prices in the $15s on the futures market, and they had been below $13.”

 

Stephenson is even more optimistic. “I think you’re being stingy. I think we could get into the $17s on Class III,” he says.

 

“If exports stay positive, we sure could,” adds Cropp. “In 2017, we had a run up to $17.40, and that could happen again.”

 

To view all of Cropp’s and Stephenson’s comments, click here.