Bob Cropp and Mark Stephenson.
December 19, 2019

December Milk Checks a Nice Christmas Present

 |  By: Jim Dickrell

It’s going to feel a lot more like Christmas this year than it has in quite some time, say University of Wisconsin dairy economists Bob Cropp and Mark Stephenson.

The announced November Class III price of $20.45/cwt is the highest it has been in five years. For the year, Class III will average almost $17, which is $2.35 higher than last year and $4 higher than the $13.89 low of February.

“But there is a small Grinch in this Christmas story,” says Stephenson. And that’s the November Producer Price Differential, which dropped 94₵ in the Upper Midwest. It was down $3.39 in California, and down $3 in the Central Order.

The reason is mostly accounting. Cropp explains that Class III and IV prices lag Class I by six weeks. With Class III prices exceeding Class I, cheese manufacturers had to pay into Federal Order pools rather than drawing money out. As a result, several cheese plants depooled, exasperating the problem. “The good news is that Class III prices will catch up, and the PPD will go up next month,” he says.

Both economists don’t see a surge in milk production. USDA’s November milk report shows production up less than 1% in both the top 24 milk producing states and nationally. Cows number are actually down 27,000 from a year ago and unchanged from October.

“Everything is toned down a it,” says Stephenson. He believes milk per cow, up just 15 pounds in November, is an early indication of feed quality problems. And he believes that will be a shadow on production all winter and spring.

Both economists also allayed fears of a topsy-turvy cheese market the past few weeks, primarily in the barrel market. It plunged some 70₵/lb over the last couple of weeks, a near 30% decline. Blocks were off 10%. “Normally we get a decline in cheese markets after the holiday, but not this early,” says Cropp.

Part of the reason, they say, is the wide disparity between U.S. price levels and prices in Europe and Oceania. U.S. cheese prices have been considerably higher than world prices all fall. “When that happens, you eventually get reeled back into the marketplace,” says Stephenson. “Long term, you can’t sustain a big difference from world prices.”

But he notes that cheese inventories worldwide are tight. “I think that’s long-term supportive of better prices next year,” he says. “You shouldn’t look at these [current] cheese prices [and their collapse] as setting the tone for next year.”

Cropp is still projecting Class III prices well above $17 for the first quarter of 2020, maybe dipping closer to $17 in the second, and then rebounding above $18 for the second half of the year. He’s projecting a Class III average of $17.90 to $18 for all of 2020. That’s about $1 higher than 2019.

Stephenson is even a bit more optimistic, particularly in the second half of 2020. “It will be an even better year then we had this year,” he says.

In other words, Merry, Merry Christmas.

You can listen to the entire Cropp/Stephenson video here.