October 25, 2017

Producers Feeling the Powder Price Drop

 |  By: Mike Opperman

Almost in every product category inventories of powdered milk ingredients have experienced a significant upward drive. Stocks of whey powder have increased every month over the last twelve, going from about 51 million pounds in storage last September to nearly 100 million pounds as of August's USDA report. 

Likewise the price of powder has dropped precipitously since this spring. Dry whey prices topped out at 50 cents per pound in May, and are in the low 30's now. The spot trade market for grade A nonfat dry milk on the Chicago Mercantile Exchange has lost about a quarter per pound since January 2017. 

The U.S. has exports markets, or the lack thereof, to thank for the increased stocks. 

"Powder stocks are much higher, due mostly the loss of exports," said Bob Cropp, University of Wisconsin dairy economist on his monthly podcast, along with fellow economist Mark Stephenson. "There is a lot more competition in the marketplace from the European Union and other countries."

While producers normally look to cheese markets to gauge milk price, Cropp says the drop in the powder market has hit Class III prices. "With nonfat dry milk dropping below 80 cents and whey powder below 35 cents, that takes about 80 cents off of that Class III price." 

While powder stocks continue to grow, a drop in cheese and butter inventories should help the Class III price at least in the short term. "Cheese inventories are still high, but the draw down over the last two months was big," Stephenson says. Inventories of natural cheese have dropped about 64 million pounds since July. 

"The cheese price has bounced around in October but we should have a higher average than last month," Cropp says. "That will have a positive effect on the Class III price." He expects the October Class III to come out in the $16.60 range. 

Where prices go from here depends on, like always, export markets. "I don't see a lot stronger milk price in 2018," Cropp says. "The average for the year probably won't be much higher than this year. But if exports are stronger than we think and demand stays strong, we could go a little higher."

This block is broken or missing. You may be missing content or you might need to enable the original module.