Whey Demand Lifts Milk Prices
There has been much attention on the daily spot market and the movement of milk futures as a result of this. It is unfortunate that Class III milk futures have decline substantially reducing the outlook for milk prices. April and May contracts fell below $15.00 about two weeks ago and were able to climb back above that level. However, April fell below that level again at the end of last week leaving the potential for lower milk prices fresh on the mind. Many feel that the low has got to be either here or near and that if it goes lower or remains lower there will be farms going out of business. There is no double this would happen as it did last year and may year is history when milk prices were low. However, we much realize there is a different sentiment in the dairy industry. Low prices last year (which were substantially lower than this year to date) did not result in the reduction of cow numbers. The nation’s dairy herd actually increased 38,000 head from 2015. Currently, we are well on our way to surpass that amount if the trend continues. February cow numbers were 56,000 head above a year ago.
Thus, the low prices during the first half of last year resulted in increased milk production. In fact, the last year average milk production showed a declined was 2009. Over the past 10 years, milk output has increased 14% reaching a record higher of 212.4 billion pounds. There is the possibility milk prices may need to remain depressed for an extended period of time in order to stimulate demand and reduce inventory or to reduce cow numbers and lower milk production. Preferably it would be neither of these and both domestic and international demand will improve substantially, but that may take some time. But not all is gloom and doom. One aspect of the dairy industry has been steadily increasing in demand and price and that is whey.
Dry whey price according to the recent weekly Agricultural Marketing Service (AMS) report is 52.63 cents per pound. The first AMS weekly report in January showed a dry whey price of 41.33 cents per pound. This was a gain of 11.30 cents which equates to a Class III price increase of 68 cents per cwt. The strength of whey price has certainly been welcomed during the time of weakening cheese prices. One year ago, dry whey price was 23.90 cents according to AMS. This was an increase of 28.73 cents per pound which translates to $1.68 addition to the Class III price! This is certainly something to be thankful for. It would be devastating if current dry whey price was at the level it was a year ago.
International demand for whey has been exceptionally strong with China being a large buyer. December total whey exports were 43% above a year earlier with whey exports up 14% for 2016. January whey exports increased 24% over the previous year with nearly half of the exports for January going to China. Since June 2016, sales of whey to China were 73% above the same period a year earlier.
Increasing cheese production has not increased inventory of dry whey as one would expect, but strong demand has added substantially to our milk prices. Whey has been the bright spot of exports and hopefully this demand will continue.