Bob Cropp and Mark Stephenson.
August 21, 2017

Wild Markets Close Barrel/Block Spread

 |  By: Jim Dickrell

“Wild markets” have closed the 30¢ spread between Cheddar barrels and blocks in the last few weeks, with barrels climbing to close the gap rather than blocks dropping in price.

That suggests much stronger demand, particularly in export markets, say University of Wisconsin dairy economists Bob Cropp and Mark Stephenson. Cheese exports were up 24% in the first half of 2017 compared to a year earlier, and non-fat dry milk reached a 3-year high in June. “China is also buying a lot of our whey products,” notes Cropp.

Milk production is also moderating. With July’s milk production up just 1.8%, that marks the third consecutive month that milk production increases have been below 2% nationally, note the economists.

And of the top four dairy states, California, Wisconsin, New York and Idaho, only Wisconsin was up in July--and up less than 1%. These four states account for almost 50% of U.S. milk production, and when they are not increasing output, other states are hard-pressed to make up the difference.

Another bit of good news is the Food and Drug Administration’s announcement that it will allow the use of ultra-filtered milk in more varieties of cheese without violating product standards of identity. “This addresses some outlet for UF product that was prohibited by the Canadian ban,” says Cropp. “This should have happened a long time ago.”

All totaled, Cropp expects Class III prices to rebound to the $17 level in September and October. Prices could soften again in the first quarter of 2018 with typical seasonal declines following the holidays. Because of softer prices for corn and soybeans, he expects dairy margins to be about $9/cwt next year.

You can view the full Stephenson/Cropp podcast here.