Milk Production, Prices Leveling Off

Milk Production, Prices Leveling Off

According to the May issue of the Milk Production Report issued today by the National Milk Producers Federation, the rate of milk production growth began to moderate during the first quarter. But additional milk production continues to generate American cheese at a faster rate than total consumption, driving up inventories and putting some pressure on cheese prices. Still, exports of most products showed strong year-over-year growth during the first quarter of 2017. Federal order class prices have dropped month-to-month during most of 2017, and the March all-milk price was $1.60 per hundredweight under January. The March Margin Protection Program (MPP) margin was down $1.75 per hundredweight from last December. However, a mid-May rally in cash and futures prices for butter and Cheddar cheese provided a strong indication that the milk price erosion during the first months of this year may have run its course.

Looking Ahead The mid-May rally in cash and futures prices for butter and Cheddar cheese has brightened considerably the outlook for milk prices over the next few months, even allowing for some potential erosion. Immediately following this rally, CME butter futures remained above $2.40 per pound from June through the end of 2017, while the cheese futures show an increase to above $1.70 per pound by August. The CME dairy futures collectively indicated that May would be the bottom for the monthly all-milk price, after giving up less than $1 per hundredweight from March. Despite the usual springtime increase in grain prices, which is considerably muted this year, USDA’s MPP decision tool shows very little likelihood of MPP payments at any coverage level this year.

Milk Production, Prices Leveling Off