April 2021 Dairy Situation and Outlook, April 21, 2021
Bob Cropp, Professor Emeritus, University of Wisconsin Madison, Division of Extension
Originally published online at https://fyi.extension.wisc.edu...
Despite relatively strong milk production growth, dairy
product prices continued to show strength during April. While
prices on the CME moved up and down during the month, the
price of cheese, dry whey, butter and nonfat all strengthened.
The result of these stronger dairy product prices the April
Class III price will be near $17.70 compared to $16.15 for
March and the April Class IV price near $15.50 compared to
$14.18 for March.
These stronger prices are the result of several factors. Food
service which normally accounts for about 50% of cheese and
butter sales has improved as more restaurants have more
fully opened and some schools have returned to partially or
full in classroom instruction. Dairy products have been
purchased under the Farms to Families Food Box Program
which was to end on April 30th but has been extended to the
end of May. And there have been dairy product purchases for
the Supplemental Nutrition Assistance Program (SNAP). Dairy
exports continue to increase as dairy product prices are
competitive on the world market.
USDA estimates milk production for the month was 1.8%
higher than a year ago. Milk cow numbers continue to
increase with 8,000 more than February resulting in 77,000
more cows than a year ago for an increase of 0.8%. The
increase in milk per cow slowed some with an increase of
1.0%.
The level of milk production for the remainder of the year is
very crucial to how milk prices will fair. USDA is forecasting a
relatively strong increase in milk production for the year
being up 2.3% higher than last year Leap Year adjusted. Milk
cow numbers are forecasted to average 72,000 head higher
or 0.8% and milk per cow 1.5% higher. This amount of milk
will be difficult to move through the domestic market and
exports and maintain relatively favorable milk prices. But milk
production could well slow by the second half of the year as
higher feed costs could encourage heavier culling of cows and
ration adjustments that reduces the increase in milk per cow.
Continued improvement in the economy, further opening of
restaurants, return of fans to sports events, return of
conferences and in person classroom instruction all for the
second half of the year would support milk prices. With some
improvement in the world economy, modest increase in milk
production around 1% for major dairy exporters like Western
Europe, New Zealand and Australia, and U.S. dairy product
prices competitive on the world market should all be
favorable for dairy exports this year. But unless milk
production ends up less than what USDA is currently
forecasting there will a lot of pressure on milk prices.
Class III futures have been somewhat volatile during the
month with Class III at times in the $17's and in the $19's.
Class IV futures have shown continued strengthening.
Currently Class III futures are rather optimistic being in the
$19's May through September and the higher $18's October
through December. Class IV futures are in the $16's May
through July and the $17's August through December. USDA's
latest forecast is not this optimistic. USDA forecasts Class III to
average 17.10 for the year compared to $18.16 last year.
So, uncertainty as to where milk prices will end the year
continues. Unless milk production ends up lower than what
USDA is currently forecasting, in my opinion $19 Class III
futures are too optimistic. I could see Class III in the $17's. I
hope I am wrong, but time will tell. We will need to keep
watching how things develop month to month.