In 2021 producer milk prices have skyrocketed. This post will examine the elements behind these increases to see why the prices are increasing and if they are sustainable.
The data in this post is the most current data available. USDA Class and Component pricing data is through May, cold storage inventory data is through April, and weekly commodity prices are through June 5.
CLASS AND COMPONENT PRODUCER MILK PRICES
- The Class II milk price has increased by 16 percent in 2021.
- The Class III milk price has increased by 21 percent in 2021, all in the last three months.
- The Class IV price has increased steadily by 21 percent in 2021.
- The butterfat price has increased by 29 percent in 2021.
- The milk protein price has increased by only three percent in 2021.
- The "Other Solids" price has increased by 106 percent in 2021.
- Butter prices have increased by 25 percent in 2021.
- Cheese Prices have increased by 11 percent in 2021.
- Dry Whey Prices have increased by 56 percent in 2021.
- Nonfat Dry Milk prices have increased by 13 percent in 2021.
Chart I - Weekly Block Cheese Prices |
Chart II - Weekly Barrel Cheese Prices |
Clearly, the increase in cheese prices is the result of the changes in barrel prices. This is likely related to changes in eating habits as COVID restrictions are rescinded.
As production and supply changes adjust to the eating changes, Cheddar block prices will likely return to a more normal level. Therefore, the 21 percent escalation in cheese prices will return to lower levels. Based on the last few weeks of Cheddar block pricing, that is already beginning. The current escalation and volatility in AMS "cheese" prices is a result of the narrow sampling of cheese prices which are based only on the price of young Cheddar cheese.
BUTTER
Butter prices are the basis for pricing butterfat. Butter prices has been steadily increasing in 2021. The USDA monthly Class and Component price of butter has risen 25 percent in 2021. Usually, there is a correlation between butter inventories and butter prices (see Chart I in a recent post displaying this inverse relationship). The 2021 increase in butter inventory over the prior year is three percent. That is more than the increase in domestic consumption. Production has remained strong (see Chart II in the recent post to this blog). In 2021 there is not a butter inventory issue, so that makes the price increase a little unusual.
With more butter inventory available, exports are starting to expand. To date, those exports are small, but they are building. It appears that the weekly pricing is leveling out (Chart III), so there may be no further price increases. It is probably safe to say that butter prices will maintain the current levels or decrease as inventories continue to build.
Chart III - Weekly Butter Prices |
Chart V - Weekly Dry Whey Prices |
Chart VI - Weekly NDM Prices |
SUMMARY
Cheese prices will likely moderate in the coming weeks as shortages in block Cheddar inventories will probably be corrected.
Butter prices will at best stay the same with a good chance of falling as inventories of butter continue to grow. If exports of butter continue to grow, it could help maintain reasonable inventory levels.
Dry Whey prices will move with whatever happens in the international markets. The price of "Other Solids" in Class III milk has doubled in price in 2021. The increase is adding about 2 dollars to the current Class III price as compared to the 2020 prices. International prices can vary tremendously based on supply and demand, international events and international politics, but currently the pricing is very positive.
Very importantly, NDM prices, which are also dependent on international events, are having a very positive price impact on all skim milk except Class III skim milk. As an example, since the beginning of 2021 NDM has increased in price by 13 percent causing the Class IV skim price to increase by 16 percent.
International events which impact dairy exports are coming in play with butter, dry whey, and NDM.
As COVID issues continue to diminish domestically, it will impact domestic consumption, dining patterns, and the supply chain. We do know that overall, too much milk is being produced which will likely increase dairy product inventories with negative pricing consequences. Future posts will continue to follow these events.
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