Most Recent Data says Milk Prices are Falling.

The weekly commodity prices published by the Agricultural Marketing Service (AMS) is the most up-to-date data there is.  The monthly data that is used to price producer milk is made from a summary of the most recent four or five weekly reports.  Every Wednesday, the AMS publishes the wholesale prices from their survey of the prior week.   Unlike futures prices, that can be influenced by speculators and other events, the AMS numbers are based on the real prices paid.

This post will use the AMS weekly numbers to follow trends of what is really happening.  There are four commodities that are used to price components in the Class and Component system.  They are cheese, butter, nonfat dry milk (NDM), and dry whey.  The most current data shows a price drop in every commodity.  

Charts in this post use prices for the last five years to create a "normal" comparison before the disruption from COVID "stay at home" policies.

CHEESE

The value of cheese compiled by AMS is based on cheddar cheese only as that is the basis used for producer milk pricing.  The data is compiled for both blocks and barrels of cheese.  The blocks are used for production of cheese slices, shredded cheese, etc.  The barrels are typically used as an ingredient in products like processed cheese.  The value of barrels is typically lower than the value of blocks, but there are occasionally inversions based on supply and demand.  The block and barrel prices are combined to calculate the cheese prices used to price milk protein.

Barrel prices (Chart I) began falling earlier that block cheese prices (Chart II) but both are falling.  The fall in block prices is small but the recent 24 percent drop in barrel prices is significant. Both block and barrel prices signal a price drop.

Chart III has both the block and barrel prices to illustrate the variation in pricing.  The current spread between block and barrel Cheddar prices is $.35 per pound.   This is the largest spread seen in five years ignoring the extreme spreads during the early COVID adjustments.  This means there is disruption between block and barrel wholesale supplies and demand.  This will likely be corrected quickly.  Because both blocks and barrels are decreasing in price, correction of supply and demand will probably not change the trends for lower pricing.

Chart I - Prices of Barrel Cheddar Cheese

Chart II - Prices of Block Cheddar Cheese 

Chart III - Price Spread Between Blocks and Barrels

BUTTER

Butter prices are on a severe drop, falling back to near 2018 and 2019 levels, a drop of 27 Percent (Chart IV).  This is a little surprising since production (Chart V) and inventory levels (Chart VI) are still extremely low.  More details on butter will be covered in the next post.  While the formulas for butterfat are very simple compared the formulas for milk protein, there are some other complicating factors that come into play and will be covered in the next post.

Chart IV - Price of Butter

Chart V - Butter Production

Chart VI - Butter Inventories

NDM

Nonfat dry milk has become very important in producer milk pricing since the change to include it in all monthly Class I fluid milk prices.  Nonfat dry milk is primarily an export item and competes internationally with skimmed milk powder.  Exports for the most recent months show that 72 percent of U.S. production of NDM and SMP are exported.  Prices have taken a drastic fall starting in mid 2022.  Wholesale prices for NDM have dropped by 30 percent in the last six months.

Chart VII - Price of NDM

DRY WHEY

Dry whey has taken the biggest fall, dropping by nearly 50 percent in the last year.  Fortunately, the price of dry whey used to price "Other Solids" has a very small impact on producer milk prices.

Chart VIII - Price of Dry Whey

SUMMARY

Are prices dropping?  Yes, in every commodity category.  

The cheese price for January 2023 was down 18 percent from the 2022 high.  February's weekly prices are indicating another drop for the month of February.  

The butter price for January 2023 was down 23 percent and the most recent weekly prices are continuing to drop.  In the next post, imports and exports of butter including the amazing increase of butter from Ireland (think "Kerrygold").  Is American produced butter being replaced by imports?  Are retail prices dropping? The next post will review these factors is detail.

NDM prices are very important but are controlled by international factors.  With 72 percent being exported, prices can be volatile.  Globally, the standard is SMP, not NDM, but U.S. production of SMP is much smaller than NDM and it is not growing.  

As for dry whey, well, while prices are down considerably, it does not impact producer milk prices much at all.