How low can milk prices go? Here's the latest trends.

There are four dairy commodities that control the pricing of producer milk, butter, cheese, nonfat dry milk (NDM), and dry whey.  The charts below are based on the latest Agricultural Marking Services (AMS) pricing of these commodities.  One commodity is stable and three are in deep falls.  The data below is very current including weekly pricing published just five days ago.

Butter wholesale prices have been amazingly stable in 2023 (Chart I).  In 2022, they averaged $2.90 per pound with a high of $3.24 and a low of $2.70, a range of $.54 per pound.  In 2023, the price averaged $2.40 per pound in a very tight range with a $2.50 high and a $2.38 low, a range of just $.12 per pound.  

The 2023 stable prices are very unusual.  In 2018 and half of 2019, butter prices were stable at a $2.26 per pound average.  In that time span, the high to low pricing was much greater than the current 2023 range.

Over the period of 2018 to 2023 wholesale butter prices averaged $2.17 per pound.  The 2023 average price is 10% higher than the six-year average.  The current butter prices are the most positive element in producer milk pricing, and they are at a reasonable level following three years of extreme volatility.  

Chart I - AMS Weekly Butter Prices

In the most current week ending July 14 the price of block cheddar cheese is at $1.41 per pound (Chart II), a low price not seen since 2018 (excluding the COVID volatility).  Barrel cheddar cheese is currently at $1.43 per pound (Chart III).  Typically, Barrel prices are lower than Block prices and this may signal a further drop in Barrel prices.

Cheese is the second most important commodity in pricing producer milk because it is used for Class III milk, the largest category and also partially used for pricing Class I skim milk.  See the June 11 post to this blog for more on domestic dairy consumption.  The Block and Barrel prices have been in a major fall in 2023 and that fall may not be over.

The AMS cheese prices use a blend of both Block and Barrel cheddar cheese prices.

Chart II - AMS Weekly Block Cheddar Cheese Prices

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Chart III - AMS Weekly Barrel Cheddar Cheese Prices

NDM prices, Chart IV, are primarily based on international prices of NDM and Skim Milk Powder (SMP).  NDM prices are very important as they price Class IV skim, Class II skim, and are used partially for Class I skim pricing.  Following cheese and butter pricing, NDM is the next most important commodity in producer milk pricing.  Through the COVID period there was significant pricing volatility.  The current international prices are well below the trends set in 2018 and 2019.  

Inflation and recession fears are a global issue.  This is influencing international dairy prices and that will likely not change in the near future.  U.S. exports of NDM are down in 2023 as international demand declined.  See the July 4 post to this blog.

Chart IV- AMS Weekly NDM Prices

Dry Whey (Chart V) is used to price "other solids" in Class III pricing.  It is the least important commodity in pricing producer milk.  The current AMS survey prices from last week are at a low not seen since early 2018.  Dry whey is a major export item and those exports are down.  See this prior post for more details.

Chart V - AMS Weekly Dry Whey Prices

SUMMARY

With these facts in mind, there is little chance of higher producer milk prices soon.  Increases in producer milk prices will require an increase in cheddar cheese prices and an improvement in international markets.  The next post to this blog will cover the most current data on domestic cheese wholesale inventories.  The level of inventories is the major influencer of cheese prices.