Sunday, March 26, 2023

The 2023 First Quarter Milk Prices are Down, but Stable.

The Agricultural Marketing Service (AMS) weekly prices are showing stability.  Changes in the first quarter of 2023 have lower, but stable prices.  This post will update the February 12 post on the most recent prices from the AMS weekly surveys.  These wholesale commodity prices are used to price most of the U.S. producer milk.  There are four commodities used to price milk in the Class and Component Federal Orders; butter, cheese, nonfat dry milk (NDM), and dry whey.

Butter prices were very volatile beginning in 2020 through 2022.  In 2023, prices have settled in at levels slightly above those in 2018 and 2019.  Since the beginning of 2023, butter prices have ranged from $2.41 to $2.49 per pound, far below the 2022 high of $3.24 per pound and in a very tight range.  Inventories appear to be at a reasonable level as covered in the prior post.  The year 2023 has brought stability to wholesale butter prices.

Chart I - Butter Weekly Wholesale Prices
AMS cheese prices are based on block and barrel Cheddar cheese prices that are averaged at the end of each month.  Over the five years covered in these charts, blocks averaged a higher price than barrels by $.12 per pound.  In 2022, for 32 weeks barrels were priced higher than blocks, which is unusual.  In 2023, there is a change to "normalcy" and cheese blocks have been consistently priced higher than barrels at an average spread of $.31 per pound.  

For the last five weeks, cheese blocks (Chart II) have ranged from between $1.94 and $1.95 per pound, a very tight range.  This is a price very close to the long-term trend line for block Cheddar cheese prices.
Chart II - Block Cheddar Cheese Weekly Wholesale Prices
Barrel cheese prices have seen a wider price movement in 2023 (Chart III), but for the last five weeks they have also traded in a tight price range of $1.62 to $1.69 per pound. Barrel cheese is used as an ingredient in other products like American cheese.  Over-time, barrel prices have shown more volatility than the block prices, but are now stabilizing.
Chart III - Barrel Cheddar Cheese Weekly Wholesale Prices
NDM prices have also fallen and are starting to see some short-term stability (Chart IV).   As covered in the prior post, NDM is primarily an export product, and the price is very much based on international factors for NDM and skimmed milk powder (SMP).  Because NDM is a major factor in pricing domestic skimmed milk, the lower price has a strong negative impact on producer pricing.  The movement is very difficult to analyze or forecast.
Chart IV - NDM Weekly Wholesale Prices

Dry whey is used to price the components other than butterfat and protein in milk (Chart V).  As described in the prior post, about half of dry whey is used domestically and the rest is exported.  The prices in 2023 have been very consistent, ranging from $.40 to $.45 per pound.  Inventory levels are reasonable.  The lower prices are showing stability.

Chart V - Dry Whey Weekly Wholesale Prices


What do all four commodities have in common?  They have all fallen from their 2022 highs and most are reaching stable pricing.  The first quarter of 2023 is nearly closed, and it is a time where pricing has returned to the past with stability in pricing.

NDM prices are very low compared to historical trend lines and may have some upward movement in the remaining three quarters of the year.  To date there are no upward trends.

Can producers live with these lower prices?  If not, the recent increase in milk production may be short lived.