Where are Milk Prices headed in 2023?

This post will review the current and historical prices of Federal Order milk.  Based on the past, this post will predict where they may be going in 2023.  Class I base prices are currently at $22.71 per cwt., down from $25.87 per cwt in July 2022.  Class II milk is the smallest category and the highest priced at $26.51, close to its all-time high.  Class III milk is at $19.82 per cwt., down from its record price of $25.51 in May 2022.  Class IV milk is at $24.63 per cwt., near its record high of $25.31 in May 2022.  All Classes of milk hit record highs in the middle of 2022.  While some of these milk Classes are down from their record highs, they are still all good prices compared to historical prices.    

Classes I and III have dropped the fastest. Class III prices have dropped with the decrease in cheese prices.  Because Class I is linked partially to the Class III price, Class I milk also decreased.

Milk prices by Class since 2000

Commodity prices since 2000

The commodities used to price milk are cheese, butter, dry whey, and nonfat dry milk (NDM).  Prices of cheese, dry whey and NDM have dropped significantly since their mid-year highs.  Only butter continues to increase in price.

Cheese (Chart V) at $1.95 per pound is almost exactly at the long-term trend line.  As covered in a prior post, cheese production and inventories seem very much in line.  Through the yearend holidays and into 2023, cheese will likely stay near its current price.

Chart V - AMS Price of Cheese

Butter prices continue to rise, setting new record highs monthly.  The current price of $3.12 per pound is a significant high, nine percent higher than the prior high of $2.85 per pound set in September 2014.  The butter price impacts all classes of milk and is the most significant factor for the current high milk prices.  Through 2022 butter prices will likely set new record highs but in 2023, the price will likely begin to fall and when butter prices fall, they fall quickly (Chart VI).

Chart VI - AMS Price of Butter

Dry Whey is used to price "All Other" solids in Class III pricing.  Exports of dry whey to China, the largest dry whey importer, have doubled in 2022.  Unfortunately, in a matter of months dry whey prices plunged by 38 percent to $.49 per pound.

Chart VII - AMS Price of Dry Whey

NDM is primarily an export item.  Mexico and Southeast Asia are the main importers.  Sales to Mexico have increased in 2022 while sales to Southeast Asia have dropped.  Prices have dropped by 12 percent from March to September 2022.

Chart VIII - AMS Price of Nonfat Dry Milk

Component prices since 2000

The AMS prices of components are shown in Charts IX through XI below.

Milk protein prices are down for two reasons, lower cheese prices and higher butter prices.  Protein prices have dropped from a high of $5.62 per pound in November 2020 to the current $1.88 per pound, a drop of 67 percent.

Chart IX - Protein prices 

Butterfat is growing from a low of $1.32 per pound in April 2020 to the current price of $3.57 per pound, a 170 percent increase.  Will it fall as fast, or faster?

Chart X - Butterfat Price

Other solids make a small contribution to the Class III price.  The price of Other Solids is down to the long-term trend line growth level.

Chart XI - Other Solids Price

With concerns for declining economics globally, prices for dry whey and NDM are likely to continue to decrease.  A drop in NDM prices would have a significant impact as NDM is used to price Class IV skim, Class II skim and partially for Class I skim.

With butter the lone commodity with tight inventories and high prices, there will likely be a drop in demand and an increase in production.  Either or both will lower the price of butter and butterfat going into 2023.