Dairy Prices Show Some Improvement in 3rd Quarter

Producer milk prices have fallen tremendously in 2023.  The big question is "When will prices improve to make milk production profitable again?"  The reasons for the fall in prices was covered in a recent post.  This post will look to the future to see when and by how much producer milk prices may increase.  The volatility during the span of data in this review is tremendous.  Three-year trends and quarterly price changes will be reviewed in this post. 

Butterfat prices have been a big contributor to the producer milk price and will be reviewed first.  Butterfat values increased tremendously in 2021 and most of 2022.  Then butter consumption declined (see the September 10 post) and the Butterfat price declined by 25% in three months.  Recently producer butterfat prices have started increasing and may reclaim the higher prices in the fourth quarter of 2023.

Chart I - Butterfat Prices for 2022 through 2023

Butterfat prices grew tremendously in late 2021 and all of 2022 (Table I).  Immediately in 2023 the prices dropped and have remained around $2.74 per pound for the first six months.  In the third quarter of this year the butterfat prices started increasing.  This will likely continue in the fourth quarter and will reach $3 per pound pricing.  This increase will be a strong factor for all dairy producer pricing in 2024.

Table I - Quarterly Butter Prices for
2021 Through YTD 2023

Protein prices have dropped continuously in 2021 to 2023.  This is partially caused by increasing retail butter price. From the highs in May 2022 to the lows in July 2023, the value of milk protein decreased by 70%.  However, from July to September 2023, prices nearly doubled (Chart II).  The question now is "Will the future months continue to increase?", or will they follow the overall decline of the last three years?

Chart II - Milk Protein Prices for 2022 through 2023

Table II compares the quarter-by-quarter milk protein prices from the prior year.  Cheese prices, which largely control the protein prices are relatively stable with the prior year.   As butterfat prices increase, milk protein prices decline.   Below is the simplified formula for pricing milk protein.

Milk Protein = 3.22 x AMS cheese Price - 1.05 x AMS butterfat price - $5.65

The current milk protein prices indicate no further decreases or increases with pricing stability for the near future.  

Table II - Quarterly Protein Prices for
2021 Through YTD.2023

Nonfat dry milk (NDM) prices peaked in 2022 with 62% increases from January 2021.  With the formula changes implemented in May 2019, NDM milk prices influence the skim prices of Class I, II, and IV milk.  The NDM price is controlled by international prices as the majority is exported.  The decrease in international demand for NDM and skimmed milk powder have lowered prices    Until the international dairy market stabilizes prices will remain low but stable.

Chart III - Nonfat Dry Milk Prices for
2022 through 2023

Table III - Quarterly NDM Prices for
2021 Through YTD 2023

In summary, producer milk prices are headed upward with further increases in butterfat prices and stability in protein and NDM prices.  This should increase producer milk prices, but the prices changes will be small.