Cropp: Various Factors Contributing to Stronger Dairy Prices

The re-opening of restaurants and schools, along with continued government purchases for food programs, are prompting stronger milk prices this spring. That's the assessment of Dr. Bob Cropp with the University of Wisconsin-Extension. In his monthly Dairy Situation and Outlook report, the professor emeritus said dairy product prices continued to show strength during April, despite the market seeing increases in milk production on the farm level.

"Food service which normally accounts for about 50 percent of cheese and butter sales has improved as more restaurants have more fully opened and some schools have returned to partially or full in classroom instruction," Cropp noted. "We also saw an extension of the Farms to Families Food Box Program which was to end on April 30, but has been extended to the end of May. And there have been dairy product purchases for the Supplemental Nutrition Assistance Program."

He expects to see the April Class III price to be around $17.70 compared to $16.15 for March. The April Class IV price is also expected to rise by more than a dollar to $15.50.

The summary further claimed that the economy will be a major driver in the dairy markers in the months ahead. In the U.S., consumers are expected to travel more in 2021 and spend more of their disposable income doing recreational activities. But the world economy is also looking strong, which could lead to higher export demand.

"The level of milk production for the remainder of the year is very crucial to how milk prices will fair," he warned. "USDA is forecasting a relatively strong increase in milk production for the year being up 2.3 percent higher than last year (Leap Year adjusted). Milk cow numbers are forecasted to average 72,000 head higher or 0.8 percent and milk per cow 1.5 percent higher. This amount of milk will be difficult to move through the domestic market and exports and maintain relatively favorable milk prices."

He adds that the Class III futures have been somewhat volatile during the past month with Class III at times in the $17s and in the $19s. Cropp says that unless milk production ends up lower than what USDA is forecasting, he does not expect Class III futures to go beyond the $19 range before the end of the year.