Class III Milk Prices Hit a 2013 High

November 2013 Class and Component Prices were announced on December 4.   The Class III price was $18.83/cwt., which was a record for the year.  The Class III milk price increase was driven by the increase in the milk protein price, which was up 6.5% to $3.63/lb., also a record for 2013.

The long-term trends again reflect the increasing value of milk protein in the mix of dairy components.  Protein is needed for the economical production of cheese, the thickening of yogurt, and for production of Skim Milk Powder.  These three diary products are the growth items for the U.S. dairy Industry.   Butterfat was below the trend line at $1.63/lb.  "Other Solids" retained it's new value level at $.40/lb.

Payment for milk protein hit a record 58% of the total Class III milk price in November.  Milk protein production is key to producer revenue and  feed management of amino acids in the diet can positively influence milk protein production.  This practice is increasingly important for a dairy producer's financial success where there is payment for protein.

Inventories of the key end products that are mathematically linked to milk prices are discussed below.   These inventories are all relatively low which will help maintain and drive favorable milk pricing.

INVENTORIES

Cheese is the most important driver of milk prices.  (See the April 23, 2009 post to this blog for an explanation of this.)  Below are the charts of natural and American cheese stocks.  These inventories were high in early 2013, which created concern for dairy pricing.  These stocks have now fallen to the safe levels which should maintain favorable cheese and Class III milk prices in the near term.

Dry Whey has gained importance, as it is the basis of "Other Solids" pricing, which is contributing over $2/cwt. to the Class III price.  The dry whey inventories are very low which is keeping the value of "Other Solids" at near record levels.

Butter pricing is the key determinant of butterfat prices.  It is a very small contributor to the standardized Class III price but it can be important if a producer is able to improve the butterfat content of his milk.

The Nonfat Dry Milk prices can also contribute to producer revenue as a higher price can influence the Class I, II and IV milk prices, which in turn influence the Producer Price Differential.  (See the October 6, 2013 post to this blog for an explanation of these formula driven interactions).  The inventory of nonfat dry milk is extremely low.  This should ensure a strong price for the near future.

One of the big factors driving the lower inventories is exports.  Please see the companion post to this blog covering exports and exchange rates for more details on dairy exports.