Uncertainty clouds price forecast for 2023

Bob Cropp

Milk production continues to run above year ago levels. October production was 1.2% above a year ago, the result of 31,000 more cows, an increase of 0.3% and 0.9% more milk per cow. This was the third straight month of more than a 1% increase.

Of the 24 reporting states 14 had an increase in milk production, six a decrease in production and four with no change. Milk production for the top five states was: California down 0.5% due to lower production per cow, Wisconsin up just 0.6% due to 7,000 fewer cows, Idaho up 3.2%, Texas up 7.0% and New York up 1.7%.

Both Idaho and Texas had more cows and more milk per cow while New York had more milk per cow but fewer cows. States with relatively high increases in milk production were South Dakota 14.1%, Georgia13.7%, Iowa 7.6% and Kansas 4.5%. Florida and New Mexico had relatively large decreases of 12.9% and 4.2% respectively due to fewer milk cows.

Cheese markets fall and rise

The price of barrel and 40-pound block cheddar cheese was above $2 per pound from mid-September to early October. By the end of October barrels fell to a low of $1.925 and 40-pound blocks to $1.96. But increase buying by grocery stores building inventory for the holidays and continued strong exports surprisingly rallied the cheese market.

Cheddar cheese production was also running lower than a year ago with September cheddar production down 1.7%. Early November barrel and 40-pound blocks again moved above $2 per pound. While 40-pound blocks remain above $2 per pound barrels on November 17tfell below $2. Today’s prices are $2.20 for blocks and $1.8425 for barrels. Dry whey continues to hover around $0.44 per pound.

A weakening of the Class III price was anticipated by November, but the cheese price rally will put the November Class price near $21 compared to $21.81 in October.  We can expect some weakening of the Class III price for December.

Butter, nonfat dry milk put pressure on Class IV price

Butter was above $3 per pound from the end of August to the end of October. It got as low as $2.61 per pound in early November and today it was $2.90. Nonfat dry milk was in the $1.50’s during September before declining and reaching a low of $1.37 per pound early November. It has strengthened some since then and as of Nov. 21 was $1.4275. The weakening of both butter and nonfat dry milk will put the November Class IV price near $23.30 compared to $24.96 in October. The December Class IV price could fall to the $22’s for December.

Forecasting milk prices in 2023

There is a lot of uncertainty as to where milk prices will end up in 2023. As of now it looks like milk prices will average lower than 2022 but remain as the second highest average milk price over the past two years. However, much higher feed prices, labor issues, high construction costs and milk base plans still implemented by some dairy cooperatives will restrict increases in milk production.

USDA is forecasting just an increase of 10,000 cows in the average herd size for the year and an increase of 0.9% in milk per cow resulting in an increase of 1.0% in total milk production. Milk production could easily increase by more than this but should be at a level for favorable milk prices.

Fluid (beverage) milk sales will likely continue the downward trend in 2023. Fluid milk sales through September of this year were down 2.2% from a year ago. But butter and cheese sales in 2023 are forecasted to more than offset declining fluid sales resulting in an increase in total milk sales.

Will exports repeat record next year?

Dairy exports set a record in 2021 and are on path to set a new record in 2022. Through September the volume of nonfat dry milk/skim milk powder was down 9% from a year earlier but up 13% for cheese, 6% for whey products, 18% for lactose and 39% for butterfat resulting in an increase of 4% in the volume on a total milk solids equivalent basis. It may be hard to set another record in 2023 but there is a possibility of increased exports.

Milk production in the two leading dairy exporters, New Zealand and the EU has been below a year ago. Some recovery in milk production may occur in 2023 but high feed costs and environmental regulations will dampen any increase. Other than butter, U.S. prices have been competitive on the world market. While still competitive, world dairy product prices have weakened, making U.S. products less competitive.

USDA is forecasting Class III to average about $2.25 lower in 2023 than 2022. Class III will average about $21.90 for 2022 and USDA’s 2023 average is $19.65. USDA is forecasting Class IV to average about $4 lower in 2023 than 2022. Class IV will average about $24.30 for 2022 and USDA’s 2023 average is $20.35. But final 2023 prices could very well end up higher or lower than USDA’s forecast.

Bob Cropp

Cropp is Professor Emeritus at the University of Wisconsin Cooperative Extension, University of Wisconsin-Madison.