It seemed as if the cheese market had turned a corner and would trend higher. It was anticipated that the lows were behind, and price could trend higher. However, the weakness of Class III futures over the past two weeks suggests otherwise. Granted, the lows may be in, but that does not mean prices will continue to trend higher. Class IV futures have fared much better as butter price continues to provide support.
USDA had its annual Agricultural Outlook Forum on February 15th and 16th with the outlook for the U.S. dairy industry being presented. The report indicated Class IV prices would remain much stronger than Class III prices. The expectation is for the average Class IV price this year to be $20.20, an increase of $1.08 per cwt over 2023. This compares to an estimate for the Class III price of $17.10 for this year, an increase of $0.08 per cwt over 2023.
The anticipation is for the butter price to remain strong and to trend higher. The recent strength of international butter prices has improved the potential for U.S. butter to become more competitive on the international market thereby increasing demand. Butter exports for 2023 had been substantially below the previous year If export demand improves significantly, butter price will move higher than it currently is and potentially back to the highs of 2023 or higher. Butter inventory closed 8% lower in 2023 from the previous year. This combination along with good domestic demand should provide continued support for butter. Traders anticipate stronger prices as more premium has been added to butter futures in contracts through the end of the year. Currently, the October butter futures contract is anticipating an average price of $2.92 per pound. It was only a few weeks ago that futures were in line with the underlying cash showing little to no premium in the market.
By ROBIN SCHMAHL
February 20, 2024
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