Grilled cheese
Cheese and butter sustained by strong demand.

KANSAS CITY — Prices for most dry dairy products were at 12- to 18-month lows in early November, cheese and butter prices have been declining, cheese stocks were record high and milk production continued to rise. Still, full-year average prices for both milk and most dairy products are expected to hold above year-ago levels, with mixed returns forecast for 2018 with price forecasts lowered noticeably from October in last week’s U.S.D.A. WASDE report.

The primary driver in the dairy market continues to be the global tightness of milk fat (butter), and conversely, the ample supply of nonfat dry milk.

“The global market for milk fat has continued to be tight,” the U.S. Department of Agriculture said in its October Livestock, Dairy and Poultry Outlook. “As milk has flowed into production of high milk fat products, skim solids have become abundant, driving down prices for skim milk powder/nonfat dry milk (S.M.P./N.F.M.).”

September export prices for butter averaged $2.82 per lb in Oceania and a record high $3.65 per lb in Europe, both well above the U.S. average wholesale price of $2.53 per lb, the U.S.D.A. said. Cash butter prices at the CME Group were $2.23¼ on Nov. 3, down 18% from the 2017 high on Aug. 4 but up 18% from a year ago. In contrast, the September average U.S. nonfat dry milk price at 85c a lb was below foreign export prices.

CME Group cheddar cheese block and barrel prices both were $1.71½ a lb on Nov. 3, the highest since November 2016 for barrels but down 10% from a year ago for blocks.

Prices for low/medium heat N.D.M. were 78c a lb (low end of price range) in the Central region on Nov. 3, down 23% from the year’s high on Feb. 3, down 10% from a year ago and the lowest since June 2016. Dry whey prices at 29c a lb on 
Nov. 3 were down 37% from the 2017 high on March 3, down 9% from a year ago and the lowest since September 2016.

On an annual basis, the U.S.D.A.last week forecast 2017 butter prices to average $2.35 a lb (midpoint of range), up 13% from 2016, due mainly to a price surge in the third quarter. The average price for 2018 was forecast at $2.34½ a lb. Cheddar cheese prices were forecast to average $1.63 a lb this year, up 2½c from last year, and to average $1.67 a lb in 2018. Nonfat dry milk was forecast to average 88c a lb, up 6% from 2016, and at 80½c a lb next year. Dry whey was forecast to average 45½c a lb in 2017, up 58% from a year ago, with 2018 expected lower at 34c a lb.

Those four products — butter, cheddar cheese, nonfat dry milk and dry whey — are tracked monthly in the U.S.D.A.’s supply-and-demand report and are used to determine milk prices paid to farmers. Thus, milk prices for 2017 are forecast to average about 10% above 2016 averages, but milk prices are forecast to decline modestly in 2018 with class 3 milk (used for hard cheese) down 1.5% and class 4 milk (used for dry products and butter) down 5%.

Higher milk prices, along with mostly lower feed prices, have contributed to rising milk production this year. The U.S.D.A. last week forecast 2017 milk output at 215.8 billion lbs, up 1.6% from 2016, and production in 2018 at 219.7 billion lbs, up 1.8%.

Stocks of butter on Sept. 30 were 256,903,000 lbs, down 5% from a year earlier but considered adequate to meet the typical year-end holiday rush. Total natural cheese stocks at 1,305,613,000 lbs on Sept. 30 were up 6% from a year ago and the highest on record for September, the U.S.D.A. said in its latest Cold Storage report.

In contrast, Sept. 30 stocks of dry whey for human consumption at 105,016,000 lbs were up 107.5% from a year earlier and nonfat dry milk stocks at 321,069,000 lbs were up 49%, the U.S.D.A. said in its latest Dairy Products report.

Despite the supply and price differences between butter, cheese and dry products, exports for all three segments are forecast to increase in 2017 and in 2018, largely because U.S. products are expected to remain competitively priced in export markets.