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A financial 'juggling act'
Two employees spread curd into forms to make blocks of Muenster cheese inside Decatur Dairy Tuesday. (Times photo: Anthony Wahl)
MONROE - Record high milk prices are looking good to the country's dairy farmers, but in Green County, the heart of Wisconsin's cheesemaking, they are getting mixed reviews.

Class III milk prices hit about $24.25 per hundredweight (cwt) in April, setting a new record high for the third straight month.

One Wisconsin Master Cheesemaker, Steve Stettler, said his "payroll is the highest it's ever been." That "payroll" is for his dairy farmers whose milk he buys to produce Decatur Dairy's cheeses.

Class III milk prices in the U.S. for the first four months of 2014 will average about $23.12, or $5.65 higher than a year ago.

"If you'd have asked me 10 years ago, I'd have never believed it'd get this high," Stettler said. "But the farmers need the money. They've been behind the eight ball for quite a while."

But there is a bright spot in the workings, Stettler pointed out: As milk prices go up - and feed prices drop - farmers have a greater incentive to produce more milk.

"And Wisconsin needs the milk," Stettler added.

Milk components, the fat, protein and whey, have individual pricings on the stock market.

So, making cheese is a financial "juggling act," according to Stettler.

As a rule of thumb for cheesemakers, "a lot of the milk (cost) is paid out of the cheese prices," Stettler said.

The leftover whey from making cheese, therefore, becomes a valuable commodity when looking at the bottom line for them.

On the Chicago Mercantile Exchange, cheddar barrels prices in April swung dramatically, but started and ended the month at about $2.25 per pound. Cheddar block averaged slightly higher.

Dry whey prices increased again in April, from about 60 cents per pound in March to 65 cents.

And even though the price of cheese has remained high for several months, recent sales in the United States have not backed off, Stettler noted.

"Sales have been pretty strong," he said. "People are still eating cheese. But that's partly because meat prices are high, too."

He predicts consumers will be seeing dairy products hitting all new highs and remaining there for quite some time.

"If the world changes, things could change," he added.

The world market demand for more protein and whey is making an impact on the prices of milk and dairy products, according to Bob Cropp, professor emeritus with the University of Wisconsin Cooperative Extension, in his dairy outlook report, April 21.

Cropp reported the "strong cheese prices are the result of good domestic sales, strong exports and lower American cheese production."

For the first two months of the year, cheese exports were 44 percent higher than a year ago, and U.S. production was 0.2 percent lower than a year ago.

All of which reduce stocks.

"There's no excess surplus of cheese," Stettler said. "World demands are pretty high, and California is now making milk powder and exporting it."

Total cheese stocks at the end of February were 5.5 percent lower than a year ago. American cheese stocks were 5 percent lower than a year ago. Dry whey stocks were 13 percent lower than a year ago, the result of 19 percent lower production for the first two months of the year and 7 percent more exports, Cropp reported.

Consumers should brace for the base price of cheese to remain above $2 per pound, Stettler said. (That's not including shipping, handling, cutting and packaging costs.) And milk prices could bounce higher than the mid-20 dollars per hundredweight, but will settle out at $20 cwt this year, he added.

"Farmers need $20 milk," Stettler said. "Feed costs are not down, and planting is still expensive."

Milk sold on the market futures also has an impact on prices, Stettler said.

Class III milk futures don't fall below $20 until July and below $19 until October ending in December at $18.30, while the average Class III price last year was $17.99, according to Cropp.

With dairy producers' incentive to produce more milk as feed costs lower, Cropp predicts April prices will be the peak for the year. He also reported, "rather than expanding cow numbers, producers are using improved margins to pay down debt accumulated during the severely depressed milk prices experienced in 2009 and very high feed prices the fall of 2012 and winter of 2013."

How crops turn out this year and resulting feed costs will be an important factor in how producers expand production later this year, Cropp added.

USDA is forecasting total milk production for the year to be 2.4 percent higher than last year. But increased milk production in New Zealand and the EU-28 countries, making more dairy products available for export, has already softened the dairy prices in recent international Global Dairy Trades.