The U.S. Department of Agriculture's milk production report showed August milk production to be 1.9% higher than a year ago; this is because there are 16,000 more cows, or 0.5% more, now than a year ago and 1.4% more milk per cow. July milk production was also revised upward by 1.6%.

“Despite some really low milk prices, milk cow numbers have been increasing,” University of Wisconsin-Madison professor emeritus Bob Cropp reported in his "Dairy Situation & Outlook" in June. “Since the beginning of the year, cow numbers have increased by 40,000 head. There are plenty of replacements to increase the cow numbers, and cow slaughter has been 1.4% lower thus far this year.”

According to Cropp, milk prices had a good run-up, but the prices aren't holding. The Class III price hit a low of $12.76/cwt. in May and had increased to $16.91/cwt. in August, but cheese prices have fallen, which means lower milk prices again, Cropp explained.

On the CME, 40 lb. cheddar blocks were as low as $1.27/lb. in May but increased to $1.86/lb. in August. Cheddar barrels were also as low as $1.27/lb. in May and increased to $1.88/lb. in August. However, cheese prices have been falling in September, Cropp said. As of Sept. 20, 40 lb. blocks were back down to $1.5975/lb., the lowest since the end of June. Cheddar barrels were $1.5075/lb., the lowest since early June. Dry whey prices have strengthened to 34 cents/lb.

Cropp said the much lower cheese prices will push the September Class III price to around $16.30/cwt. and in the mid- to high-$15 range for the remainder of the year. “However, current Class III futures remain in the $16s for the remainder of the year, but unless cheese prices rally, some current cheese prices don't support $16-plus Class III,” he added.

Nonfat dry milk prices have strengthened. CME nonfat dry milk averaged 84.54 cents/lb. in August and is now 92 cents/lb. Cropp said butter prices have been falling. Butter averaged $2.1776/lb. in August and is now $1.9550/lb. Butter had been above $2/lb. since early April. The Class IV price was $14.65/cwt. in August, but lower butter prices will more than offset higher nonfat dry milk prices, resulting in a September Class IV price of around $14.20/cwt., Cropp explained.

“Besides really strong increases in milk production, ample cheese stocks and lower cheese exports are factors for lower cheese prices,” he added.

July 31 American cheese stocks were 10.3% higher than a year ago and 13.9% higher than the five-year average for this date. July 31 total cheese stocks were 9.9% higher than a year ago and 15.2% higher than the five-year average for this date. July cheese exports were 6% lower than a year ago and 25.6% lower than 2014 exports. January-through-July cheese exports were 18% lower than a year ago and 29.1% lower than 2014 exports.

Ample butter stocks and lower butter exports are also factors for lower butter prices, according to Cropp. July 31 butter stocks were 31% higher than a year ago and 44.4% higher than the five-year average for this date. July butter exports were 33% lower than a year ago and 76.5% lower than the 2014 exports. January-through-July butter exports were just 5% lower than a year ago but 75.3% lower than the 2014 exports.

July 31 nonfat dry milk stocks were 7.2% lower than a year ago but 19.4% higher than the five-year average for this date. However, unlike cheese and butter prices, which have been well above world prices, nonfat dry milk prices have remained price competitive. July exports were strong — 31% higher than a year ago and actually 2.6% higher than 2014 exports. January-through-July exports were even with a year ago but were 6.6% lower than 2014 exports. July dry whey exports were also higher than a year ago, up 12%, and were even with 2014 exports. January-through-July exports were just 1% lower than a year ago and 8.6% lower than 2014 exports.

“Milk prices should improve as we move into 2017 with the Class III price back in the $16s and perhaps even reaching $17 by the fourth quarter," Cropp said. "However, current Class III futures stay below $17 for all of 2017.”

He said domestic butter and cheese sales are expected to remain good, and there are signs that dairy exports will improve.

While European Union milk production was running as much as 6% higher than a year ago, Cropp said it "dropped below year-ago levels in June and is expected to remain below for the reminder of the year.”

Milk production is expected to be below year-ago levels for Australia and Argentina and up just slightly for New Zealand, Cropp noted, while China has been a little more active with imports and is expected to be more so in 2017.

“The expected slower growth in world milk production and stronger demand should increase world prices, making U.S. dairy products more competitive and improving exports," he said.

Market recap

October fed cattle futures were mixed this week. Nearby contracts closed higher Monday at $107.90/cwt. and, despite posting some gains throughout the week, finished lower Thursday at $107.075/cwt.

September feeder cattle futures started the week lower, closing Monday and Tuesday at $135.45/cwt. and $135.325/cwt., respectively. Nearby contracts recovered the losses by Wednesday’s close and finished higher Thursday at $137.00/cwt.

For the beef cutouts this week, Choice closed higher at $187.37/cwt., while Select closed lower at $179.62/cwt.

October lean hog futures were mostly lower this week. Nearby contracts closed lower Monday at $54.925/cwt. and finished lower again Thursday at $54.20/cwt.

Pork cutout values were lower this week. The wholesale pork cutout decreased to $78.07/cwt. Loins and bellies were also lower at $87.58/cwt. and $100.80/cwt., respectively, but hams showed another sharp drop from $68.91/cwt. to $59.39/cwt.

Hogs delivered to the western Corn Belt were lower this week, closing at $52.56/cwt. on Thursday.

In the poultry markets, the Georgia dock was higher Wednesday at $1.1025/lb. Breast meat was lower at $1.565/lb., while leg quarters were higher at 30.5 cents/lb. Wings were slightly higher at $1.52/lb.

According to USDA, egg prices have been steady, with an undertone that has ranged from steady to weak, in some instances. Offerings have been mixed, ranging light to, at times, heavy. Supplies have been moderate in California and moderate to sometimes heavy in the remaining regions.

Large eggs delivered to the Northeast were lower at 57-61 cents/doz. Prices in the Southeast and Midwest were also lower at 60-63 cents/doz. and 52-55 cents/doz. Large eggs delivered to California were lower at $1.16/doz.

USDA said the turkey markets were steady to firm, with light to moderate demand. Offerings for hens have been very light, while offerings for toms have been light to moderate, but mostly light. Prices for hens increased on the upper end of the price range to $1.17-1.33/lb., while prices for toms were unchanged at $1.16-1.42/lb.