The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The Agriculture Department has again lowered its 2017 milk production forecast in its latest World Agricultural Supply and Demand Estimates report due to "slower growth in milk per cow." And, in its first look to 2018, milk output was forecast higher on "stronger milk prices and moderate feed prices."
Production and marketings for 2017 were projected at 216.9 and 215.9 billion pounds, respectively, down 400 million pounds from last month. If realized, 2017 production would still be up 4.5 billion pounds, or 2.1 percent, from 2016.
2018 production and marketings were projected at 222 and 221 billion pounds, respectively. If realized, 2018 production would be up 5.1 billion pounds, or 2.4 percent, from 2017.
Commercial exports on fat and skim-solids bases were forecast higher in 2018 on stronger global demand. Fat basis imports were forecast modestly higher in 2018 while skim-solids basis imports were forecast lower relative to 2017.
Cheese and non-fat dry milk prices were forecast higher than 2017, but butter and whey prices were forecast lower. An increase in the predicted Class III milk price reflects higher forecast cheese prices offsetting lower whey prices.
Look for the 2017 Class III price to range $16.10 to $16.60 per hundredweight, unchanged from last month's projection, and compares to $14.87 in 2016 and $15.80 in 2015. The 2018 Class III will range $16.40 to $17.40.
The Class IV price is higher as a higher expected non-fat dry milk price more than offset lower butter prices. The 2017 Class IV will average $14.35 to $14.95 per hundredweight, up a nickel from last month's estimate, and compares to $13.77 in 2016 and $14.35 in 2015. The 2018 Class IV average should range $14.40 to $15.50 per hundredweight.
Fat basis imports were lowered from the previous month while skim-solids basis imports were increased. Commercial exports were forecast higher for both fat and skim-solids bases.
The report also stated that U.S. feed-grain outlook for 2017-18 is for lower production, domestic use, exports and ending stocks. The corn crop is projected at 14.1 billion bushels, down from last year's record high with a lower forecast area and yield. The yield projection of 170.7 bushels per acre is based on a weather-adjusted trend assuming normal planting progress and summer weather, estimated using the 1988-2016 time period.
The smaller corn crop is partly offset by the largest projected beginning stocks since 1988-89, leaving total corn supplies down from a year ago but still the second highest on record. Total U.S. corn use in 2017-18 is forecast to decline 2 percent from a year ago as a slight increase in domestic use is more than offset by lower exports.
The 2017-18 outlook for U.S. soybeans is for higher supplies, crush, exports and ending stocks. The soybean crop is projected at 4.26 million bushels, down 52 million from last year's record crop with a forecast lower trend yield more than offsetting higher harvested area. With sharply higher beginning stocks, soybean supplies are projected at 4.7 million bushels, up 4 percent from 2016-17.
Higher Cheese Prices
CME cheese prices shot higher the second week of May, then pulled back some. Cheddar blocks climbed to $1.65 per pound last Thursday, highest level since Feb. 6, but closed last Friday at $1.6350, up 3½ cents on the week, after jumping 12 cents the previous week, and are 35½ cents above a year ago when they bottomed out for the year at $1.28. The barrels closed at $1.53, up 8 cents on the week, 21 cents above a year ago but 10½ cents below the blocks. Thirteen cars of block were sold on the week at the CME and 25 of barrel.
Milk remains available for cheesemakers in the Midwest, according to Dairy Market News, and spot milk prices continue to range well under Class III. Some contacts reported that milk offers were starting to slow down, and expectations of milk intakes at current prices are nearing their end.
Western manufacturers report steady cheese production as milk supplies are also plentiful and facilities are running at or near full capacity. Contacts say there are large stocks of barrels, but blocks are in better balance. Cheese is generally moving well and some report that orders are up. A few contacts say retail demand is steady and export opportunities are improving. Domestic demand for American cheese has been a little slow to develop due to unfavorable grilling weather, however contacts suggest this, too, may be picking up.
Spot butter rocketed to $2.2625 per pound last Friday morning, up 15½ cents on the week, 22½ cents above a year ago, and the highest CME price since Jan. 11. Twenty-four cars were sold on the week.
Cream into Class IV manufacturing, which displayed some indications of tightening the first week of May, was readily available the following week. Ice cream producers have yet to pull down the overall cream supply, as weather has been cool and wet in the Central U.S. Retail butter sales were reportedly slower. Some producers are continuing production at steady rates in order to store bulk supplies for later in the year. The market tone is fair but stocks continue to build.
Commercial Disappearance Mixed
Checking dairy demand, USDA's latest commercial disappearance data shows March American cheese use was down 1 percent from February and 1.6 percent below a year ago. Other cheese was up 4.2 percent from February and .9 percent above 2016. Total cheese demand was up 2.2 percent from February but fractionally lower than a year ago. Butter demand was up 35.8 percent from February. However, FC Stone points out it was down 4.03 percent on a daily average basis.
March fluid milk consumption also gained some ground. Packaged fluid sales totaled 4.2 billion pounds, up a half-percent from 2016.
Meanwhile, the latest Dairy Market Report from Dairy Management Inc. and the National Milk Producers Federation reported that "fluid milk sales showed the lowest volume decline in almost a year during November 2016 to January 2017."
"American-type cheese consumption continued to outpace that of other cheeses during the same period," the DMR stated. "American-type cheese exports showed positive growth for the first time in more than a year during December 2016 to February 2017. Dry ingredient product exports continued to grow by double-digit percentages during the same period, as they have since the second half of 2016."
USDA's latest National Milk Cost of Production report shows March total milk production costs were close to the previous month but below those a year ago.
Total feed costs averaged $10.26 per hundredweight, up 9 cents from January, up 14 cents from February, but 39 cents below March 2016. Purchased feed costs, at $5.69 per hundredweight, were down 6 cents from January, a penny below February and 21 cents below March 2016.
Total costs, including feed, bedding, marketing, fuel, repairs, hired labor, taxes, etc., at $21.71 per hundredweight, were down 20 cents from January, down a penny from February, and 20 cents below a year ago.
Feed costs made up 47.3 percent of total costs in March, up from 46.7 percent the month before and down from 48.6 percent a year ago.