The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The Agriculture Department again lowered its 2017 and 2018 milk production forecasts from last month in its latest World Agricultural Supply and Demand Estimates (WASDE) report "as lower expected growth in milk per cow more than offsets expected gains in cow numbers."
2017 production and marketings were projected at 216.7 and 215.7 billion pounds, respectively, down 200 million pounds from last month. If realized, 2017 production would still be up 4.3 billion pounds, or 2 percent, from 2016.
2018 production and marketings were projected at 221.7 and 220.7 billion pounds, respectively, down 300 million pounds from last month. If realized, 2018 production would be up 5 billion pounds, or 2.3 percent, from 2017.
Fat basis exports for 2017 and 2018 were reduced on the expectation that current high prices will temper demand, but skim-solid basis exports were raised for both years on expected strength in nonfat dry milk/skim milk powder demand.
The 2017 fat basis import forecast was raised on stronger imports of cheese and butterfat. Lower expected imports of some processed dairy products in 2018 more than offsets higher expected imports of cheese and butterfat, and the forecast for fat basis imports was lowered. The skim-solid basis import forecasts were unchanged.
Cheese, butter and nonfat dry milk (NDM) price forecasts were raised for both 2017 and 2018 on strong domestic and international demand and a reduced production forecast. Whey prices were reduced for 2017 but raised for 2018.
The 2017 Class III milk price forecast was raised as the cheese price increase more than offsets the lower whey price. Look for a 2017 average of about $16.55 per hundredweight, up 20 cents from last month's projection, and compares to $14.87 in 2016 and $15.80 in 2015. The 2018 forecast is for a range of $16.75 to $17.75, up 35 cents from last month's estimate.
The Class IV price forecasts reflects higher butter and NDM prices. For 2018, class prices were raised on higher component product prices. The 2017 Class IV was estimated at about $15.50, up 85 cents from last month's expectation, and compares to $13.77 in 2016 and $14.35 in 2015. The 2018 Class IV average is projected to average $15.25 to $16.35, up 85 cents from a month ago.
Projected corn production for 2017-18 was unchanged at 14.1 million bushels, according to the WASDE. USDA will issue its acreage report June 30, providing a survey-based estimate of corn area planted and a forecast of area harvested for grain. The season average corn price received by producers was unchanged from last month at $3 to $3.80 per bushel.
This month's U.S. soybean supply and use projections for 2017-18 were little changed from last month. Higher beginning stocks reflect a lower crush projection for 2016-17. Soybean crush for 2016-17 was reduced 15 million bushels to 1.9 million mainly reflecting reduced domestic soybean meal disappearance. Soybean ending stocks for 2016-17 are projected at 450 million bushels, up 15 million from last month.
Ending stocks for 2017-18 were also raised 15 million bushels to 495 million. Price forecasts for 2017-18 were unchanged. The 2017-18 season-average price for soybeans was forecast at $8.30 to $10.30 per bushel; soybean meal and oil prices were projected at $295 to $335 per short ton and 30 to 34 cents per pound, respectively.
April American cheese demand was up 2.8 percent from March but down .9 percent from a year ago, according to USDA's latest Dairy Outlook. Other cheese demand was down .8 percent from March but up 2.8 percent from 2016. Total cheese use was up .5 percent from March and up 1.4 percent from a year ago. Nonfat dry milk use gained .4 percent in April and butter demand was up 22.8 percent from 2016, according to USDA.
Cash cheese prices languished in butter's shadow mid-June, especially last Wednesday, when the shining star of the "Milky Way" shot up 12 cents and hit $2.70 per pound. But the roller coaster plunged last Friday when 24 carloads traded hands, dropping 14½ cents, to close at $2.56, still 8½ cents higher on the week and 19¼ cents above a year ago, when it jumped almost 17 cents and peaked for the year at $2.3675. A total of 49 cars sold on the week at the CME.
Butter Market Is Hot
FC Stone's Brendan Curran wrote in his June 14 Insider Opening Bell, "The international (butter) market remains on fire and driving prices here, which could have lasting effects if some of the shortages we're hearing of come to fruition."
HighGround Dairy points out that EU butter prices are quickly approaching the $3 per pound level and look poised to test the CME all-time high from September 2015 of $3.14 per pound.
USDA's latest Livestock, Dairy and Poultry Outlook reported that export prices of foreign competitors have strengthened significantly in recent weeks, especially for Europe. For the two weeks ending June 9, European export prices for butter and skim milk powder were $2.68 to $2.80 and 99 cents to $1.07 per pound, respectively. "At the midpoints of the ranges, these prices were 49 cents and 15 cents higher, respectively, than the European export prices reported for the two weeks ending May 12."
Butter sales are strong according to Central producers' reports to Dairy Market News. With only slight exceptions, retail butter demand has outperformed expectations for the past month. Contacts suggest the butter market is healthy and there is little reason to expect a slowdown in the near term. Domestic buyers are reportedly not covered for the second half of the year. Therefore, sales may continue to climb and cream headed for the churns is tightening somewhat, as the weather continues to heat up.
Cash block Cheddar held at $1.63 per pound for five consecutive sessions, then lost a penny and a half last Friday, and closed at $1.6150, down the third week in a row, but still a dime above a year ago. The barrels finished at $1.38, lowest price since March 29, down 3½ cents on the week, 16½ cents below a year ago and an unsustainable 23½ cents below the blocks. Two cars of block traded hands on the week at the CME and 46 of barrel.
Milk remains available for cheese production in the Midwest, according to DMN, and reported spot loads ranged from $2.50 to $6.50 under Class III. Some situationally discounted spot loads headed to the vats as well, as thunderstorms caused power outages at some milk production facilities early in the week. Cheese production continues to match milk intakes, and building inventories remain a concern for some Midwestern cheese producers.
Western cheese output is also ongoing and additional milk is available as most educational institutions are closed for the summer. Cheese inventories are currently high, mostly for Mozzarella. Demand is strong and steady, but the recent decrease in the CME price has some buyers expecting prices to continue to slip. A number of contacts suggest that export opportunities to Asia are increasing due to U.S. prices being below international market prices.
Cash Grade A nonfat dry milk closed the week at 91 cents per pound, up a quarter-cent and 6¾ cents above a year ago, with 14 sales on the week.
Big News on China
The U.S. and China last week signed a "Memorandum of Understanding" that will "increase access to China for more than 200 U.S. dairy exporters in the short-term and pave the way for additional U.S. entrants in the future," according to a press release from the U.S. Dairy Export Council. "The action creates new, sizeable opportunities for dairy farmers and processors, and the milk, cheese, infant formula and ingredients they produce."
Lastly, lawmakers their families, staff, and others were treated this week to the 35th Annual Capitol Hill Ice Cream Party. Ice cream, frozen yogurt and 6,000 root beer floats were served, sponsored by the International Ice Cream Assn., the Milk Industry Foundation and the National Cheese Institute, constituent organizations of the International Dairy Foods Assn.