Milk Production Forecast Holds Steady; Feb. Exports Set Record
Published: Friday, April 20, 2018
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The Agriculture Department left its 2018 milk production forecast in the latest World Agricultural Supply and Demand Estimates report (WASDE), unchanged.
Production and marketings for 2018 remain at 219 and 218 billion pounds, respectively. If realized, 2018 production would be up 3.5 billion pounds, or 1.6 percent, from 2017.
The 2018 import forecast was reduced slightly on a fat basis, but unchanged on a skim-solids basis. Exports on a fat basis were also unchanged, but skim-solids-basis exports were raised on stronger sales of nonfat dry milk and skim milk powder, and lactose.
The annual product price forecast for cheese was unchanged at the midpoint, although the range was narrowed. Butter prices are expected to increase more slowly in the second half of the year and the price forecast was reduced. The nonfat dry milk (NDM) price was reduced slightly on current prices. The annual whey price forecast was lowered on larger supplies and weaker demand.
The expected Class III milk price average was lowered, based on the lower whey price forecast. Look for a 2018 average of around $14.45 per hundredweight, down 15 cents from last month's projection, and compares to the 2017 average of $16.17 and $14.87 in 2016.
The Class IV price estimate was lowered, based on the lower NDM and butter price forecasts. It is estimated to average around $13.55, down a nickel from last month's estimate, and compares to $15.16 in 2017 and $13.77 in 2016.
This month's 2017-18 U.S. corn outlook is for reduced feed and residual use, slightly lower food, seed and industrial use, and increased ending stocks, according to the WASDE. The report showed U.S. corn carryout at 2.182 billion bushels, up 55 million from the March report.
The projected range for the season-average corn price received by producers was unchanged at the midpoint with the range narrowed to $3.20 to $3.50 per bushel. Global coarse grain production for 2017-18 is forecast 7 million tons lower than last month to 1.3 million. World corn carryout, at 197.8 million tons, was down from 199.17 million tons in March.
The U.S. soybean carryout was 550 million bushels, down 5 million from the March report due to better exports and better domestic crush. World soybean carryout was 90.8 million tons, down from 94.90 million tons in March.
The season-average soybean price was forecast at $9.10 to $9.50, unchanged at the midpoint. Soybean meal prices were projected at $340 to $360 per short ton, up $10 at the midpoint.
World corn carryout was reduced on lower Argentine production due to dry conditions and a smaller Brazilian second corn crop. World soybean carryout was reduced on sharply lower Argentine production, which partially offset huge Brazilian soybean production.
Dairy prices saw more ups and downs the second week of April. The Cheddar blocks finished last Friday the 13th at $1.6050 per pound, up a quarter-cent on the week and 13 cents above a year ago. The barrels closed at $1.46, up a penny, 3¼ cents above a year ago, but still a higher than normal 14½ cents below the blocks. Two cars of block were traded at the CME this week and 29 of barrel.
Cheese demand reports are generally positive from Midwestern producers, according to Dairy Market News. "There are some warm spots on the weather forecast ahead of grilling season, although parts of the upper Midwest were expecting heavy snow over the weekend and into the following week."
Spot milk remains discounted, $2 to $3.50 under class. Some cheesemakers have turned up production the past few weeks and are fortifying with nonfat dry milk (NDM) in order to alleviate fairly heavy NDM stocks. Some questions arise with contacts regarding the relatively sizeable CME block to barrel price gap, but generally Central contacts view the markets with a bullish eye, says DMN.
"Western cheese output is increasing along the same trajectory as milk output," said DMN. Contacts say the spring flush has commenced within areas of the Western region and cheesemakers have plenty of milk. Contacts report that demand has been strong for both blocks and barrels, but has recently subsided somewhat for barrel cheese, as suggested by the widening gap between CME prices. Inventories are heavy, but not necessarily burdensome at this point, "However," warned DMN, "if U.S. and European cheese prices converge, manufacturers worry they may face the ineluctable realization that competition for export sales may become more fierce."
Spot butter climbed to $2.32 per pound last Monday but slipped 2 cents last Thursday and closed last Friday at $2.2875, unchanged on the week but 20 cents above a year ago. Forty-six cars were sold on the week, with 23 last Tuesday alone.
Central butter plant managers are receiving more cream offers and butter sales are taking off, both on and off of the CME marketplace.
Some producers suggest there is strong interest from export purchasers in multiple global localities, as butter prices domestically are competitive. Adding to demand news, domestic interest is also adequate, according to the USDA.
Western butter output is strong. Many states are in the spring flush so abundant milk loads are clearing through Class IV utilization. Butter sales were steady compared to the previous week and spot demand seems to be strong.
Cash Grade A nonfat dry milk closed last Friday at 73¼ cents per pound, up a half-cent on the week but 11¼ cents below a year ago, with six sales on the week.
The spot dry whey closed last Friday at 30½ cents per pound, down 1½ cents.
Dairy Exports
On a brighter note, the U.S. Dairy Export Council reports that U.S. dairy export volume reached an all-time high in February (on a daily-average basis), led by strengthening ingredient sales to Southeast Asia, record lactose exports to China and broad-based increases in overseas sales of cheese. Suppliers shipped 181,797 tons of milk powder, cheese, butterfat, whey and lactose during the month, up 19 percent from last February. U.S. exports were valued at $454 million, up 4 percent.
"Sales to Southeast Asia have been robust in early 2018. Shipments of nonfat dry milk/skim milk powder (NDM/SMP) and dry whey to the region were up 71 percent versus a year earlier. Indonesia and Vietnam bought more NDM/SMP; the Philippines, Malaysia and Vietnam bought more dry whey. On a value basis, total dairy exports to Southeast Asia were $64 million, up 13 percent from 2017. Overall NDM/SMP exports were 66,750 tons, up 28 percent from last year, and the second-most ever," according to the USDEC.
"Cheese exports totaled 28,150 tons in February, the most in eight months (daily average), and up 7 percent from a year earlier. U.S. suppliers increased sales to China (up 100 percent), Japan (up 21 percent), Central America (up 32 percent)."
U.S. exports, on a total milk solids basis, were equivalent to 17.2 percent of U.S. milk production in February, the highest since October 2016, says the USDEC, and imports were equivalent to just 3.1 percent.
Downside Risk
So why are U.S. milk prices where they are? HighGround Dairy's director of dairy market intelligence, Lucas Fuess, in the April 16 Dairy Radio Now broadcast, blamed supply, stating, "The U.S. continues to produce a lot of milk, especially as you look to the Western states." He reminded us that U.S. output was up 1.8 percent in January and February, and says we're close to a multi-year high on cow numbers. So "as long as the milk continues coming, prices continue to be distressed."
Fuess also warned of the consequences of losing those global markets, echoing comments made in the previous week's broadcast by Jerry Dryer, analyst and editor of the Dairy and Food Market Analyst newsletter. Dryer stated that U.S. dairy prices will take a "significant hit" if global export markets disappear or are abandoned due to trade disputes.
Dryer also discussed some of his long range forecasts and stated, "On the supply side of the equation, everything looks like it's going to stay the same. There's plenty of milk everywhere in the world, and I don't see milk producers in the U.S. letting up on the throttle for at least another four to six months. On the demand side, everything is kinda staying the same. It's good, it's not exceptional, but it's fairly steady, here and around the world. We're moving product overseas and we're moving product domestically so that means prices are going to stay, pretty much range bound where they have been."
He warned that there may be a few days or weeks where prices are significantly lower "simply because inventory has totally overwhelmed the market during the spring flush, but it's pretty much a steady as she goes climate until we either get rid of some of this milk supply or figure out a new way to create demand."
Global demand is OK but nothing to write home about. China's imports are not setting the world on fire and the uncertainty over NAFTA and talk of trade wars has unsettled the market. Dryer said the risk in his forecast is "all downside."
"If we lose some of these export opportunities or just kiss them goodbye, product going to Mexico, China or the Middle East," he warned, "then I don't know where the bottom is. Prices will take a significant hit. They have no choice. We export 15 percent of what we produce. One day a week goes overseas. The domestic market is not going to soak that up near term," he concluded.
Fuess also stated, "The dairy industry is not opposed to renegotiation or looking at how pieces of NAFTA can be improved," but he underscored, "The access to Mexico is really critical."
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