The Farmer's Exchange Online Home
Friday, October 12, 2018
Michiana's Popular Farm Paper Since 1926
Click here to subscribe today

Light May Be Shining at the End of Dairy Industry's Long Tunnel


by Lee Mielke

Published: Friday, May 18, 2018

The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."

The Agriculture Department lowered its 2018 milk production forecast in the latest World Agricultural Supply and Demand Estimates report (WASDE), and gave us our first look into 2019. The 2018 forecast was reduced from the previous month on lowered milk cow numbers and slow growth in milk per cow.

Production and marketings for 2018 were projected at 218.7 and 217.7 billion pounds, respectively, down 300 million pounds from last month's estimates. If realized, 2018 production would be up 3.2 billion pounds, or 1.5 percent, from 2017.

Production and marketings for 2019 were estimated at 221.5 and 220.5 billion pounds, respectively. If realized, 2019 production would be up 2.8 billion pounds, or 1.3 percent, from 2018.

Milk output for 2019 was forecast higher on gradual recovery in milk per cow. Cow numbers are expected to remain near 2018 levels.

Commercial exports on both a fat and skim-solids basis were forecast higher than the previous year on robust global demand. Fat and skim-solids basis imports were unchanged from 2018. With stronger expected domestic and export demand, cheese, nonfat dry milk (NDM) and whey prices were forecast higher for 2019. Butter prices were forecast slightly lower.

Cheese, butter, NDM and whey prices were raised from the previous month resulting in both Class III and Class IV prices being raised. Look for a 2018 Class III average of around $15.05 per hundredweight, up from $14.45 projected a month ago and compares to $16.17 in 2017 and $14.87 in 2016. The 2019 average is projected to range $14.80 to $15.80 per hundredweight.

The Class IV price is forecast higher also as a stronger expected NDM price more than offsets the lower butter price. The 2018 average is expected around $14.05, up from $13.55 a month ago and compares to the 2017 average of $15.16 and $13.77 in 2016. The 2019 average is expected at $13.65 to $14.75.

Exports were raised from the previous month on both a fat and skim-solids basis on strong global demand. Imports are lowered on a fat and skim-solids basis.

The WASDE's U.S. feed-grain outlook for 2018-19 is for lower production, domestic use, exports and ending stocks. The corn crop is projected at 14 billion bushels, down from last year with a lower forecast area and yield. The yield projection of 174 bushels per acre is based on a weather adjusted trend assuming normal planting progress and summer growing season weather, estimated using the 1988-2017 time period. And, with beginning stocks down from a year ago, total corn supplies at 16.3 billion bushels, if realized would be down 675 million from the prior year. Total U.S. corn use in 2018-19 is forecast to decline modestly from a year ago on reductions in domestic use and exports. The season-average farm price is projected at $3.30 to $4.30 per bushel, up 40 cents at the midpoint from 2017-18.

The 2018-19 outlook for U.S. soybeans is for higher supplies, crush, exports, and lower ending stocks compared to 2017-18. The soybean crop is projected at 4.28 billion bushels, down 112 million from last year's record crop on lower harvested area and trend yields. With higher beginning stocks, soybean supplies are projected at 4.835 billion bushels, up 2 percent from 2017-18.

The 2018-19 U.S. season-average soybean price range is forecast at $8.75 to $11.25 per bushel compared with $9.35 per bushel in 2017-18. Soybean meal prices are forecast at $330 to $370 per short ton, compared with $360 per ton for 2017-18.

U.S. cotton projections for 2018-19 include smaller production, unchanged exports, and slightly higher ending stocks compared with 2017-18. Production is forecast at 19.5 million bales, based on 13.5 million planted acres as indicated in the March Prospective Plantings report. The range for the marketing year average price received by producers is 55 to 75 cents per pound.

Cash dairy product prices were mixed the second week of May. Block Cheddar climbed to $1.7025 per pound last Tuesday, highest price since Nov. 15, 2017, but saw a CME close last Friday at $1.6325, down 3¼ cents on the week and a quarter-cent below year ago. Barrel hit $1.6525 last Monday, highest price since Dec. 15, 2017, but finished at $1.62, up 2 cents on the week and 9 cents above a year ago. Trading on the week saw 8 cars of block and 35 of barrel sold.

FC Stone dairy broker Dave Kurzawski points out in his May 10 Early Morning Update that "We seem to have plenty of milk at the moment, with the Upper-Midwest not expected to hit peak flush until later this month or early June (a little later versus California, which was early this year). Beyond that, however, the questions around U.S. production mount. How will summer weather turn out?"

"Just how much of an impact will the widespread removal of rBST be this year? What about the daily articles of smaller producers going out of business? What does that really mean? What about on-farm labor issues? There are plenty of questions and scenarios to keep you up at night, but one thing is for sure," he concludes. "The trend for dairy products at large seems to be moving higher. And although corrections will occur, 2018 is shaping up to be one of much better demand and much more questionable supply."

Dairy Market News reports that Central region cheese demand reports vary. Some cheese makers suggest that buying is day-to-day, as buyers wait out a potential price drop. Others are pleasantly surprised by a continued uptrend in orders, particularly because this is historically a slower period. Milk continues to flow in at discounted rates, $1 to $4 under Class III. With schools on the verge of closing and spring flush in effect, cheese producers are not expecting milk prices to increase unless unexpected heat brings overall milk production down a lot.

Cheese is moving relatively well, but some Western processors say buyers are cooling to rising prices. A few are making purchases only as needed. Some sense the strengthening dollar in relation to other world currencies may make it more difficult to export U.S. cheese. Inventories remain heavy, especially for barrel cheese. Improving weather and the advent of grilling season is creating a bump in interest for process American cheese, says DMN.

Butter fell to $2.3025 per pound last Tuesday but closed last Friday at $2.3350, down 1¾ cents on the week but 7¼ cents above a year ago, with 52 cars sold on the week.

DMN says 80 degree days, already a common occurrence in the South Central region, have begun to grace the Upper Midwest, resulting in a noticeably lighter cream supply, due at least in part to an increase in ice cream manufacturers clearing more cream. Eighty-two percent butter is still sought after, and domestic retail sales are fair, reportedly meeting expectations. Butter inventories are generally in good shape and the markets are and have been remarkably bullish.

Cash Grade A nonfat dry milk climbed to 86 cents per pound last Monday, highest since Sept. 1, 2017. It closed last Friday at 85 cents, up three-quarter cents on the week and 1¼ cents below a year ago, with 35 cars exchanging hands for the week.

Dry whey closed last Friday at 32½ cents per pound, up three-quarter cents on the week and the highest price it's seen since it began trading on March 12.

"Long-term survival of a dairy operation will hinge on management's ability to find ways to push the cost of production below $17.50 per hundredweight while maintaining some level of reinvestment in the operation," according to Penn State's latest Dairy Outlook. The outlook states, "Milk futures prices have taken on a decidedly positive movement over the past month. Many in the industry are looking at those fourth quarter prices with the same longing of a weary desert traveler looking at an oasis on the horizon that has the promise of water."

"But as we know, sometimes the oasis is more of a mirage than reality, and the promise of water to the weary traveler never comes true. One aspect of the markets that make the fourth quarter prices somewhat of a mirage is feed prices."

Dairy farm bottom lines have become increasingly dependent on exports. U.S. dairy exports have increased 604 percent since 1995, but the U.S. Dairy Export Council says, "We are just getting started."

Mark O'Keefe, vice president of editorial services, says they have set new goals for an industry-wide initiative called "The Next 5 Percent." The concept includes building U.S. dairy export volume from about 15 percent of U.S. milk solids to 20 percent, according to the USDEC website, and "while the goal is expressed in terms of volume, it's more than a volume target. That's because the U.S. dairy industry cannot expand volume as needed without heightening the focus on meeting the evolving demands of overseas customers and consumers with innovative, high-value products. Thus, The Next 5 Percent is a dual-track goal to deliver volume expansion concurrently while lifting the value of the products U.S. Dairy is selling."

USDEC says "In some ways, dairy farmers have become economic victims of their own industriousness, innovation and efficiency. In 1950, the average U.S. cow produced roughly 5,500 pounds of milk per year. With advances in technology, nutrition and animal care, the average cow is now producing about 23,000 pounds per year."

"That's contributed to a situation in which U.S. dairy farmers produce more milk than their fellow Americans consume. We must find new markets to keep farmers in business. If we aggressively move to increase our export volume now, the growing supply base can serve those markets well into the future."

USDEC points out that 95 percent of the world's population, potential customers, live outside the U.S. "Looking beyond our borders is where a significant part of our future business lies and where we can find more markets for our milk, products and ingredients. Since 2003, nearly half of 'new' milk produced in this country has gone to exports," according to the USDEC, and projects global dairy trade will increase by 2.3 million metric tons in the next three to five years."

March dairy exports set a new record on a total volume basis, up 26.8 percent on a milk equivalent basis. FC Stone dairy broker Dave Kurzawski, talked about it in the May 14 Dairy Radio Now broadcast and attributed the encouraging data to U.S. prices being more competitive on the world market.

Return to Top of Page