Class 3 Milk Price Expected to Average $15.20 to $16.20 in 2019
Published: Friday, September 21, 2018
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Look for the Class III price to average $14.85 to $15.05 per hundredweight, up 35 cents from last month's projection and compares to a 2017 average of $16.17 and $14.87 in 2016. The 2019 average is now expected to range $15.20 to $16.20, up 25 cents from what was projected a month ago.
The Class IV price was raised as higher forecast nonfat dry milk prices more than offset lower butter prices. It is predicted to average $14 to $14.30 per hundredweight, in 2018, up a nickel from last month's estimate and compares to $15.16 in 2017 and $13.77 in 2016.
NDM and whey prices for 2019 were raised while the butter price forecast was reduced from last month. The 2019 cheese price forecast was unchanged.
The 2019 Class IV price is projected to average $14.30 to $15.40, up 55 cents from what was expected a month ago.
This month's 2018-19 U.S. corn outlook is for larger production, increased domestic use, greater exports and higher ending stocks, according to the WASDE. The Crop Production report forecasts corn production at 14.827 billion bushels, up 241 million, or 2 percent, from August and up 2 percent from last year on an increased yield forecast.
Based on conditions as of Sept. 1, yields are expected to average 181.3 bushels per acre, up 2.9 bushels from the August forecast and up 4.7 bushels from 2017. If realized, the crop would be the second highest on record. Among the major producing states, yields are forecast to be record high in Illinois, Iowa, Nebraska, Indiana, Ohio, and South Dakota.
Corn supplies are higher from last month, as a larger crop more than offsets a small decline in beginning stocks due to higher estimated exports for 2017-18. Feed and residual use for 2018-19 was raised 50 million bushels with a larger crop and lower expected prices. Corn used for ethanol was raised 25 million bushels. With supply rising more than use, corn ending stocks are up 90 million bushels from last month. The season-average corn price received by producers is projected 10 cents lower with a midpoint of $3.50 per bushel.
Soybean production was projected at a record 4.693 million bushels, up 107 million, or 2 percent, from August and up 7 percent from last year on a record yield forecast of 52.8 bushels per acre. Yields are expected to average a record high 52.8 bushels per acre, up 1.2 bushels from last month and up 3.7 bushels from last year. Area for harvest in the United States is forecast at 88.9 million acres, unchanged from August but down 1 percent from 2017.
Soybean supplies were raised with higher production only partly offset by lower beginning stocks. With soybean crush up 10 million bushels and exports unchanged, ending stocks are projected at 845 million bushels, up 60 million from last month. The 2018-19 U.S. season-average soybean price is forecast at $7.35 to $9.85 per bushel, down 30 cents at the midpoint. Soybean meal prices were lowered $5 at the midpoint to $290 to $330 per short ton. Soybean oil prices were unchanged at 28 to 32 cents per pound.
A 5.4 magnitude earthquake hit Japan on Sept. 6, and in a region that provides about half of the country's milk supply. Additional quakes followed and the Daily Dairy Report says the northern region lost power to 50 percent of the island, according to Bloomberg. The power loss affects farms, which of course can be supplied by generators but processors unable to handle the milk may lead to milk being dumped and shortages for milk and dairy products to consumers.
New Zealand and Europe are the largest suppliers of butterfat to the Japanese market, as well as skim milk powder, according to the DDR, but is also a good customer of the U.S.
CWT Milestones
The farmer funded Cooperatives Working Together export assistance program reported a major milestone this week topping 1 billion pounds worth of milk so far in 2018. The sum represents 50 percent of the overall rise in U.S. milk production through August of this year, according to CWT. To date, 2018 CWT export sales total 49.64 million pounds of American-type cheeses, 12.96 million pounds of butter (82 percent milkfat) and 45.7 million pounds of whole milk powder to 34 countries on five continents. These sales are the equivalent of 1.083 billion pounds of milk on a milkfat basis and compares to an estimated total increase in U.S. milk production of 2.095 billion pounds during the first eight months of 2018, versus the same period last year.
Checking the markets, mid-September cheese prices were down again. CME Cheddar blocks closed the second Friday of the month at $1.6050 per pound, down 5 ¾-cents on the week and a half-cent below a year ago. The barrels finished at $1.42, down 8 cents, 3 cents below a year ago, and 18½-cents below the blocks. 12 cars of block traded hands on the week and 30 of barrel.
FC Stone said in its Sept. 12 Early Morning Update that "favorable milk production weather in the West and forecasts for that to continue may be creeping into the market's mind as we wait for additional fundamental data."
Last Friday's edition added, "U.S. milk production in July was only up .4 percent, which initially looked friendly to prices, but behind the scenes fat and protein components in the milk have been growing significantly over the past few years. Higher components mean we have higher cheese yields, which combined with more processing capacity, has kept the cheese markets in check."
Cheese Demand Positive
Cheese demand reports in the Central region are generally positive, according to Dairy Market News. "Fresher cheese stocks, namely Colby and Cheddar, are moving well. Italian style cheesemakers are also pointing to a continued steadiness, with some expected hiccups from the impending hurricane in the East affecting orders from that region."
Food service demand is seeing an uptick as schools have reopened in the Midwest but cheese producers are not expecting orders to remain as steady following market drops as buyers may hold off and wait for further declines. Milk availability was mixed on the week. Most spot milk prices reported were at a premium, but there were some flat market prices reported as well.
Western cheese makers report that retail orders are strong, and with most educational institutions back in session, some food service accounts are pulling a little more cheese. Contacts say discounted milk loads are not as readily available, but they are having no trouble getting the milk they need. Cheese inventories, while heavy, are not burdensome but some contacts are a bit perplexed, says DMN. "They see steady supply and demand signals, but are trying to fathom the driving force behind the slippage of prices on the cash market. As a result, a few end users are wanting to take a wait and see approach. Until the market provides clearer price signals, they are willing to work through inventories a little more rather than make new purchases."
Spot butter fell to $2.1975 per pound last Wednesday, rallied last Thursday, and closed last Friday at $2.2350, up a half-cent on the week but 21¼-cents below a year ago, with 15 sales reported for the week.
Cream was a little tighter last week, according to butter makers. There was not a scarcity, but offers were lighter. Churning activity was similar to the previous week, steady to a bit higher with the exception of plants temporarily closed due to recent floods in Wisconsin. Butter interest is reportedly strong, although markets are uncertain. Some contacts suggest larger volumes of imported butter may put some downward pressure on domestic markets in the near term.
Grade A nonfat dry milk closed last Friday at 87½-cents per pound, down 3 ½-cents on the week but 5¼-cents above a year ago, with five cars sold.
The dry whey market kept getting bid to new record highs until a car was finally sold last Wednesday and one last Thursday. It closed last Friday at 52¼-cents per pound, up three-quarter cents on the week.
In politics, lawmakers have returned to Capitol Hill from their August recess to tackle several issues before adjourning for the fall campaign season.
September is a critical period for finalizing work on the 2018 Farm Bill, as the current bill expires Sept. 30. The joint House-Senate conference committee held its first official public meeting on Sept. 5, and leaders from both House and Senate Agriculture Committees began meeting informally during last month's recess, "underscoring the urgency of the situation," says NMPF. Congress may also hold a vote on immigration legislation in September.
NMPF says it has worked with House Judiciary Committee Chairman Bob Goodlatte (R-Va.), House Agriculture Committee Chairman Mike Conaway (R-Texas) and Ranking Member Collin Peterson (D-Minn.), as well as Rep. Dan Newhouse (R-Wash.), to advance the AG and Legal Workforce Act (H.R. 6417). The measure would create a new H-2C guest worker program for agricultural workers, including year-round dairy workers, coupled with new enforcement measures including E-Verify. This legislation was introduced before the August recess and NMPF says it has been working to build support for action on the measure in Congress yet this year.
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