2018 Milk Price Forecast Trimmed, While 2019 Forecast Is Raised
Published: Friday, October 19, 2018
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The Agriculture Department raised its 2018 and 2019 milk production estimates in the latest World Agricultural Supply and Demand Estimates report (WASDE), due to a more rapid pace of growth in milk per cow and increased cow numbers for 2019.
Production and marketings for 2018 were projected at 218.1 and 217.1 billion pounds, respectively, up 300 million pounds from last month's estimates. If realized, 2018 production would be up 2.6 billion pounds, or 1.2 percent, from 2017.
Production and marketings for 2019 were estimated at 221.4 and 220.4 billion pounds, respectively, up 400 million pounds on both. If realized, 2019 production would be up 3.3 billion pounds, or 1.5 percent, from 2018.
Fat basis imports for 2018 and 2019 were raised on continued strength in butterfat imports and slightly higher cheese imports. The 2018 and 2019 skim-solids basis import forecasts were lowered from last month.
Exports on a fat basis were raised for 2018 on stronger cheese exports, but no change was made to the 2019 forecast. Skim-solids basis exports for 2018 were raised, primarily on stronger nonfat dry milk (NDM) and whey product shipments.
Butter and whey price forecasts for 2018 and 2019 were raised from the previous month on expected demand strength, but cheese price forecasts were lowered on continued large supplies. The NDM price forecast was unchanged.
The Class III milk price forecast was lowered for 2018; but higher 2019 whey prices are expected to more than offset declines in cheese prices, so the 2019 Class III milk price forecast was raised.
Look for the 2018 average to range $14.85 to $14.95 per hundredweight, down from the 2017 average of $16.17 and compares to $14.87 in 2016. The 2019 average is now projected at $15.30 to $16.20, up from the $15.20 to $16.20 expected a month ago.
The Class IV milk price forecast was raised for both years due to higher forecast butter prices. The 2018 average is put at $14.15 to $14.35, up from the $14 to $14.30 expected last month and compares to $15.16 in 2017 and $13.77 in 2016. The 2019 average was projected at $14.35 to $15.35 and compares to $14.30 to $15.40 a month ago.
The second week of October saw most cash dairy prices head south as traders anticipated the Oct. 16 GDT auction. The Cheddar blocks gained 3 cents last Monday but reversed and closed last Friday at $1.61 per pound, down 4 cents on the week and 9 cents below a year ago. The barrels finished at $1.36, down three-quarters on the week, 31¾ cents below a year ago, and 25 cents below the blocks. Fourteen cars of block exchanged hands on the week and 18 of barrel.
A growing number of cheesemakers are avoiding spot milk if possible, reports Dairy Market News, and are using contracted or self-sourced milk. That said, those who did buy reported prices ranging from class to $2 over. Specialty cheese making is nearing its peak ahead of the fall and winter holiday season. Pizza cheese sales are steady to higher, after some pizza cheese plant managers reported a slight demand lull in late September and early October.
Inventories are generally balanced on the block side, whereas barrels are longer but moving well enough to quell too much concern. However, last week's exorbitant block to barrel price gap has contacts questioning how things will fall in order for prices to find their more typical alignment.
Western cheese makers are busy. While bottling and other processed dairy goods are pulling milk away from the vat, many cheese facilities are still running at or near full schedules. Inventories are heavy, but not necessarily burdensome. Retail and food service demand is solid. Cheese marketers are hoping the seasonal buildup of sales to the fourth quarter holidays will begin in earnest.
Cash butter also started the week jumping 3 cents but was downhill from there, closing last Friday at $2.25 per pound, 4 cents lower on the week and 12½ cents below a year ago, with 25 carloads trading places, versus 50 the previous week.
Cream reports are indicative of continued tightness for butter makers as churns remain somewhat quiet, says DMN. Milk volumes, and notably component levels, are lower than expected for early fall. Butter sales remain healthy and plant managers relay that customers are beginning to chip away at their fall stocks. Analysts are mixed on the near-term outlook. Some suggest if weakness is to occur this year, it will be towards November and December as short-term futures markets are not bearish. Others suggest that butter could see a bullish push this fall. This is a trend butter markets did not experience in 2017, according to DMN.
The Western butter market tone is mainly steady. Some contacts say they are receiving a few inquiries from international buyers but haven't been selling much. Interest in the domestic market is steady to growing as restaurant and grocery store demand are both strong. Overall, butter production is active as more cream is available for churning and manufacturer's stocks seem to be declining.
Grade A nonfat dry milk saw a CME last Friday close at 86¾ cents per pound, up three quarters on the week and 9½ cents above a year ago, on four sales.
The dry whey price closed last Friday at 56¼ cents per pound, unchanged on the week, with three cars exchanging hands at the CME.
Dairy prices today are certainly influenced by the global market and U.S. dairy exports in August were indicative of the ongoing trade and tariff wars.
Cheese exports totaled 62.1 million pounds and, while they were up 1.9 percent from July, they were down 6.8 percent from August 2017.
The Daily Dairy Report's Sarina Sharp stated in the Oct. 5 Milk Producers Council newsletter, "Shipments to Mexico have slumped since higher tariffs took effect in early July. Compared to the average in the 12 months preceding the retaliatory tariffs, U.S. cheese shipments to Mexico in August were off 18.5 percent."
Cheddar Is Hot
Hopefully, the new USMCA will eventually turn that around, but as Sharp also pointed out, "Mexico's cheese tariffs are likely to remain in place unless the U.S. grants our southern neighbor an exemption on steel and aluminum tariffs, which fell outside the purview of the USMCA."
HighGround Dairy adds that, while total cheese exports to Mexico in August were down 21 percent from a year ago and the lowest since October 2017, Cheddar cheese exports were up 30 percent from July and 41.1 percent above a year ago due to record volumes being sent to Australia, where persistent hot, dry weather has hurt winter crops.
U.S. whey exports in August were up 32.9 percent from July and 12.8 percent above a year ago but behind that is the fact that whey product exports to China were down 27.6 percent from a year ago, according to the DDR, but were pretty much offset by increased sales to the rest of Southeast Asia.
Butter exports were up 12.5 percent from July and 7.3 percent above a year ago however, the DDR says they were "dwarfed by American's apparently insatiable demand for Irish butter. Record-breaking imports of butter from the Emerald Isle pushed the U.S. butterfat trade deficit to its widest level since December, when the U.S. butter market stood at a premium to Europe and Oceania."
The high U.S. butter price magnet attracted a total of 20.5 percent more butter than in July and 38.8 percent more than a year ago, according to the USDA. Nonfat dry milk/skim milk powder exports were up 14.7 percent from July and 27 percent above a year ago. Whole milk powder exports were down 33 percent from July but 16.2 percent above a year ago.
The DDR said, "Mexico brought in 79.5 million pounds of U.S. milk powder in August, second-largest monthly total on record and 64.2 percent more than in August 2017. That boosted U.S. NDM exports to 137.4 million pounds, up 26.3 percent from a year ago to the largest August volume on record."
Jerry Dryer, analyst and editor of the Dairy and Food Market Analyst newsletter, stated in the Oct. 15 Dairy Radio Now broadcast that U.S. dairy farmers "probably lost some ground" in the USMCA.
Echoing Sharp's remarks, Dryer said Mexican tariffs on U.S. cheese, put there in retaliation to U.S. tariffs on steel and aluminum, mean our cheese is priced 25 percent higher than it would otherwise be priced, and those tariffs may remain there until sometime in 2020 when all three countries approve the USMCA.
That gives New Zealand and the EU a price advantage over the U.S., Dryer argued. The EU, in fact, negotiated a trade deal with Mexico last summer and, while it may be awhile before it becomes effective, it gives them some access, and New Zealand is "pounding on doors there," he said because the Mexican market is "very lucrative and we aren't going to have it to ourselves anymore."
As to Canada's Class 6 and 7 pricing scheme, the USMCA "does away with it," Dryer said, "but when you read the fine print, it wasn't done away with." He says the Canadians have plenty of time to come up with "some wiggle room, maybe an alternative to Class 6 and 7, so that door didn't get closed" and when it comes to access to their market, Dryer said we have limited access to it and it will be several years before we get it and it only amounts to about 1 percent of our production 18 years from now.
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