Estimate Places 2020 Class 3 Milk Price Average at $16.55
Published: Friday, August 23, 2019
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
In The Agriculture Department lowered its 2019 and 2020 milk production estimates in the latest World Agricultural Supply and Demand Estimates (WASDE) report based on expectations of a smaller dairy herd and slower growth in milk per cow.
2019 production and marketings were estimated at 217.9 and 216.9 billion pounds, respectively, down 300 million pounds from last month's estimate. If realized, 2019 production would be up just 300 million pounds, or .1 percent, from 2018.
2020 production and marketings were estimated at 221.4 and 220.3 billion pounds, respectively, down 400 million and 500 million pounds, respectively, from last month's estimates. If realized, 2020 production would be up 3.5 billion pounds, or 1.6 percent, from 2019.
Cheese, butter and whey price forecasts for 2019 were raised. The NDM price forecast was reduced on current price weakness and slowing demand. The 2020 price forecasts for cheese, butter and NDM were lowered from the previous month, but the whey price forecast was unchanged.
The 2019 Class III price forecast was raised on higher forecast cheese and whey prices. Look for a 2019 average of $16.30 per hundredweight, up 25 cents from last month's estimate and compares to $14.61 in 2018 and $16.17 in 2017. The 2020 average is put at $16.55, down a dime from last month's estimate.
The 2019 Class IV price forecast was reduced as the lower forecast NDM price more than offsets the higher butter price. It is now projected to average $16.30 per hundredweight, down 15 cents from last month's estimate, and compares to $14.23 in 2018 and $15.16 in 2017. The 2020 average was pegged at $16.45, down 30 cents from what was expected a month ago.
It was a good week for cheese as traders awaited the July Milk Production report on Aug. 19. The blocks climbed to $1.8925 per pound last Wednesday, highest price since Nov. 22, 2016, but closed last Friday at $1.88, up 1¼ cents on the week and 22½ cents above a year ago. The barrels finished at $1.7650, up 4½ cents on the week, 9½ cents above a year ago, and put the spread at 11½ cents. Nine cars of block traded hands on the week and 33 of barrel.
Cheese market tones are steady in the Midwest, according to Dairy Market News. Demand reports remain mostly positive. Cheddar, mozzarella and specialty cheese makers report strong sales, as food service upticks are coming on with schools reopening. Some cheesemakers say milk is "in balance." Cheese manufacturers are not actively looking for it, but milk suppliers have little to offer. Cheese stocks are, in general, in balance regionally.
The Agriculture Department announced that it will purchase Mozzarella, Process and Natural American Cheddar cheese for the National School Lunch Program and other federal food assistance programs. Solicitations will be issued in September for deliveries beginning Jan. 1 through Dec. 31, 2020.
Checking dairy product demand, June total cheese disappearance continued higher versus prior year levels for the fifth consecutive month, according to Chicago-based HighGround Dairy. That pushed year to date disappearance up a strong 1.8 percent versus first half 2018.
"The 7.2 percent butter disappearance decline was disappointing," said HGD, "pulled lower by both lower export and domestic demand."
"Total nonfat dry milk/skim milk powder disappearance jumped higher versus prior year for just the second time this year, pushed higher driven by exceptional domestic disappearance in the month even as exports sank sharply lower."
And, after May's dry whey disappearance jump higher, June total disappearance fell back lower year over year and continued to be pulled down by sharply weaker export volumes, according to HGD.
U.S. fluid milk sales continue to falter. USDA's latest data shows 3.4 billion pounds of packaged fluid sales in June Dairy month, down 4.1 percent from June 2018. Conventional product sales totaled 3.3 billion pounds, down 4.2 percent from a year ago. Organic products, at 197 million pounds, were down 2.5 percent and represented about 5.7 percent of total sales for the month.
Whole milk sales totaled 1.2 billion pounds, down 1.5 percent from a year ago and made up 34.8 percent of total fluid sales in the month. Sales for the six-month period totaled 7.4 billion pounds, up .7 percent from a year ago.
Skim milk sales, at 257 million pounds, were down 11.5 percent and made up just 7.5 percent of total milk sales for the month.
Total packaged fluid milk sales, January through June, totaled 22.9 billion pounds, down 2.1 percent from a year ago. Conventional products year-to-date totaled 21.7 billion pounds, down 2 percent. Organic products, at 1.2 billion, were down 4.6 percent and represented about 5.4 percent of total fluid milk sales for the period.
The Aug. 9 Dairy and Food Market Analyst reported that "IRI data showed Fairlife milk sales declined by 14 percent in the week following the release of the Animal Recovery Mission video showing animal abuse. During July, sales of Fairlife decreased by approximately 17 percent from peak sales in May."
You'll recall I reported last week that Indonesia announced that it would increase tariffs on European dairy products and ask its dairy buyers to find alternative sources as a way to counter EU duties on palm biodiesel from Indonesia.
U.S. dairy exporters could benefit from the trade spat, according to the DFMA, which stated, "If Indonesia implements the retaliatory tariffs, it will have a price supportive impact on U.S. whey and skim milk powder markets. In 2018, Indonesia bought 194 million pounds of whey products and 111 million pounds of skim milk powder from Europe," according to the DFMA.
U.S. exports of whey to China have suffered due to the ongoing trade spat between the two countries and the toll African swine fever has taken on the pig population there.
The DFMA reported that Chinese Ministry of Agriculture data shows the disease has not been contained. "June sow inventories were down 27 percent from a year earlier, which followed a 23 percent decline in May. China's food prices increased by 9.1 percent year over year in July, which is the highest increase since January 2012. Pork prices rose 27 percent year over year following a 21 percent increase in June."
The July herd was down 32 percent, according to FC Stone, which added "Most analysts are pegging the herd down even further at 50 percent or more."
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