More Cows, Productivity Growth Fuel Higher Milk Output Forecast
Published: Friday, October 18, 2019
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The Agriculture Department again raised its 2019 milk production estimate in its latest World Agricultural Supply and Demand Estimates (WASDE) report, based on higher cow numbers and stronger growth in milk per cow. The 2020 forecast was upped from last month, based on expected continued gains in milk per cow.
2019 production and marketings were estimated at 218.2 and 217.1 billion pounds, respectively, up 200 million pounds from last month's estimate on production and 100 million pounds higher on marketings. If realized, 2019 production would be up 600 million pounds, or .3 percent, from 2018.
2020 production and marketings were estimated at 221.6 and 220.5 billion pounds, respectively, up 400 million and 300 million pounds, respectively, from last month's estimates. If realized, 2020 production would be up 3.4 billion pounds, or 1.6 percent, from 2019.
Annual forecasts of imports on both a fat and skims-solids basis were unchanged for 2019, reflecting current trade data, but forecasts for 2020 were lowered as the recently announced additional tariffs on a number of EU dairy products are expected to result in reduced imports, according to the USDA.
Fat basis export forecasts for 2019 and 2020 were reduced on continued competitive pressure on U.S. cheese exports. The 2019 skim-solids basis export forecast was lowered on weaker expected exports of cheese and skim and nonfat dry milk (SMP/NDM). However, increased strength in SMP/NDM sales in 2020, due to strong global demand, is expected to more than offset continued weakness in cheese exports.
Cheese and NDM prices for 2019 were raised but price forecasts for butter and whey were reduced. The Class III milk price projection was raised from last month as the higher cheese price more than offsets the lower whey price. Look for the 2019 average at about $16.55 per hundredweight, up a dime from last month's estimate and compares to $14.61 in 2018 and $16.17 in 2017. The 2020 average is now pegged at $17.20, up 15 cents from last month's projection.
The Class IV price was raised as the higher NDM price more than offsets the lower butter price. It is estimated to average $16.20, up a nickel from a month ago and compares to $14.23 in 2018 and $15.16 in 2017. The Class IV is projected to average $16.10 in 2020, down a nickel from last month's estimate.
Cheese and NDM prices for 2020 were raised from the previous month, but the price forecast for butter was reduced. Whey was unchanged. As a result, the Class III price forecast is higher, but the Class IV price was lowered, as the higher NDM price is more than offset by the lower expected butter price.
This month's 2019-20 U.S. corn outlook is for slightly lower production, reduced exports and corn used for ethanol, greater feed and residual use, and lower ending stocks. Corn production was forecast at 13.8 billion bushels, down less than 1 percent from the previous forecast and down 4 percent from last year. Based on conditions as of Oct. 1, yields are expected to average 168.4 bushels per harvested acre, down 8 bushels from 2018. Area harvested for grain was forecast at 81.8 million acres, up slightly from 2018.
Corn supplies were forecast down sharply on a reduced crop and lower beginning stocks, based on the Sept. 30 Grain Stocks report. Exports were reduced 150 million bushels, reflecting smaller supplies and U.S. price competitiveness. Corn used for ethanol is down 50 million bushels. Corn ending stocks for 2019-20 were lowered 261 million bushels. The season-average corn price received by producers was raised 20 cents, to $3.80 per bushel.
Soybean production was forecast at 3.55 billion bushels, down 2 percent from the previous forecast and down 20 percent from last year. Yields are expected to average 46.9 bushels per acre, down 1 bushel from the previous forecast and down 3.7 bushels from 2018. Area harvested for beans was forecast at 75.6 million acres, down less than 1 percent from the previous forecast and down 14 percent from 2018. The U.S. season-average soybean price was forecast at $9 per bushel, up 50 cents reflecting smaller supplies. The soybean meal price was forecast at $325 per short ton, up $20.
Cotton production was forecast at 21.7 million 480-pound bales, down 1 percent from the previous forecast, but up 18 percent from 2018. Yields are expected to average 833 pounds per harvested acre, down 6 pounds from the previous forecast and down 31 pounds from 2018.
All eyes are on the current crop and weather conditions. This week's Crop Progress report shows 15 percent of the U.S. corn crop has been harvested, as of the week ending Oct. 6, down from 33 percent a year ago and 12 percent behind the five-year average. 56 percent was rated good to excellent, down from 68 percent a year ago.
Higher Cheese Prices
Cash cheese prices shot higher the second week of October, though traders are skeptical. FC Stone stated in its Oct. 10 Early Morning Update, "logic and reason do not drive these markets. Greed and fear do."
Block Cheddar climbed to $2.12 per pound last Thursday but closed last Friday at $2.10, up 10¾ cents on the week and 49 cents above a year ago. The barrels finished at $2.0225, up 23¼ on the week and 66¼ cents above a year ago. Last time barrels topped $2 was Nov. 10, 2014 and that was at $2.12. The spread narrowed to 7¾ cents. Thirteen cars of block were sold on the week and 23 of barrel.
Midwestern cheese producers continue to report positive sales for the most part, says Dairy Market News, and a majority are primarily using internally sourced milk, so production is steady to active. Spot milk is ranging around $1 over class.
Cash butter fell to $2.0575 per pound last Wednesday, lowest CME price since Feb. 12, 2018, but closed last Friday at $2.0950, 9 cents lower on the week and 15½ cents below a year ago. Thirty-two cars traded places on the week, 28 on Friday.
Butter inventories are reportedly in balance, says DMN, but producers suggest fall demand is beginning to or about to begin getting chipped down. Cream availability is similar. Butter makers are finding loads regionally as well as receiving offers from the West. Fall inventories are in balance and some are running churns lighter. Butter market tones remain in "a questionable place."
Western butter supplies are declining but plentiful. Cream is available at affordable prices so butter output has been active. While retail and bulk butter demand is solid, they are below industry expectations, according to DMN.
The U.S. will impose a 25 percent tariff on incoming European butter and other dairy products on Oct. 18 if consensus is not reached about trade issues. International butter prices at the present time are below U.S. prices, giving a competitive advantage to global suppliers.
Grade A nonfat dry milk closed last Friday at $1.1650 per pound, up 2 cents and the highest since Feb. 18, 2015 and 29¾ cents above a year ago, with 11 carloads exchanging hands.
Dry whey closed last Friday at 30¼ cents per pound, down 2½ cents on the week and 26 cents below a year ago with 71 cars finding new homes on the week, down from 80 the previous week.
Looking globally, the U.S. Dairy Export Council reports that U.S. dairy export value was nearly $3.92 billion in the first eight months of 2019, up 3 percent from last year and the highest figure in five years. Gains were led by increased volumes of cheese as well as higher selling prices for dairy ingredients.
Credit domestic demand and short milk supplies, however, for the strong U.S. prices. Cheese exports were at a nine-month low in August, according to the Dairy and Food Market Analyst, which cited shipments to Mexico being at an 11-month low and to Japan at a 35-month low. The DFMA stated, "Japanese buyers tend to purchase six months in advance or more. This is the beginning of a trend." Hopefully, the new U.S. Japan trade agreement will change that.
The DFMA also pointed out that, in total, the U.S. exported 14 percent of its milk solids in August, only slightly above the 13.7 percent shipped in June and July.
HighGround Dairy says cheese exports were down 4 percent from July and 5.9 percent below August 2018. Butter was up 38.5 percent from July but 33.8 percent below a year ago. Nonfat dry milk and skim milk powder exports were up 3 percent from July but 18.3 percent below a year ago, and dry whey exports were up 21.6 percent from July and 33.4 percent below a year ago.
To no surprise, considering the high U.S. prices, U.S. butter imports were up, jumping 21.8 percent from July and 19.8 percent above a year ago. Cheese imports were the highest in nine months and the largest August volume since 2015, says HGD.
In politics, the American Butter Institute sent letters to the chairmen and ranking members of the House Committee on Energy and Commerce and the Senate Committee on Health, Education, Labor and Pensions, urging them to "compel the Food and Drug Administration to enforce federal law against plant-based imposters that illegally misuse the term 'butter' as a marketing trick."
Exoneration of Meat
Meanwhile, Agriculture Secretary Sonny Perdue's comment at World Dairy Expo about the plant-based "burger" he recently tried was probably not well received by its proponents.
Hoards Dairyman managing editor Corey Geiger talked about it in the Oct. 14 Dairy Radio Now broadcast and reported that about the same time, the Annals of Internal Medicine, an academic medical journal published by the American College of Physicians, issued a report from 14 researchers from seven countries that concluded there is no need to reduce red or process meat consumption to maintain good human health. They stated there is no significant association between red meat consumption and a heightened risk for heart disease or diabetes and they are less convinced there is a tie with red meat and cancer.
Geiger admitted the findings fly in the face of the American Heart Assn. and American Cancer Society but called it "pivotal research that could reshape the focus, and none of these people had a tie to animal agriculture."
The discussion reminded me of the days that medical findings pointed the finger at butter and claimed it was harmful to health. Perhaps we will see a similar exoneration of meat.
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