Lee Mielke is a veteran dairy journalist and broadcaster, currently carried in a dozen Ag newspapers nationally. This column is prepared especially for the readers of DairyBusiness. Based in Lynden, Wash., he can be reached by email at [email protected] or by phone 360.201.4033.
Any hopes pinned on the global dairy market to strengthen dairy prices suffered another setback this week. Tuesday's Global Dairy Trade (GDT) auction saw its weighted average for all products offered drop 3.5 percent, following a 1.0 percent decline October 17 and a 2.4 percent descent on October 3.
Skim milk powder was up 1.2 percent, after plunging 5.6 percent, and anhydrous milkfat was up 0.5 percent, after it jumped 5.2 percent last time.
FC Stone equated the GDT 80 percent butterfat butter price to $2.4412 per pound U.S. CME butter closed Friday at $2.2550. GDT Cheddar cheese equated to $1.8146 per pound U.S. and compares to Friday's CME block Cheddar at $1.71. GDT skim milk powder averaged 82.48 cents per pound and whole milk powder averaged $1.2937 per pound U.S. CME Grade A nonfat dry milk price closed Friday at 72 1/4-cents per pound.
Exports of NDM/SMP in Third Quarter, at 131,988 tons, were down 18 percent versus a year ago. Sales to Southeast Asia were just 34,536 tons, a 35 percent decline, with significant lost volume to Indonesia (down 60 percent) and Vietnam (down 76 percent). Shipments to Mexico also were lower, falling 19 percent.
There's plenty of powder globally and EU and Canadian supplies are threatening U.S. Market share in Mexico, which doesn't bow well for U.S. prices.
September cheese exports totaled 59.2 million pounds, down 8.6 percent from August, but up 22.6 percent from last year.
The U.S. Agriculture Department lowered its 2017 and 2018 milk production forecasts in its latest World Agricultural Supply and Demand Estimates report, due to an expected slower pace of growth in milk per cow and slightly lower cow numbers.
2017 production and marketings were projected at 215.8 and 214.8 billion pounds respectively, down 400 million pounds from last month. If realized, 2017 production would still be up 3.4 billion pounds or 1.6 percent from 2016.
2018 production and marketings were projected at 219.7 and 218.7 billion pounds respectively, down 700 million pounds from last month. If realized, 2018 production would be up 3.9 billion pounds or 1.8 percent from 2017.
The fat basis import forecast for 2017 was is lowered on recent trade data and the expectation of slower cheese imports in fourth quarter. The forecast was raised for 2018 on higher expected shipments of whole milk powder and butter. The 2017 skim-solids basis import forecast was reduced on lower-than-expected imports of milk protein concentrates and a number of other dairy products. This weakness is expected to carry over into 2018, supporting a lower import forecast.
Fat basis exports were reduced for 2017 and 2018 on lower butter and cheese exports. Skim-solids basis export forecasts were also reduced for both 2017 and 2018 on lower expected shipments of skim milk powder and whey products.
The 2017 butter, nonfat dry milk, and whey prices were lowered from last month, but the price forecast for cheese was raised. All 2018 dairy product prices were lowered due to expected large supplies and global competition.
The 2017 Class III milk price forecast was unchanged from last month, as the expected decline in whey is offset by the higher cheese price. Look for the 2017 average to range $16.15-$16.25 per hundredweight (cwt.), up from $14.87 in 2016 and $15.80 in 2015. The 2018 average is projected to range $15.50-$16.40, down 50 cents from last month's estimate.
The Class IV milk price forecast was reduced from the previous month on lower forecast butter and NDM prices. The 2017 Class IV average is projected to range $15.10-15.30, down 15 cents from last month's estimate, and compares to $13.77 in 2016 and $14.35 in 2015. The 2018 average is estimated at $14.15-$15.15, down 55 cents from last month's projection.
Checking the feed side of the report; "This month's 2017/18 U.S. corn outlook is for larger production, increased feed and residual use and exports, and greater ending stocks. Corn production is forecast at 14.58 billion bushels, up 298 million from last month on a record-high yield. Feed and residual use was raised 75 million bushels, based on a larger crop. Exports were raised 75 million bushels, reflecting expectations of improved U.S. competitiveness, reduced exports for Ukraine, and increased demand from Mexico based on sharply lower sorghum production prospects." "With supply rising faster than use, corn ending stocks are up 147 million bushels from last month. The projected range for the season-average corn price received by producers is unchanged with a midpoint of $3.20 per bushel."
"Total U.S. oilseed production for 2017/18 is projected at 132 million tons, down 200,000 pounds from last month, due to lower soybean, peanut, and cottonseed production. Soybean production is forecast at 4.4 billion bushels, down 5 million, due to a fractionally lower yield. With use unchanged, soybean ending stocks are projected at 425 million bushels. Prices for soybeans and soybean meal were raised this month. The U.S. season-average soybean price is projected at $9.30 per bushel, up 10 cents at the midpoint. The soybean meal price is projected at $295 to $335 per short ton, up $5 on both ends of the range. The soybean oil price projection was unchanged at 32.5 to 36.5 cents per pound."
"This month's 2017/18 U.S. cotton estimates include higher production and ending stocks, as a smaller crop in the West is more than offset by gains in the Southwest and other regions. While the U.S. production forecast is raised 1 percent, to 21.4 million bales, domestic mill use and exports were unchanged. U.S. ending stocks are now estimated 300,000 bales higher at 6.1 million bales and, at 34 percent, are forecast at their highest share of use since 2008/09. The marketing-year average price received by producers is forecast at 63 cents per pound, 3 cents above the October estimate, reflecting prices to date."
The Agriculture Department's latest Crop Progress report shows 70 percent of U.S. corn has been harvested, as of the week ending November 5, up from 54 percent the previous week but 14 percent behind a year ago and 13 percent behind the five year average.
The report shows 90 percent of the soybean crop is harvested, up from 83 percent the previous week, 2 percent behind a year ago, and 1 percent behind the five year average. Cotton is 54 percent harvested, up from 46 percent the previous week, 1 percent behind a year ago and 1 percent behind the five year average.
Dairy prices are on a roller coaster again. CME 40-pound block Cheddar fell to $1.6025 per pound on November 8, lowest price since September 21, 2017, then jumped
11 1/4-cents the following day, and closed Friday at $1.71, down a half-cent on the week and 17 1/2-cents below a year ago, with four cars exchanging hands on the week. The 500-pound Cheddar barrels dipped to $1.70 Tuesday, then gained a nickel, and finished Friday at $1.7525, up 3 3/4-cents on the week, a quarter-cent below a year ago, and an inverted 4 1/4-cents above the blocks, with 13 sales recorded.
Midwestern cheese producers report that sales are steady to slower as the holidays approach, according to Dairy Market News. Mozzarella sales are steady, Cheddar makers report steady to slowing orders, as many retailers are stocked ahead of the busy season.
"Spot milk is being eschewed by a number of cheese producers in the Midwest," says DMN, "As they use internally sourced or contractual milk." Discounted milk prices were reported again, as loads ranged from $1 under to $1 over Class III.
"Negotiations between cheese producers and milk suppliers are ongoing regarding holiday milk orders. Cheese markets are dithering at the halfway mark through this week and concerned was expressed over the price inversion.
Western cheese makers report solid domestic demand and some export interest. "Shoppers are taking regular shipments to meet Fourth Quarter holiday orders. Buyers are getting a jump on the season, but so far the purchases are void of any razzle-dazzle. Many manufacturers are hoping for a more robust holiday buying spree in the near future. With plentiful milk available, a number of cheese processors say they are running at or near full capacity. Stocks are heavier than normal, but some contacts suggest this may be indicative of an industry that has gotten used to carrying more inventory," says DMN.
Cash butter fell to $2.18 per pound on November 8, lowest price since May 10, 2017, then rallied and closed Friday at $2.2550, up 2 1/4-cents on the week and 24 1/2-cents above a year ago, with a whopping 50 cars trading on the week.
DMN says cream supplies to churns are becoming more available ahead of the holidays. "Butter production is meeting cream availability, however some butter producers are selling cream back onto the spot market. Bulk butter sales are picking up as prices have steadily declined in recent weeks. Contacts suggest retail and food service sales are seasonally satisfactory. Although market prices continue to ebb, the overall butter market tone is somewhat steady. Midwest contacts point to declining EU butter prices, and suggest price trends domestically are mirroring European slides."
Western contacts report that butter prices are currently good, but are still lower compared to last year at this time. Inventories are adequate to meet purchasers' needs. Butter production is active as cream is readily accessible to processors. However, to better manage inventories and production, some manufacturers are putting off churning activities until after Christmas and are shipping their cream to Mexico. Although, butter demand is strong due to increased Thanksgiving orders, contacts report that current sales are below last year."
Cash Grade A nonfat dry milk closed Friday at 72 1/4-cents per pound, up a quarter-cent on the week but 15 1/2-cents below a year ago. Nine carloads exchanged hands on the week at the CME.
Meanwhile, dairy margins have been steady to a little better since the middle of October, following slightly higher milk prices in nearby months along with weakness in feed costs, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC. "Milk prices have stabilized after recent weakness with mixed tones in the market."
The MW warned that "Milk prices remain under pressure from the large stocks overhang in the EU, with milk supplies growing in the Continent and ideas that the European Commission may institute measures to make the SMP Intervention program resemble a tender process. At the same time, weaker growth in New Zealand milk output due to a wet spring that has compromised pasture conditions is helping to underpin the market. New Zealand's milk output totaled 2.529 million tons in September, down 1.6 percent from last year, representing the lowest September output since 2012. Calendar-year 2017 milk production is now estimated at 21.5 MMT, up 1.3 percent from last year versus previous estimates for 3.1 percent year-over-year growth. Meanwhile, feed prices have remained steady to weaker under continued pressure from advancing harvest progress," the MW concludes.
The USDA's latest National Milk Cost of Production report shows September's total milk production costs were up from August and a year ago.
Total feed costs averaged $10.66 per hundredweight (cwt.), down 6 cents from July but 15 cents above the August figure and 2 cents above September 2016.
Purchased feed costs, at $5.83 per cwt., were up 7 cents from July and August but 18 cents below September 2016.
Total costs, including feed, bedding, marketing, fuel, repairs, hired labor, taxes, etc., at $22.81 per cwt., were up 38 cents from July, 41 cents above August, and 28 cents above a year ago.
Feed costs made up 46.7 percent of total costs in September, down from 46.9 percent the month before but up from 47.2 percent a year ago.
There are plenty of dark clouds surrounding dairy right now but FC Stone dairy broker Dave Kurzawski said in the November 13 "Dairy radio Now" broadcast that it's not as negative as it seems. He said the drop in CME cheese came on a "handful of trades," "normal vibrations in the market," and "the futures market took the que from that and sold off from sentiment as the human element from these market is extremely bearish right now."
He blamed that sentiment on the uncertainty in Europe and the potential changes to the Intervention program, falling European butter prices, and growing U.S. powder stocks. But he adds the caveat that "we're not awash in milk."