USDA Dairy Outlook February 2019

USDA

2018 Retail Price Data Shows Consumers Paid Slightly Less for Some Animal Proteins, More for Others

December retail price information issued by the Economic Research Service and the Bureau of Labor Statistics show that, compared with 2017 data, consumers paid slightly lower retail prices for pork, broilers, and turkey, but higher prices for beef, eggs, and cheddar cheese.

Most global dairy product prices rose from December to January. Tighter milk supplies among some major dairy exporters likely contributed to the higher prices. For the top four global dairy exporters combined (New Zealand, the EU, the United States, and Australia), November milk production was 216 million pounds below November 2017. For the United States, November milk production was 17.370 billion pounds, a modest 0.6 percent above November 2017. With higher expected international prices, export forecasts for 2019 have been raised on both the milk-fat and skimsolids milk-equivalent bases. The all-milk price forecast is $16.90-$17.60 per cwt, an increase from $16.40-$17.20 forecast in December.

Recent Developments in Dairy Markets

Usually, in February most dairy-related data are available for the entire previous year. However, due to the recent Government shutdown, most dairy-related data reported by USDA National Agricultural Statistics (NASS) and trade data reported by the U.S. Census Bureau have been updated through November but are not yet available for December. Since USDA Agricultural Marketing Service (AMS) continued to provide data during the shutdown period, AMS data referenced in this publication are up to date.

From December 2018 to January 2019, with the exception of a 0.8-cent per pound decline in the U.S. butter price, all of the U.S. major domestic wholesale dairy prices and international prices rose.

For the week ending February 2, domestic wholesale prices for butter, cheddar cheese 40-pound blocks, cheddar cheese 500-pound barrels (adjusted to 38-percent moisture), dry whey, and nonfat dry milk (NDM) were $2.2320, $1.4311, $1.2502, $0.4694, and $0.9766 per pound, respectively (USDA National Dairy Product Sales Report).

Tighter world milk supplies likely contributed to the increase in most dairy product prices from December to January. The year-over-year change in milk production for the top four exporters combined (New Zealand, the EU, the United States, and Australia) generally trended lower in 2018. In November, the last month for which complete milk production data are available, milk production for the top four exporters fell below November 2017 by 216 million pounds. Modest gains for New Zealand and the United States of 66 million and 110 million pounds, respectively, were more than offset by declines for the EU and Australia of 216 million and 176 million pounds, respectively. Relatively low milk prices throughout most of 2018 and drought in Australia have contributed to the milk production decline.

More specifically for the United States, NASS estimates that U.S. milk production in November totaled 17.370 billion pounds, 0.6 percent above November 2017. This is smaller than the year-over-year gain of 0.7 percent for October. NASS estimates that November milk cow numbers were 9.360 million head, a decline of 8,000 head from October. In recent weeks, dairy cow slaughter has continued to run above corresponding weeks of the previous year. Milk per cow averaged 1,856 pounds in November, 19 pounds above November 2017.

Relatively low stocks of products with high skim-solids content have likely contributed to higher NDM and skim milk powder (SMP) prices. EU intervention ending stocks of SMP fell from 485 million pounds in November to 388 million pounds in December. Although the EU intervention ending stocks have not yet been published for January, available data indicate that the stocks have likely been nearly depleted since the beginning of the year. For the United States, November manufacturers’ ending stocks of NDM totaled 287.1 million pounds, 9.4 percent below November 2017. On a skim-solids milk-equivalent basis, U.S. November ending stocks were 10.262 billion pounds, 12.7 percent below November 2017. On a milk-fat milk-equivalent basis, November ending stocks were 13.454 billion pounds, 2.5 percent above November 2017.

On a milk-fat basis, November exports were 823 million pounds, a decrease of 96 million pounds from October and a decrease of 32 million pounds from November 2017. On a skim-solids basis, exports were 3.110 billion pounds, a decrease of 404 million pounds from October and a decrease of 500 million pounds from November 2017. Notably, exports of NDM and lactose fell from October to November by 27.9 million and 7.5 million pounds, respectively.

On a milk-fat basis, November dairy imports were 535 million pounds, 85 million below October but 56 million above November 2017. On a skim-solids basis, dairy imports were 501 million pounds, 74 million above October and 11 million above November 2017. Notably, butter and cheese imports fell from October by 1.5 million and 2.9 million pounds, respectively.

For the 3 months ending in November 2018, commercial use grew modestly over the previous year, by 1.1 percent on a milk-fat basis and 1.6 percent on a skim-solids basis. Notably, for the same 3 months, commercial use of American type cheese fell by 3.8 percent year over year. This contrasts with commercial use of Other-than-American-type cheese, which increased by 4.2 percent year over year for the 3-month period.

Dairy Estimates for Fourth Quarter 2018

Fourth-quarter 2018 estimates have been adjusted slightly since the last forecast, based on the most recent data available. The estimate for milk per cow in the fourth quarter has been lowered by 20 pounds, resulting in a milk production estimate of 53.4 billion pounds, 0.2 billion pounds less than the December forecast. NASS will publish December milk production data on February 20.

On a milk-fat basis, imports in the fourth quarter are estimated at 1.8 billion pounds, 0.2 billion lower than the previous forecast, and exports are estimated at 2.6 billion pounds, in line with the previous forecast. Ending stocks are now  orecast at 13.7 billion pounds, 0.4 billion pounds lower than previously estimated. Domestic use for the quarter is estimated at 56.0 billion pounds, 0.1 billion pounds higher than the December forecast.

On a skim-solids basis, fourth-quarter imports are estimated at 1.4 billion pounds for the fourth quarter, 0.1 billion pounds higher than previously expected. Exports are estimated at 9.9 billion pounds, 0.4 billion pounds lower than the previous forecast due to relatively low November exports of NDM and lactose. Ending stocks are expected to be 0.5 billion pounds higher than the last forecast, at 11.2 billion pounds. Domestic use is expected to be slightly lower in the fourth quarter than previously projected, at 44.1 billion pounds.

Most product prices remained within the previously forecast ranges for the fourth quarter following the release of December data. The cheddar cheese price was an exception, ending up above the previous forecast at $1.463 per pound. The fourth-quarter dry whey, butter, and NDM prices were $0.459, $2.264 and $0.887 per pound, respectively. The Class III price for the fourth quarter was $14.58 per cwt, above the previously forecast range; the Class IV price was $15.05 per cwt, within the forecast range. The all-milk price for the fourth quarter is estimated at $16.95-$17.05 per cwt, in line with the December forecast. NASS will report the December all-milk price on February 20.

Dairy Forecasts for 2019

Following a decline in the number of milk cows in November and relatively high slaughter rates during December, the forecast for the size of the milking herd has been lowered 5 thousand head for the first half of 2019; however, the rounded estimate for the year remains at 9.365 million head. Based on relatively weak yield growth continuing in November, the 2019 milk per cow forecast has been lowered 50 pounds to 23,505. These changes result in a milk production forecast of 220.1 billion pounds for 2019, 0.5 billion pounds lower than the previous forecast.

The outlook for feed prices has changed only slightly since the December forecasts. The corn price forecast for 2018/19 is $3.35-$3.85 per bushel, unchanged at the midpoint of the range. The 2018/19 soybean meal price forecast has been raised to $295-$335 per short ton, $5 higher at the midpoint of the range. The alfalfa hay price for November was $175 per short ton, $3 higher than October and $25 higher than November 2017. For more information, see the ERS Feed Price Outlook publication.

On a milk-fat basis, the export forecast for 2019 has been raised 0.3 billion pounds to 10.3 billion, as cheese exports should be stronger than previously forecast and butter exports should find more support from rising EU and Oceania prices. The import forecast for the year has been lowered 0.1 billion pounds to 6.6 billion. The forecast for ending stocks has been lowered to 13.3 billion pounds, as stocks should draw down during the year from a lower forecast base. Domestic use is forecast 0.8 billion pounds lower than previously forecast, at 215.5 billion pounds.

On a skim-solids basis, the 2019 export forecast has been raised 0.5 billion pounds to 44.6 billion, as EU intervention stocks of SMP have likely been almost completely sold off and drought in Australia has led to flagging production there. The import forecast for 2019 is unchanged at 5.2 billion pounds. The ending stock forecast on a skim-solids basis has been raised to 11.1 billion pounds, 0.7 billion higher than the previous forecast. The 2019 domestic use forecast is 179.6 billion pounds, 1.3 billion less than last month’s forecast.

Product price forecasts have mostly been raised for 2019. The exception is the cheddar cheese price, which is forecast slightly lower at $1.480-$1.550 per pound, based on recent weakness in prices. The dry whey price forecast has been raised to $0.435-$0.465 per pound for the year, also based on recent price data. The butter price is forecast slightly higher than previously at $2.230-$2.330 per pound for the year, due to expected strength in exports of butter and butterfat products. NDM prices have increased lately and should continue to find support from export growth in 2019; as a result, the NDM price forecast for the year has been raised 12 cents at the midpoint of the range to $0.955-$1.015 per pound.
The Class III price forecast for 2019 is $14.70-$15.40 per cwt, unchanged from the midpoint from the December forecast, as the lower cheese price is expected to be offset by the higher whey price. With higher prices for butter and NDM in 2019, the Class IV price forecast for the year has been raised to $15.55-$16.35 per cwt. The all-milk price forecast for 2019 is $16.90-$17.60 per cwt, an increase of 45 cents from the last forecast at the midpoint of the range.

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