USDA Report Issued: Recent Developments in Dairy Markets

From the week ending September 29 to the week ending November 3, price directions were mixed for the wholesale dairy products reported in the USDA National Dairy Products Sales Report (NDPSR). The butter price fell by 2.5 cents per pound over the period. Nonfat dry milk and dry whey prices increased by 1.3 and 5.7 cents per pound, respectively. Prices for 40-pound blocks and 500-pound barrels of cheddar cheese fell by 6.3 and 18.3 cents per pound, respectively.

Source: USDA, Agricultural Marketing Service, National Dairy Products Sales Report.

The gap between prices for cheddar cheese 40-pound blocks and 500-pound barrels has been very large in recent weeks. The gap reached a record 22.98 cents per pound for the week ending October 13, surpassing the previous record of 21.65 cents for the week ending July 7, 2018. It continued to grow, reaching a record 28.12 cents per pound for the week ending October 27 before declining slightly to 27.19 cents for the week ending November 3. A wide block-barrel spread contributes to considerable uncertainty in cheese markets. *For the trading week ending November 9, the spread for cheese traded on the Chicago Mercantile Exchange (CME) was much narrower, with blocks and barrels averaging $1.4220 and $1.3180 per pound, respectively. CME cheese prices usually lead NDPSR prices by 1 to 2 weeks.

Weekly cheddar cheese prices, National Dairy Products Sales Report

USDA National Agricultural Statistics Service (NASS) estimated that U.S. milk production in September totaled 17.376 billion pounds, 1.3 percent above September 2017. NASS made significant revisions to milk cow numbers, with downward revisions of 2,000, 17,000, and 21,000 head for June, July, and August, respectively. NASS estimates that cow numbers fell to an average of 9.367 million head in September, 12,000 less than August and 32,000 less than September 2017. Milk per cow in September was 1,855 pounds, 30 pounds higher than September 2017.

Number of milk cows

In September, dairy exports declined from August but were up compared to September 2017. On a milk-fat milk-equivalent basis, September exports were 848 million pounds, 68 million less than August but 151 million more than September 2017. September exports on a skim-solids milk-equivalent basis were 3.446 billion pounds, 495 million less than August but 360 million more than September 2017. Exports declined from August to September for most dairy products, including nonfat dry milk/skim milk powder (NDM/SMP), butterfat products (butter, anhydrous milkfat, and dairy spreads), cheese, whey products, and lactose. High tariffs imposed by Mexico on cheese and by China on a wide variety of dairy products continue to limit exports to those countries.

In September, imports on a milk-fat basis were 549 million pounds, 38 million less than August but 113 million more than September 2017. On a skim-solids basis, September imports were 355 million pounds, 47 million less than August and 26 million less than September 2017. Notably, imports of milk protein products (casein and milk protein concentrate), whole milk powder, and various food preparations containing milk solids fell from August to September.

Year-over-year growth in domestic commercial use in the third quarter of 2018 was modest. On a milkfat basis, it was 54.7 billion pounds, 1.1 percent higher than the third quarter of 2017. On a skim-solids basis, third-quarter domestic commercial use was 45.1 billion pounds, 1.6 percent higher than the third quarter of 2017. Notably, while overall third-quarter domestic uses of most major products were above the third quarter of 2017, domestic uses of NDM/SMP and dry whey were down by 20.0 percent and 11.7 percent, respectively.

September ending stocks on a milk-fat basis were 17.190 billion pounds, an increase from 16.163 billion pounds at the end of September 2017. On a skim-solids basis, September ending stocks were 10.465 billion pounds, a decrease from 12.114 billion pounds at the end of September 2017.

Outlook for Feed Prices

The alfalfa hay price in September was $180 per short ton, $3 higher than August and $31 higher than September of last year. The 2018/19 price forecast for corn is $3.20-$4.00 per bushel, 10 cents higher than last month’s forecast at the midpoint. The 2018/19 soybean meal price forecast is unchanged from last month at $290-$330 per short ton. For more information, see the USDA Economic Research Service publication Feed Price Outlook.

Dairy Forecasts for the Remainder of 2018

Due to revisions of cow numbers for July and August and the fall in cow numbers reported by NASS in September, the estimate for the size of the milking herd in the fourth quarter of 2018 has been lowered 35,000 head to 9.365 million. Milk per cow, on the other hand, is forecast slightly higher for the fourth quarter, at 5,740 pounds. The lower forecast for the size of the milking herd more than offsets the increased yield per cow, resulting in a fourth-quarter milk production forecast of 53.8 billion pounds, 0.1 billion pounds lower than last month’s forecast.

Forecasts for both imports and exports in the fourth quarter on a milk-fat basis are unchanged at 1.8 billion and 2.4 billion pounds, respectively. With higher than expected milk-fat basis ending stocks for the third quarter, the forecast for 2018 ending stocks has been raised 0.4 billion pounds to 13.9 billion. The domestic use forecast for the fourth quarter has been raised slightly to 56.1 billion pounds, as lower prices for cheese and butter are expected to lead to gains.

The forecast for imports on a skim-solids basis for the fourth quarter has been lowered 0.2 billion pounds to 1.3 billion, due to recent declines in imports of milk protein concentrate and casein. The export forecast for the fourth quarter has also been lowered due to lower expected shipments of lactose and whey products; the forecast is now 10.2 billion pounds. Domestic use on a skim-solids basis is expected to be 0.2 billion pounds lower in the fourth quarter than previously forecast, at 44.4 billion, as lower domestic demand over the past few months is expected to persist. Ending stocks are forecast at 10.7 billion pounds for 2018, 0.1 billion pounds lower than the last forecast.

Due to recent falling average cheddar cheese prices, the cheddar cheese price forecast for the fourth quarter has been lowered 12.5 cents at the midpoint of the range to $1.465-$1.495 per pound. The dry whey price is forecast slightly higher for the quarter than last month, at $0.440-$0.460 per pound. The price forecast for butter for the quarter is slightly lower at the midpoint of the range at $2.235-$2.295 per pound, while the forecast for nonfat dry milk is unchanged at $0.870-$0.900 per pound.

Due to the reduction in the cheese price forecast, the Class III price is now forecast lower for the fourth quarter, at $14.55-$14.85 per cwt. The Class IV price forecast is slightly lower for the quarter than last month’s, at $14.85-$15.25 per cwt. The fourth-quarter all-milk price is now forecast at $17.05-$17.35 per cwt, 60 cents lower than last month’s forecast at the midpoint. For the year, the all-milk price forecast is $16.20-$16.30, 15 cents lower than last month’s forecast at the midpoint of the range.

Dairy Forecasts for 2019

A smaller milking herd in late 2018 is expected to persist into 2019; therefore, the milk cow forecast has been lowered to 9.375 million head, 35,000 less than last month’s forecast. However, with increased culling of the herd, higher milking efficiency is expected, motivating an increase in the milk per cow forecast to 23,565 pounds. With these changes, the overall milk production forecast for 2019 is now 220.9 billion pounds, 0.5 billion pounds lower than the last forecast.

Due to lower expected imports of milk protein concentrate and casein, imports on a milk-fat basis are forecast 0.1 billion pounds lower than last month’s forecast, at 6.2 billion pounds for the year. The export forecast for 2019 is unchanged at 9.8 billion pounds. Ending stocks are now forecast at 12.6 billion pounds, 0.1 billion pounds higher than the last forecast, as higher stocks in late 2018 will carry through 2019 to some extent. The domestic use forecast for the year has been lowered 0.2 billion pounds to 217.3 billion.

The import forecast on a skim-solids basis has been lowered 0.2 billion pounds to 5.3 billion, as lower milk protein concentrate and casein imports are expected to continue into 2019. Exports on a skimsolids basis are forecast at 44.1 billion pounds, unchanged from the previous forecast. Ending stocks are forecast at 10.5 billion pounds for the year, a reduction of 0.3 billion pounds from last month’s projection, as lower production should result in some drawdown in stocks. Domestic use in 2019 is projected at 181.2 billion pounds, 0.4 billion pounds lower than the last forecast.

Current weakness in cheese prices is expected to carry into 2019 but should begin to abate in the second half of the year; as a result, the cheddar cheese price has been lowered 15 cents at the midpoint of the range to $1.560-$1.650 per pound. With lower butter prices expected to continue next year, the butter price forecast has been lowered to $2.200-$2.320 per pound for the year. The dry whey price and NDM price forecasts for 2019 have been raised slightly to $0.390-$0.420 and $0.830 – $0.900 per pound, respectively.

With lower projected cheese prices, the Class III price forecast has been lowered to $15.15-$16.05 per cwt. The Class IV price forecast for the year is unchanged at $14.35-$15.35 per cwt. With the lower Class III price forecast, the all-milk price for 2019 is now forecast 15 cents lower at the midpoint of the range than the previous estimate, at $16.70-$17.60 per cwt.

*While supply and use data are available for American-type cheeses (cheddar, Colby, Monterey, and Jack combined), there are no supply and use data readily available specifically for 40-pound blocks or 500-pound barrels of cheddar cheese, making any analysis of the price spread difficult. While both 40-pound blocks and 500-pound barrels can be used to produce processed cheese, barrels tend to be used for processed cheese more often than blocks

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