“Dairy farm profit margins are really looking good for 2017,” said Dave Kurzawski, a dairy analyst with FC Stone.
Stronger demand for cheese coupled with three straight months of price increases in the global dairy auctions are providing hope that the slump is finally nearing the end, though some analysts warn it could be Christmas before prices really begin to improve.
In the last two months the spread between the price of U.S. cheddar cheese compared to the global market has shrunk from a ghastly 50 cents per pound to 15 cents for blocks, Kurzawski said. Cheddar cheese was 9 percent higher to an average price of $3,436 or $1.5585 per pound.
That might open the door for increased exports into next year, which would provide additional price support. While Kurzawski says it’s too early to tell, American cheese is arguably more attractive to international buyers than it has been for the last year. If that is true, American buyers may find themselves bidding against international buyers just as the domestic cheese demand surges for the holidays.
Domestically, cheese barrels are trading at a 9-cent premium over cheese blocks. That spread is not expected to last for much longer.
U.S. exporters shipped 23,969 metric tons of cheese in July this year, down 6 percent from July 2015. Year-to-date cheese exports are down roughly 18 percent with the biggest hits coming from lost market share in South Korea and Japan, Kurzawski said.
The U.S. Department of Agriculture has increased its all-milk price for 2016 to $16.25 to $16.45 per hundredweight and $16.15 to $17.15 for 2017 based largely on stronger cheese demand. Firmer demand for nonfat dry milk and whey demand is also providing support to milk prices. Break-even prices for southern Idaho dairies run between $16 and $17 per hundredweight.
Even as USDA forecasters are predicting stronger prices, they are also anticipating increased in dairy production for 2017. Lower feed costs, thanks primarily to a monster corn crop, will likely lead to a modest expansion in the cow inventory and more rapid growth in milk per cow.
FC Stone is expecting the U.S. corn crop to average around 176 bushels per acre. That’s in-line with the USDA’s August corn yield forecast of 175 bushels per acre. If that’s realized, it would break the 2014 record of 171 bushels per acre and set a new production record of 15.2 billion bushels
USDA is now forecasting the 2016-17 average farm gate price for corn will be $2.85 to $3.45 per bushel, down about 45 cents from the range forecast for the current marketing year.
Source: MagicValley
Link: http://magicvalley.com/business/agriculture/dairy-markets-improve/article_22197613-b0d4-5931-984f-fcbbe62095de.html
