The following is from Lee Mielke, author of a dairy market column known as «Mielke Market Weekly.»
The Agriculture Department did not change its 2014 milk production estimate in its latest World Agricultural Supply and Demand Estimates report, but sees higher output in 2015, stating that lower feed costs and strong milk prices are expected to support both herd expansion and gains in milk per cow.
Fat-basis exports were forecast lower on increased competition from traditional exporters, primarily in butterfat markets. Continued strength in nonfat dry milk (NDM) will help limit declines in skim-solids exports.
Fat-basis import forecasts were expected to be about the same as 2014 but skim-solids imports will be lower. With higher domestic production, cheese, butter, NDM and whey prices are forecast lower.
Milk production for 2014 was unchanged from last month’s estimate, at 206.1 billion pounds, up from 201.2 billion in 2013 and 200.5 billion in 2012. Look for 2015 output to hit 212.1 billion pounds.
Fat basis imports for 2015 are forecast lower while skimsolids imports were higher. Exports were raised on stronger sales of NDM, butterfat and cheese. Butter and whey prices were raised from last month while NDM is lower. Cheese was unchanged but the range was narrowed. With higher domestic production, cheese, butter, NDM and whey prices are forecast lower for 2015.
The 2014 Class III milk price forecast was raised on higher whey prices and is expected to average $20.70 per hundredweight, up a nickel from last month’s estimate, and compares to $17.99 in 2013 and $17.44 in 2012. The 2015 average is at $17.40.
The 2014 Class IV price was raised as higher prices for butter more than offset reduced prices for NDM. It’s predicted to average $21.45, up a dime from last month’s estimate, and compares to $19.05 in 2013 and $16.01 in 2012. Look for it to average $19.10 in 2015.
As it always does, USDA’s monthly Livestock, Dairy and Poultry Outlook mirrored dairy projections contained in the WASDE report, but the outlook states that «lower feed prices will improve the profit outlook for producers next year. Continued strong demand, both foreign and domestic, will moderate price declines in 2015.»
Feed prices are likely to remain moderate compared with recent years for the balance of 2013-14 and into 2014-15. Corn prices for 2013-14 are raised in May from April and forecast at $4.50 to $4.80 per bushel; the price range was narrowed at the lower end, boosting the mid-point by 5 cents. Initial forecasts for the 2014-15 year call for corn prices to decline to $3.85 to $4.55 per bushel. Current-year soybean meal price estimates are raised slightly from April to $485 per ton.
The initial 2014-15 soybean meal price forecast is much lower, at $355 to $395 per ton. The forecast is based on higher soybean plantings and yields. April’s Agricultural Prices report placed April’s preliminary price for alfalfa hay at $206 per ton, above March’s $191 price but below the April 2013 price of $213 per ton.
April’s Milk Production report shows the January to March 2014 U.S. milk production at 51.1 billion pounds, up 1 percent from the corresponding period last year. Cow numbers are forecast at 9.255 million head for 2014, unchanged from April and only slightly higher than 2013 levels. Forecast cow numbers for 2015 are for 9.34 million head. Prices for dairy replacements are ahead of year-earlier prices, and first-quarter dairy cow slaughter trails last year. However, this is a modest expansion in light of the strong profit signals to producers.
Current-year output per cow also remains unchanged in May from April at 22,280 pounds per cow. Output per cow is projected at 22,710 pounds in 2015. Continued month-over-month declines in Midwestern milk output are moderated by higher milk output in the West. Increased output per cow reflects both improved producer returns and improved forage conditions, especially in the Midwest, after last year’s poor-quality harvest.
Lower Milk Prices Ahead
Milk prices will be coming down as cash cheese saw a fourth week of decline. The Cheddar blocks dipped below $2 per pound last week for the first time since Dec. 19 and Jan. 6 on the barrels. The blocks closed last Friday at $1.9975 per pound, down 4¾ cents on the week and down 43½ cents from its record peak in March, but still 22¾ cents above a year ago. The barrels finished at $1.96, down 6 cents on the week, 41¾ cents below its record peak, and 20 cents above a year ago. Only one car of each traded hands on the week. The NDPSR-surveyed U.S. average block price slipped to $2.2125 per pound, down 3.4 cents, while the barrels averaged $2.2299, down 2.6 cents.
Cheese production across the U.S. is mixed, according to USDA’s Dairy Market News. Some areas that are at or just past peak milk production are experiencing mostly steady production. Midwest cheese output is mostly steady as spring milk increases are slow to develop. Cheese production in the Northeast and Northwest is steady to increasing as milk volumes improve. Demand varies with some buyers in a «wait and see» approach, while others are increasing orders. Recent lower wholesale prices are helping to restimulate interest.
The recent Dairy Products report stated cumulative total cheese production for the first quarter of the year was up 1.2 percent compared to last year. American cheese was off .8 percent and Cheddar was down 1.7 percent but Italian types were up 4.1 percent and Mozzarella was up 6 percent.
The Foreign Agricultural Service reported exports for March 2014 up 37 percent compared to last year. Exports for January to March were up 42 percent from the previous year, and equate to 8 percent of total U.S. cheese production.
FC Stone dairy broker Dave Kurzawski, said in last Friday’s DairyLine that the market is «still trying to figure itself out or trying to fix some of the problems that we had earlier in the year as far as being able to supply the world.» He adds, «Demand has dropped, courtesy in part to weaker prices internationally and it’s starting to spread into the U.S. market.» «That’s the concern, going forward,» he said, although he still believes there’s «good underpinning demand that we have to work through.»
Kurzawski looks for «price equilibrium within the next 5 to 10 cents to the downside potentially, but, as we get into the hot weather in the next 30 to 60 days, that will become more of the talk of the town and if that happens it’s going to be hard for this market to fall off a tremendous amount from where we currently are.»
Kurzawski doesn’t see a lot more down side for the next several months, «but as we go into the latter part of the year, depending on how New Zealand and Australia start back up in their season and how European milk production and sales go, things could slow down more as we close out 2014.»
Butter peaked at $2.1750 per pound last Tuesday, the highest butter price since May 27, 2011, but slipped 1½ cents the next day, and closed last Friday at $2.16 per pound, down three-quarters, reversing three weeks of gain, but is still 54½ cents above a year ago. Nine cars were sold on the week. The NDPSR butter average was $1.9894, up 8.5 cents.
Butter exports orders keep stocks tight, according to DMN, but that is beginning to change. Butter churns are operating at mixed levels. Increased milk supplies have improved production for some manufacturers, while others reduced churn rates because Class II buyers purchased additional cream supplies at higher prices. Inventories are being monitored closely.
FAS reports exports of butter and milkfat during March totaled 27.4 million pounds, an increase of 100 percent from March 2013. U.S. quota imports of butter during March totaled 1.6 million pounds, down 64 percent from last March.
U.S. milk production is increasing toward the seasonal peak across the northern tier of states. Southern states are seeing steady to lower milk volumes. Class I demand is declining as warmer weather covers most areas of the nation and as schools are ending their spring terms. Manufacturing milk supplies are heavy.
Australian milk production has benefitted from some timely and targeted rains and has brought about an autumn bump to milk volumes. Good margins are incentivizing producers to take advantage of the situation and extend the milking season. Australian meteorologists have issued an El Nino alert, indicating an increased probability of drought conditions in the coming months.
Milk production in New Zealand is transitioning from maintaining or maximizing current production levels, to winding down current production operations and preparing for next season. This transition typically occurs this time of year.
Cheese Consumption
Dairy industry eyes are on processed cheese, according to Ross Christieson, senior vice president, market research and analysis at the U.S. Dairy Export Council. In a website posting, Christieson writes: «Outside of Europe and the United States, processed cheese is the most-consumed cheese type in the world. The product’s ability to survive ambient distribution made it the gateway to cheese consumption in emerging markets, where incomplete cold chains, among other factors, hindered natural cheese options.
«Over the years, with demand steadily rising, manufacturers built capacity closer to the point of consumption, in Morocco, Japan, Egypt and elsewhere. That trend to localize manufacturing continues today and has translated into rising imports of natural cheese for processing and significant opportunity for U.S. suppliers.»
A recent processed cheese research report by the checkoff-funded U.S. Dairy Export Council focused on 10 key markets for processed cheese: five in Asia (China, Indonesia, Japan, the Philippines and South Korea) and five in the Middle East/North Africa (Algeria, Bahrain, Egypt, Morocco and Saudi Arabia).
These 10 nations manufactured more than 1.2 billion pounds of processed cheese in 2013. They utilize small volumes of Gouda, Mozzarella, cream cheese and other varieties, but Cheddar dominates the kettle.
Last year, they imported about 344 million pounds of Cheddar from the top four suppliers; Australia, the European Union, New Zealand and the United States.
Domestic demand in these markets continues to grow, and some of the nations, particularly those in the Middle East/North Africa, are becoming regional manufacturing hubs, exporting processed cheese to dozens of neighboring countries. USDEC projects that aggregate processed cheese production in the 10 nations will rise to more than 1.7 billion pounds by 2017 pushing total annual cheddar import requirements to more than 450 million pounds.
Source: Farmers Exchange