The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
USDA has lowered its 2014 and 2015 milk production estimates from a month ago in the World Agricultural Supply and Demand Estimates report issued last Monday, based on a lower growth in cow numbers and milk per cow. The 2014 production and marketings were projected at 206 billion and 205 billion, respectively. Both are down 200 million pounds from last month. If realized, 2014 production and marketings would be up 2.4 percent from 2013.
The 2015 production and marketings were projected at 211.7 billion pounds and 210.7 billion, respectively. The milk production estimate is down 500 million pounds from a month ago while the milk marketings estimate is down 600 million. If realized, 2015 production and marketings would be up about 2.8 percent.
The 2015 Class III milk price average is expected to range $16.20 to $17 per hundredweight, down 35 cents from last month's estimate, and compares to $22.34 in 2014, $17.99 in 2013 and $17.44 in 2012.
The 2015 Class IV price average, at $15.60 to $16.50 per hundredweight, is down 85 cents from a month ago, and compares to $22.09 in 2014 and $19.05 in 2013.
Meanwhile, October 2014 packaged fluid milk sales totaled 4.38 billion pounds, down 2.9 percent from October 2013. October sales of conventional products, at 4.17 billion pounds, were down 3.5 percent from a year ago. Organic products, at 215 million pounds, were up 10.7 percent and represented about 4.9 percent of total sales for the month.
January-October packaged fluid milk sales, at 41.59 billion pounds, were down 2.9 percent from a year earlier. Year-to-date sales of conventional products, at 39.52 billion pounds, were down 3.5 percent; organic products, at 2.1 billion, were up 10.1 percent. Organic represented about 4.96 percent of total sales.
Cash cheese prices crashed the second full week of the new year. The Cheddar blocks closed last Friday at the lowest price since Feb. 27, 2012 at $1.47 per pound, down 12 cents on the week, 76 cents below a year ago and 98 cents below the record high hit in September 2014. The Cheddar barrels gained a nickel last Monday, plunged 15¼ cents last Wednesday, regained 1¾ cents last Thursday and lost a penny last Friday to finished at $1.45, down 9½ cents on the week, 75¼ cents below a year ago, and $1.04 below their September record high. Six cars of block traded hands and 13 of barrel. The lagging NDPSR-surveyed U.S. average block price fell to $1.5984 per pound, down 1.4 cents, and the barrels averaged $1.5322, down 3.5 cents.
Midwest cheese manufacturing is "hunkered down, moving milk through the plants," according to Dairy Market News. Inventory levels and sales vary plant to plant. Some plants have lower sales than recent weeks, which resulted in inventory levels increasing. Other plants feel milk intakes are balanced with output and are comfortable with the current production/sales/inventory situation.
Spot milk supplies and discounts are less evident, although some plants are balancing extra milk into cheese. Most production schedules are back closer to normal as the holiday weeks fade into the past. Early year uncertainty about market price signals now must process the first CME cheese price decreases of 2015 on Wednesday. The sudden magnitude of lower prices was not an unexpected trend considering present conditions and factors looking ahead.
Wholesale cheese prices in the West are higher this week. Swiss cheese prices are steady. The market tone remains steady. Cheese production is mostly steady to higher as milk supplies in the West slowly increase. Cheese stocks are building. Export demand is low but starting to pick up.
Cheese imports are challenging domestic cheese production. Global Trade Information Services reports European cheese exports for October to the U.S. were 25 percent higher than year ago levels.
Cash butter closed last Friday at $1.55, up a penny on the week, 30¼ cents below a year ago when it jumped almost 18 cents, and is $1.51 below its record September 2014 peak. Only one car traded hands on the week. NDPSR butter averaged $1.5558 per pound, down 6.1 cents.
Cream continues to be readily available within the Midwest and from other regions at advantageous pricing for butter churn operators, reports DMN. A few manufacturers elected to sell some cream loads. Butter production remains strong with some plants running full schedules. Print sales have slowed but continue at levels that are limiting stock building. Export orders are picking up and the market tone is steady, according to DMN.
Western butter prices continued to move lower. Some Western butter manufacturers are reporting that inventories are building while demand is weakening. Some companies are looking into contract bulk butter for export markets as the international and domestic markets even out. Cream supplies are increasing due to the above average milk supply.
Cash Grade A nonfat dry milk dropped to 95 cents per pound, down 3¾ cents this week, following a 1¼ cent decline the previous week. The powder is at the lowest it has been since Aug. 4, 2009. NDPSR powder averaged $1.0618, down 8.4 cents, and dry whey averaged 58.85 cents per pound, down a half-cent.
So, how low will cheese prices go? We posed the question to HighGround Dairy's Eric Meyer in last Friday's DairyLine. Meyer responded by pointing out that the block cheese price was at the lowest level in over two years last Wednesday.
"The world markets have been telegraphing this move in the U.S. for some time and unfortunately for producers, joining that party." He warns that we may not have seen the bottom yet.
Ditto on butter, according to Meyer, although he adds that world butter prices are a bit higher than U.S. prices so "that may lend some support, but it is certainly going to be a challenging year for producers in 2015."
Meyer issued his forecasts last week. When asked about the low point on cheese, he said he sees the $1.30s as a possibility. He quickly added, "We lost a lot of export potential given that our dollar has been rallying sharply against the Euro currency and right now. Europe is also swimming in milk, with Russia being out of the market, their No. 1 export partner with respect to cheese and butter." Meyer says that means "they have a lot of product to move and we're suffering as a result."
Reports are surfacing that U.S. butter exports are resuming. Meyer referenced the recent export subsidy from the Cooperatives Working Together, and said, "With prices on the Global Dairy Trade out of New Zealand sharply higher for the last six weeks, we are hearing that as well and CWT did announce a pretty big butter export deal for the first half of this year. That could provide us with a bit of a lift, yet we're still anticipating between 2½ and 3 percent growth year over year in milk production." "That should keep a lid on things from getting too out of control here, at least in the first half of the year," he concluded.