The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Milk production forecasts for 2016 and 2017 were raised from last month as "recently reported cow numbers indicate the herd continues to expand," according to USDA's latest World Agricultural Supply and Demand Estimates report. No change was made to output per cow.
2016 production and marketings were projected at 212.6 and 211.6 billion pounds, respectively, up 200 million from last month. If realized, 2016 production and marketings would be up 4 billion and 3.9 billion pounds, respectively, or 1.9 percent, from 2015.
2017 production and marketings were projected at 215.3 and 214.3 billion pounds, respectively, are up 100 mil-lion pounds from last month. If realized, 2017 production and marketings would be up 2.7 billion, or 1.3 percent, from 2016.
Fat and skim-solids basis export forecasts for 2016 and 2017 were lowered as international supplies of dairy products remain abundant and U.S. prices remain high relative to competitors. Fat and skim-solids basis stocks were forecast higher as stocks of butter and cheese are expected to remain relatively high.
Fat basis imports were reduced for both 2016 and 2017 on expectations of slower imports of butterfat products, and to a lesser extent, cheese.
Class III and Class IV milk price forecasts were raised for 2016 on component product prices. Look for the 2016 Class III to average around $13.60 per hundredweight, up 20 cents from a month ago and compares to $15.80 in 2015 and $22.34 in 2014. Announced prices added to last Friday morning remaining futures would portend a 2016 average of $14.52. The 2017 forecast, at $14.50, is down a nickel from last month, due to lower expected cheese prices.
The 2016 Class IV price was projected to average around $13.60 per hundredweight, up 20 cents from a month ago and compares to $14.35 in 2015 and $22.09 in 2014. The 2017 estimate is at $13.70, unchanged from last month's projection.
Meanwhile, feed price forecasts for 2015-16 and 2016-17 were raised significantly in USDA's latest Livestock, Dairy and Poultry Outlook. The 2015-16 corn price forecast is $3.60 to $3.80 per bushel, up a dime at the midpoint from last month's forecast. The 2016-17 corn price forecast is $3.20 to $3.80 per bushel, up 15 cents at the midpoint. The estimated 2015-16 soybean meal price is $335 per short ton, up $25. The 2016-17 soybean meal price forecast is $320 to $360 per short ton, up $20 at the midpoint. The national average price for alfalfa hay was increased from $144 per short ton in March to $153 in April.
CME cash block Cheddar cheese hit the highest price since Dec. 3, 2015 last Wednesday but then retreated on offers and closed last Friday at $1.5150 per pound, up 4 cents on the week and the fifth consecutive week of gain but 18½ cents below a year ago. The barrels, climbed to $1.5550 last Wednesday, then eased back to $1.5450 last Friday, up 3½ cents on the week but 11½ cents below a year ago. Four cars of block traded hands on the week and 13 of barrel.
Central cheese vats are full, reports Dairy Market News. Spot loads of milk are still readily available at discounts. A few cheese makers are slowing production to avoid rebuilding stocks. A plentiful supply prevails but strong sales have prompted partial stock relief. Retail demand is strong, aided by June dairy month promotions. International interest is weak. Some speculate the price difference in U.S. cheese versus world competitors is too great for international buyers to justify purchasing U.S. cheese.
Interest from cheese buyers is increasing in the West, following signs of recent price strengthening. "The motivator is believed to be that buyers expect pricing in the coming months to continue increasing, so buyers are interested in adding to stocks at current pricing," DMN said. But "many of the buyers are not strongly motivated to act quickly because there is little sense of any shortages of cheese."
FC Stone reports there's talk of milk production slipping lower out West, but Midwest production continues to "chug strongly along unabated."
Cash butter ended the week at $2.3675 per pound, 16¾ cents above the previous week and 45¼ cents above the previous year, with 25 cars exchanging hands at the CME. The spot has gained 30¼ cents in three weeks.
DMN says Central region butter production was mixed. Cream is tightening and cannot be found at discounts like in re-cent weeks. End users report actively searching for bulk butter, but are not finding sellers with ease. Industry contacts speculate that a few large market participants are not currently producing bulk but-ter. This may be contributing to the feeling some market participants share of an immediate shortness of butter in the region. However, a few contacts suggest that manufacturers may be sitting on butter stocks but are not willing to sell due to the time of year or because they have an inkling that butter prices are going to rise. Overall, demand is strong, says DMN, but supply is mixed. International interest is quiet, as U.S. butter prices are not competitive in the world market.
Western butter output is at seasonal levels with most churn operators indicating schedules are running below plant capacity. Spot cream loads are less available as butterfat components trend lower. "Having sufficient stocks on hand to fill late summer needs remains a top priority," DMN reports.
Grade A nonfat dry milk climbed to 85 cents per pound but ended last Friday at 84¼ cents, up 1¼ on the week and 3¾ cents below a year ago, on 20 sales.
Bottling demand for educational institutions continues to decrease as schools close across the nation, but requests are steady to higher from retailers, according to USDA. Milk is readily available for most processing needs. Midwest spot loads are actively moving in and out of the region at $1.25 to $4 under class, with a few at $5 to $6 under class.
Checking demand, April packaged fluid milk sales totaled 4.1 billion pounds, virtually unchanged from April 2015. Conventional product sales totaled 3.88 billion pounds, down .2 percent from a year ago; organic products, at 213 million pounds, were up 3.3 percent. Organic represented about 5.2 percent of total sales for the month.
Whole milk sales totaled 1.16 billion pounds, up 5.5 percent from a year ago, with year-to-date running 4.8 percent of a year ago. Skim milk sales were down 10.5 percent from a year ago and down 10.3 percent year-to-date. Total packaged fluid sales for the first four months of 2016 totaled 16.6 billion pounds, down just .4 percent from the same period a year ago.
Year-to-date sales of conventional products, at 15.78 billion pounds, are down .7 percent; organic products, at 858 million pounds, were up 4 percent. Organic represented about 5.2 percent of total fluid milk sales so far in 2016.
The figures represent consumption of fluid milk products in federal market or-der areas and California, which account for approximately 92 percent of total fluid milk sales in the U.S.
Looking globally, preliminary observations from some milk producing regions of the EU find signs of seasonal declines beginning, reports DMN. "Other parts of Germany and France are believed to have achieved very narrow production increases the third week of May over the prior week, but increases are expected to become slight declines soon. Cream supplies are tighter and buy-ers face increasing prices. Domestic cheese prices are firming in the EU. Stocks in aging programs are being drawn down."
DMN adds, "With a vote in the United Kingdom about whether to exit the European Union scheduled for June 23, some observers note that the only certainty is uncertainty. (That vote has been postponed due to the killing of a UK MP.) If the vote to exit passes, there will be a two-plus-year period during which the remaining 27 EU members and the UK will negotiate the scope and content of the future trade relationship. During the period, the UK would remain a member of the EU. It is obviously unclear whether the outcome of negotiations would result in the UK being a member of a single market, a Switzerland or Turkey type situation, or whether an-other outcome would result."
Uncertainty also continues as to the future of the Russian dairy trade situation. The EU is considering whether or not to extend the sanctions it imposed on Russia following the annexation of Crimea in March 2014. There are reports that Russia is considering extending the existing ban on EU imports, perhaps until the end of 2017, according to DMN.