The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The Agriculture Department lowered its 2016 milk production forecast from last month in its latest World Agricultural Supply and Demand Estimates report, due to a slower pace of cow herd expansion. However, the production forecast for 2017 was raised "as higher forecast milk prices and lower feed costs in late 2016 and early 2017 are expected to lead to higher 2017 cow numbers."
2016 production and marketings were projected at 212.4 and 211.5 billion pounds respectively, down 200 million pounds from last month on production and 100 million pounds less on marketings. If realized, 2016 production would be up 3.8 billion pounds, or 1.8 percent, from 2015.
2017 production and marketings were projected at 215.6 and 214.6 billion pounds respectively, up 300 million pounds from last month. If realized, 2017 production and marketings would be up 3.2 billion, or 1.5 percent, from 2016.
Cheese, butter, nonfat dry milk and whey prices for 2016 and 2017 were forecast higher "as demand remains robust." Class III and Class IV milk price forecasts were raised for 2016 and 2017 on higher forecast product prices.
Look for the 2016 Class III price to average around $14.05 per hundredweight, up 45 cents from a month ago and compares to $15.80 in 2015 and $22.34 in 2014. The 2017 forecast, at $15 per hundredweight, is up 50 cents from last month's estimate.
The 2016 Class IV price was projected to average around $14 per hundredweight, up 60 cents from a month ago and compares to $14.35 in 2015 and $22.09 in 2014. The 2017 estimate is at $14.05, up 35 cents from last month's projection.
And, speaking of fluid milk, May packaged fluid sales totaled 4 billion pounds, up .2 percent from May 2015, according to USDA's Dairy Market News.
Conventional product sales totaled 3.83 billion pounds, down .4 percent from a year ago; organic products, at 217 million pounds, were up 11.3 percent. Organic represented about 5.4 percent of total sales for the month.
Whole milk sales totaled 1.17 billion pounds, up 5.9 percent from a year ago, with year to date running 5 percent ahead of a year ago and making up 2.9 percent of total fluid sales. Skim milk sales were down 10.6 percent from a year ago and down 10.3 percent year-to-date.
Fluid Milk Sales Steady
Total packaged fluid milk sales for the first five months of 2016 totaled 20.7 billion pounds, down just .3 percent from the same period a year ago. Year-to-date sales of conventional products, at 19.6 billion pounds, are down .6 percent; organic products, at 1.1 million pounds, were up 5.4 percent. Organic represented about 5.2 percent of total fluid milk sales so far in 2016.
DMN also reports that "bottling sales are generally steady to lower across the U.S. as demand for summer drinks are rising. However, numerous loads of milk in the Midwest have been diverted to bottling plants as several bottlers report retail outlets discounting gallons of milk in their stores and increasing orders."
Cash cheese and butter headed higher the week of July 11. Block Cheddar closed last Friday at $1.66 per pound, up 3 cents on the week and 4¾ cents above a year ago. The barrels finished at $1.7450, up 2½ cents on the week, 15 cents above a year ago, (highest price since June 11, 2015) and 8½ cents above the blocks. One car of block traded hands on the week at the CME and 15 of barrel.
FC Stone's July 11 Early Morning Update reported that cheese holdings in selected storage centers as of July 4 were down a half percent from the previous week, at 91.9 million pounds and 10.1 percent lower than year-earlier stocks.
May commercial disappearance was "lackluster at best," reports FC Stone. Total cheese disappearance was unchanged from last year but down 4.4 percent from April. American cheese demand was down 1.4 percent from a year ago and down 5.8 percent from April.
"The bright spot," says FC Stone, "if there was one for cheese, was demand for the 'other' cheese category, increased .9 percent from 2015 levels. But even other cheese was 3.5 percent lower than month-earlier levels. As you may have already guessed, we're expecting June's usage numbers to tell quite a different story given the sharp price rally in June."
Cheese production is active across the Central region, reports DMN. As warm weather prevails and components in milk decrease, manufacturers are making production adjustments. Milk output is also decreasing, but contracted milk intakes have not decreased enough to have a substantial impact on planned production for many Midwest cheese makers. Sale volumes remain high and a few participants note, specifically, that interest in processed cheese is growing. Several contacts say they are comfortable with inventories now that strong sales have alleviated some stock pressure, but international interest remains light as the U.S. dollar gains strength.
Western cheese production remains active and strong. Plenty of milk is finding its way to the vat, even in areas where milk output is down seasonally. Domestic demand is good for most types of cheese. Retail sales are solid and process cheese sales are active "while the nation is in the midst of grilling season."
Cheese inventories continue to be long and many participants feel a large portion of the stockpile is "getting some age on it." Some manufacturers are directing milk into other manufactured production in lieu of cheese. Others are seeking to rotate older commodity cheese out by blending with young cheese. "In some cases, this is proving more difficult, as processors are finding fresh barrels a little harder to acquire. Cheese manufacturers also note the inverted spread between blocks and barrels, which has been largely in place since the end of April."
Butter started the week losing ground but reversed gears mid-week and closed the third Friday of July at $2.32 per pound, up 3¾ cents on the week after losing 6¾ cents the previous week, and is 48 cents above a year ago. Five cars traded hands on the week at the CME.
The Fourth of July week butter stocks were down 2.8 percent from the previous week, according to FC Stone, but were 47.7 percent above last year.
Butter churns are busy in the Central region, says DMN, and many are running full schedules. Cream is reportedly tightening after a short-lived increase in supply from the holiday weekend. Some are bringing cream in from other regions. Spot sales of bulk butter are intermittent. Some buyers report little to no opportunity to purchase bulk butter. A few speculate that brokers and manufacturers who have butter inventories are "comfortable sitting on their stocks, as they believe prices on butter will firm throughout third quarter."
Penn State's James Dunn reports in his latest dairy outlook that U.S. corn and soybean meal markets were down 17 percent and 7 percent, respectively, in the past month, although soybean prices were down only 2 percent. He says weather in Argentina and Brazil is hurting their soybean crops. The U.S. corn crop will be large, according to Dunn, "and domestic and export demand will not eliminate the drag of large inventories carried into the 2017 crop year."
Milk Prices Improving
The university's measure of income over feed costs rose by 18.5 percent in June from its May value, as higher milk prices combined with lower feed prices. June's income over feed cost is almost equal to last year's value. The June value for IOFC of $6.74 per cow per day is the best value since December 2015.
Income over feed cost reflects daily gross milk income less feed costs for an average cow producing 65 pounds of milk per day. The milk margin is the estimated amount of the Pennsylvania all-milk price that remains after the feed costs per hundredweight of milk production are paid. Like income over feed cost, this measure shows that the June Pennsylvania milk margin was 18.5 percent higher than in May. He adds, "Since feed prices are expected to remain reasonable, the higher milk prices shown in the futures markets for the second half of 2016 should increase IOFC."
Milk production across the U.S. is following seasonal trends, according to USDA's weekly update. In most cases, summertime heat and humidity are taking their toll on cow comfort and, subsequently, milk output.
Looking "down under," DMN reports that Australia is having a good start to the new milk production season as to cropping and pasture feed availability. This has contributed to reduced purchasing of feed. Of course, relatively high feed prices and overall tight cash flows for many dairy producers, following recent disappointing milk pay prices, are also factors affecting feed purchases.
New Zealand producers continue moving into the early stages of the new season in a downcast mood. Disappointing recent prices have impacted profitability in an unfavorable way. The 2015-16 season will not be fondly remembered, says DMN.