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USDA Projects Lean Year for Milk Prices; Feed Costs Hold Steady

by Lee Mielke

Published: Friday, January 12, 2018

The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."

The Agriculture Department announced the December federal order Class III milk price at $15.44 per hundredweight, down $1.44 from November, $1.96 below December 2016 and the lowest Class III since April 2017. It equates to about $1.33 per gallon, down from $1.45 in November and $1.50 a year ago. The 2017 Class III averaged $16.17, up from $14.87 in 2016 and $15.80 in 2015.

Class III futures portend a pretty lean 2018, with prices well below $16 per hundredweight. Last Friday morning, the January contract was at $14; February, $13.49; March, $13.54; April, $13.87; May, $14.29; and June was at $14.66, with a peak of only $15.72 in October.

The December Class IV is $13.51 per hundredweight, down 48 cents from November, $1.46 below a year ago, and the lowest Class IV price since May 2016. Its 2017 average is $15.16, up from $13.77 in 2016 and $14.35 in 2015.

Dairy margins ended December slightly weaker as milk prices continued to drift lower while feed costs held relatively steady, according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC. It adds, "Margins remain negative through the first half of 2018, and projected only slightly above breakeven through the second half of the year. Milk prices languish heading into 2018, with little optimism that the bearish tide is turning."

"USDA reported November milk production at 17.3 billion pounds, up .4 percent from October on a daily average basis and 1 percent higher than last year. The U.S. milking herd remained unchanged from October at 9.4 million head, suggesting that the rate of growth is starting to slow, with increases coming from higher productivity. The USDA's FAS recently estimated that the world's largest dairy exporting regions will add 3.3 million tons of milk output in 2018 following a 2.2 million increase in 2017, compounding the global glut of dairy products."

The MW warned that "2018 starts with 542,000 metric tons of SMP inventories held between EU intervention, private stocks and the U.S., while New Zealand's milk output in November was up 4.2 percent from last year without a commensurate increase in exports. These factors portend larger stockpiles of dairy products available for marketing later in the season to compete with supplies from the Northern Hemisphere during their spring flush."

You'll recall that preliminary USDA data reported November's 50-state milk production at 17.3 billion pounds, up 1 percent from November 2016. USDA's latest Dairy Products report shows where that milk went or didn't.

Cheese Production Down

November cheese output totaled 1.054 billion pounds, down 2 percent from October but 2.8 percent above November 2016. Year-to-date (YTD) output stands at 11.4 billion pounds, up 2.6 percent from a year ago.

California produced 211 million pounds of that cheese, down .5 percent from October and just .6 percent above a year ago. Wisconsin, at 279.2 million pounds, was down 3.1 percent from October but 2.4 percent above a year ago. Idaho output, at 76.6 million pounds, was down 9.9 percent from October but 3.2 percent above a year ago. Minnesota was down 2.8 percent from October but 6.8 percent above a year ago. New York was down 10.7 percent from October and .1 percent below a year ago.

Italian cheese output totaled 454.7 million pounds, down .6 percent from October but 3.6 percent above a year ago, with YTD output at 4.9 billion pounds, up 1.7 percent.

Mozzarella, at 350.4 million pounds, was up 3.3 percent, with YTD at 3.8 billion pounds, up 1.2 percent.

American type cheese production totaled 401.2 million pounds, down 4 percent from October but .6 percent above a year ago. YTD totaled 4.47 billion pounds, up 3.2 percent.

Cheddar output, the kind traded at the CME, totaled 284.7 million pounds, down 3.5 percent from October and virtually unchanged from a year ago, with YTD at 3.25 billion pounds, up 4.1 percent.

Butter churns produced 145.7 million pounds of butter, up 1.6 percent from October and 1.86 percent above a year ago. YTD butter totaled 1.67 billion pounds, down .2 percent.

California butter totaled 42.1 million pounds, down 3.9 percent from October and .7 percent below a year ago. New York was down 27.8 percent from October and just .1 percent above a year ago. Pennsylvania output was up 7.2 percent from October but 11.2 percent below a year ago.

Yogurt output amounted to 313.1 million pounds, up .7 percent from a year ago, with YTD at 4 billion pounds, down 1.4 percent.

Dry whey totaled 81.8 million pounds, up 11.6 percent, with YTD hitting 951.1 million pounds, up 8.5 percent. Stocks were up 6.8 percent from October and a whopping 65.5 percent above a year ago.

Nonfat dry milk totaled 140 million pounds, down 2.9 percent from October but 9.7 percent above a year ago, with YTD at 1.66 billion pounds, up 3.9 percent.

Nonfat dry milk stocks, at 301.7 million pounds, were up just 1.7 million pounds, or .5 percent, from October but 86.6 million pounds, or 40.2 percent, above 2016.

Skim milk powder production totaled 41.8 million pounds, up 63.1 percent from October but 11.9 percent below a year ago. YTD output is at 483.96 million pounds, down 4.1 percent.

Cash dairy prices were mixed in the New Year's holiday-shortened week while much of the country started 2018 in bitter cold. The Cheddar blocks closed the first Friday of 2018 at $1.4950 per pound, down 4½ cents on the week and 17½ cents below a year ago. The barrels finished at $1.39, down 5¼ cents on the week, 18½ cents below a year ago, a larger than normal 10½ cents below the blocks, and the lowest CME barrel price since July 10, 2017. Only 4 cars of block were sold on the week at the CME and 11 of barrel.

Plenty of Milk

Dairy Market News reports that some Central cheese makers are no longer taking spot milk loads, as they have more than needed at the onset of 2018. Those that are taking on milk are paying prices from $1.50 to $6 under Class III. Some cheesemakers have relayed that milk suppliers are looking to lock in future deals now, as milk supplies are expected to remain plentiful. Many plant managers produced cheese through the New Year's weekend and holiday.

Mozzarella and Provolone producers reported that sales were "better than expected this week. However, they suggest the holiday rush was cut short as fluctuating market prices gave buyers pause. As cheese markets reenter more familiar grounds, cheese producers hope to make up for lost sales late in 2017."

Cash butter saw a Friday close at $2.2375 per pound, up 3 cents on the week and 1¾ cents above a year ago, on 10 reported sales for the week.

Butter churns were running actively New Year's week," said DMN, "both in preparation for the spring push and due to some producers reporting lower end-of-year inventories. Cream supplies also lend to the drive to produce more butter. Sales are slower, but meeting expectations. As cheese markets attempt to locate stable ground, and dry products' markets continue to falter, the butter markets remain the lone commodity stalwart, starting 2018 in steady to bullish fashion."

Grade A nonfat dry milk remains in the cellar, closing last Friday at 68 cents per pound, up a quarter-cent on the week but an attention grabbing 37¼ cents below a year ago. Six cars were sold on the week.

Budget Bill Awaits

In politics, Congress returns with a lot on its plate. Bob Gray, editor of the Northeast Dairy Farmers Cooperatives newsletter, writes in his Jan. 6 edition, "The most immediate issue of concern is the upcoming Continuing Resolution deadline of Jan. 19 in which, if not extended, the federal government will shut down."

"Congress is working feverishly to either complete action on all 12 major appropriations spending bills for FY2018 in an Omnibus Bill package or be forced to pass another short term Continuing Resolution to keep the government operating," Gray said.

"There are a number of issues that are pending as the House and Senate confer on the final spending package. Increases in defense spending are being sought on the Republican side while Democratic members want to see the Deferred Action on Childhood Arrival (DACA) included in the Omnibus package. DACA deals with immigrant children who were brought here by their undocumented parents over the last several years. Protection for them remaining in the U.S. under legal status expires in March. In addition, Congress is considering an $81 billion disaster relief bill for hurricane and wildfire damage."

"So it is going to be a very interesting discussion between the two parties to close the political gap on the passage of a trillion dollar plus Omnibus Budget Bill for FY2018," Gray concludes. "There are also some key environmental amendments that the agriculture community would like to see added to the Omnibus Bill. One in particular involves the CERCLA Air Emissions Reporting Requirement by EPA for minute amounts of ammonia and hydrogen sulfide. The pending amendment would not give EPA the authority to enforce the reporting requirement on dairy farms, as well as beef, pork and poultry producers. There are other pending environmental amendments as well dealing with the WOTUS Rule and normal farming activities that should be exempt from EPA regulations."

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