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Dairy Markets Recent Developments
May 27, 2015

Milk production was lower than expected for the first quarter of 2015. Milk cow numbers were revised downward to 9.306 million head for both January and February.

The March estimate of 9.301 million head represents the first monthover-month decline since November 2013. Notably, milk cow numbers in Texas fell by five thousand cows from February to March.1 None of the other 23 States reported monthly by USDA National Agricultural Statistics Service had estimated monthly changes of more than one thousand cows in either direction. U.S. yield per cow was 1,941 pounds in March, only 0.4 percent above the previous-year level. Yield growth was limited by declines in several Western States.

Price directions of major dairy commodities, as reported in the USDA National Dairy Products Sales Report (NDPSR), were mixed in April. From the week ending April 4 to the week ending May 2, the price of nonfat dry milk (NDM) decreased from $0.995 to $0.950 per pound. The dry whey price was relatively steady, falling slightly from 46.8 cents to 46.5 cents over the period. The price of cheddar cheese 40-pound blocks increased from $1.576 to $1.605 per pound, and 500 pound barrels (adjusted to 38-percent moisture) increased from $1.573 to $1.666 per pound. The butter price increased from $1.698 to $1.805 per pound. More recently, the spot butter price reported by the Chicago Mercantile Exchange (which usually leads the NDPSR price) has increased substantially, averaging $1.891 per pound for the week of May 4-8.

Dairy product allocation appears to have played a key role in recent price changes. In particular, March butter production was about 3.0 percent lower than the previous-year level, while in March combined NDM and skim milk powder (SMP) production was 4.0 percent above the previous year. Tight butter supplies contributed to higher butter prices, while higher NDM and SMP supplies contributed to lower NDM prices.

Dairy product exports in March were higher than expected, especially on a skimsolids milk-equivalent basis. Exports of NDM, lactose, and cheese accounted for most of the increase in exports over the previous month. Notably, U.S. exports ofNDM to Mexico increased from 33.6 million pounds in February to 57.8 million pounds in March.

Relatively Low Feed Price Forecasts

Feed price forecasts for the 2014/15 marketing year2 remain relatively low compared with prices in recent years. The corn price forecast for the 2014/15 marketing year is $3.55-$3.75 per bushel, and the soybean meal price forecast is $365 per short ton. Feed prices for 2015/16 are expected to be lower: $3.20-$3.80 nbper bushel for corn and $305-$345 per short ton for soybean meal. Dairy Forecasts for 2015 Although milk cow numbers declined in March, the dairy herd is forecast to grow in the second half of 2015 due to expectations of relatively low feed prices and rising milk prices. However, milk cow numbers for 2015 are expected to be lower than forecast last month, averaging 9.305 million head. With lower-than-expected yield per cow for the first quarter and the current drought situation in some Western areas, the 2015 milk per cow forecast has been lowered to 22,410 pounds. Milk production for 2015 is forecast at 208.6 billion pounds for 2015, 1.4 billion pounds less than forecast last month but 1.3 percent above 2014.

Based on March data, changes have been made to 2015 dairy trade forecasts, especially to exports on a skim-solids basis. Commercial export forecasts for 2015 have been increased from last month’s forecasts, to 10.8 billion on a milk-fat basis (0.1 billion pounds more) and 37.8 billion pounds on a skim-solids basis (1.3 billion pounds more). With Russia’s ban on imports of dairy products from certain countries scheduled to end in August, exports in the second half of the year are  expected to exceed those of the first half.3 Forecast imports for 2015 have been raised from last month to 4.8 billion pounds on a milk-fat basis (0.4 billion more) and 5.7 billion pounds on a skim-solids basis (0.2 billion pounds more). With lower milk production and higher export forecasts, 2015 forecasts for commercial use and ending stocks have been reduced. Domestic commercial disappearance forecasts have been reduced to 201.5 billion pounds on a milk-fat basis (1.0 billion pounds less) and 176.2 billion pounds on a skim-solids basis (2.0 billion pounds less). Forecast ending stocks for 2015 are 11.3 billion pounds on a milk-fat basis (0.1 billion pounds less) and 12.5 billion pounds on a skim-solids basis (0.4 billion pounds less).

Forecasts for 2015 dairy product prices were adjusted from last month’s forecasts to reflect recent price and allocation changes, as well as expected changes in demand. Price forecasts for cheese, NDM, and whey have been lowered respectively to $1.615-1.665, $1.025-$1.065, and 47.5-50.5 cents per pound. The butter price forecast has been raised to $1.810-$1.890 per pound. With lower cheese and whey prices, the Class III forecast has been lowered to $16.05-$16.55 per cwt. With the lower NDM price more than offsetting the higher butter price, the Class IV forecast has been lowered to $14.35-$14.95 per cwt. The all-milk price for 2015 is forecast at $17.10-$17.60 per cwt.

Dairy Forecasts for 2016

Changes in milk production usually lag changes in milk and feed prices. With 2015 margins expected to be conducive to expanding the milk supply, milk production in 2016 is projected to continue growing at a moderate rate. Milk cow numbers are forecast to average 9.335 million head in 2016, with milk per cow forecast at 22,880 pounds. Milk production is forecast at 213.6 billion pounds, a 2.1-percent increase over the 2015 forecast (adjusted for leap year).

Dairy exports are expected to grow in 2016 as demand from foreign buyers is expected to increase from 2015, but exports are not projected to reach the record highs set in 2014. Commercial exports for 2016 are forecast at 11.5 billion pounds on a milk-fat basis (an increase of 0.7 billion pounds) and 39.1 billion pounds on a skim-solids basis (an increase of 1.3 billion pounds).

Imports for 2016 are forecast to decrease from 2015 due to the expected increase in domestic milk production and greater competition from other countries for dairy products. Imports for 2016 are forecast at 4.3 billion pounds on a milk-fat basis (a decrease of 0.5 billion pounds) and 5.6 billion pounds on a skim-solids basis (a decrease of 0.1 billion pounds).

With an improving economy, demand is expected to increase significantly in 2016 compared with 2015 forecasts. Commercial disappearance is expected to grow to 205.0 billion pounds on a milk-fat basis (an increase of 3.5 billion pounds) and 178.8 billion pounds on a skim-solids basis (an increase of 2.6 billion pounds). Ending stocks of dairy products for 2016 are forecast to increase over 2015 levels to 11.8 billion pounds on a milk-fat basis (an increase of 0.5 billion pounds) and to 12.9 billion pounds on a skim-solids basis (an increase of 0.4 billion pounds). Prices for cheese, NDM, and whey in 2016 are expected to be above 2015 prices due to strengthening domestic and foreign demand. Since the NDM market is the most sensitive to exports, NDM prices are expected to increase more than the other dairy product prices. With higher prices providing an incentive for increased NDM production, butter prices are expected to fall as more milk fat is expected to be available for butter production. Prices for 2016 are forecast at $1.610-$1.710 for cheese, $1.215-$1.285 for NDM, 51.5-54.5 cents for dry whey, and $1.725-$1.855 for butter. The Class III price for 2016 is forecast at $16.20-$17.20 per cwt, and the Class IV price is forecast at $15.60-$16.70 per cwt. The all-milk price for 2016 is forecast at $17.45-$18.45 per cwt.

 

Source – USDA


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