Exports Not Expected To Improve Soon

Volume 140, No.14, Friday, September 25, 2015

September has been a mixed bag regarding dairy product prices on the CME. Butter was $2.29 per pound the last week of August but has shown strength all of September with the current price at $2.7175. Nonfat dry milk which was $0.77 per pound the last week of August has also shown some strength and is now $0.91. With both butter and nonfat dry milk prices improving the September Class IV price will be near $15.10 compared to $12.90 in August.

But, cheese and dry whey prices have weakened. The 40-pound Cheddar block price was $1.6575 per pound the last week of August, improved to $1.75 on September 1st, but is now $1.6925. Cheddar barrels were $1.60 per pound the last week of August, improved to $1.67 on September 1 and are now $1.5425. Dry whey which was $0.38 per pound mid-August has fallen to $0.25. With these lower prices the September Class III price will be about $15.85 compared to $16.27 in August.

The outlook for milk prices for the reminder of the year and into 2016 is not for higher prices. Once stocks of butter and cheese are built to levels for the holidays by October or early November butter and cheese prices will likely weaken.

Milk production is declining seasonally but is above a year ago and at levels to build stocks. The latest dairy product report is for July. While it showed butter production 3.2 percent lower than a year ago, Cheddar cheese production was 4.7 percent higher, total cheese production 3.1 percent higher, nonfat dry milk production 6.9 percent lower, but skim milk powder production 23.0 percent higher, and dry whey production 9.8 percent higher.

While restaurant and foodservice demand has been strong for butter and cheese, dairy exports are much lower and the result is stocks are building. July exports compared to a year ago show butter exports down 58 percent, cheese down 21 percent, nonfat dry milk down 22 percent and dry whey down 8 percent. Exports would be even lower if it wasn’t for the CWT program supporting exports.

July 31 stocks compared to a year ago were: butter 40.7 percent higher, American cheese 5.1 percent higher, total cheese 6.7 percent higher, nonfat dry milk 8.5 percent higher and dry whey 16.2 percent higher.

Dairy exports are not expected to improve prior to the second half of 2016. With the two largest importers of dairy products, China and Russia, importing much less dairy products than early in 2014 along with the level of world milk production world dairy stocks have built to surplus levels. World dairy product prices have fallen to levels not experienced since a decade ago and well below US prices. With higher U.S. prices imports of butter and cheese has increased.

World prices appear to have bottomed out. For the last three Global Dairy Trade auctions prices have increased which is good news. With exports not expected to improve much prior to the second half of 2016 the level of milk prices will depend heavily upon domestic sales and the level of milk production.

USDA’s release of milk production for August showed the smallest increase this year at 0.8 percent compared to 1.3 percent for July. Milk cow numbers have held at 9.321 million for the past three months, down 3,000 from the peak this year in May, but still 0.6 percent higher than a year ago. Milk per cow continues to show only a modest increase at 0.3 percent.

Milk production January through August is up 1.5 percent from a year ago.

California’s production continues to run well below year ago with August production down 3.4 percent. Cow numbers were down only 0.1 percent, but milk per cow was 3.4 percent lower. Of the 23 reporting states New Mexico had the biggest decline in production at 4.3 percent, all due to less milk per cow. Texas’s production was also down 1.4 percent due to 1.7 percent fewer cows and just 0.3 percent more milk per cow. Idaho’s production was up just 0.8 percent due to 1.0 percent more cows but 0.2 percent less milk per cow.

August production was up 2.5 percent for New York, 0.3 percent for Pennsylvania and 4.1 percent for Michigan.
South Dakota continues to lead in increases in milk production with August up 13.3 percent due to 10.3 percent more cows and 2.7 percent more milk per cow. Iowa’s production was up 3.9 percent due to 1.4 percent more cows and 2.4 percent more milk per cow. Minnesota had no change in cow numbers but production was up 4.7 percent all due to more milk per cow. Wisconsin had 0.7 percent more cows and 4.0 percent more milk per cow resulting in 4.8 percent more production. Florida’s production was 1.6 percent higher due to 1.6 percent more cows but 0.2 percent less milk per cow.

USDA forecasts total milk production for this year to end up 1.4 percent higher than last year and expects another 2.0 percent increase for 2016. But, this will be a little high if the increase in milk production continues at less than 1.0 percent. But, yet even with milk production at these levels and for exports not to show much improvement prior to the second half of 2016 we can expect the Class III price to decline to the high $15’s for the remainder of the year and maybe the low $15’s first quarter of next year before prices slowly increase reaching the $16’s by third quarter.

The Class IV price could be near $14 for November, but with expected declines in the butter price after holiday orders are filled the Class IV could be in the $13’s by December and even in the $12’s first quarter of next year before slowly increasing by the second quarter. However, Class IV futures is more optimistic than this. The Class IV price will depend heavily upon any increase in exports.

Dr. Bob Cropp is the Professor Emeritus at the University of Wisconsin-Madison


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