This column was written for the marketing week ending Nov. 15.
As I reported last week, the U.S. Department of Agriculture raised its milk production estimates in the latest World Agricultural Supply and Demand Estimates report, as “stronger growth in milk per cow more than offsets a slower expected recovery in the cow inventory.”
Cheese and nonfat dry milk price forecasts for both 2019 and 2020 were raised from last month on strength in demand. Butter and whey prices for 2019 and 2020 were lowered on current price weakness which is expected to carry into 2020.
The 2019 Class III and Class IV price forecasts were raised as the higher cheese price more than offsets the lower expected whey price. The 2019 Class III average is now projected at around $17.00 per hundredweight, up a nickel from last month’s projection and compares to $14.61 in 2018 and $16.17 in 2017. The 2020 average is now put at $17.50, up 30 cents from last month’s estimate.
The 2019 Class IV price was raised as the higher nonfat dry milk price more than offsets a weaker butter price. But for 2020, the lower butter price outweighs the higher nonfat dry milk price and the Class IV price was reduced.
Look for the Class IV to average $16.30, up a dime from a month ago and compares to the 2018 average at $14.23 and $15.16 in 2017. The 2020 Class IV average is expected at $15.95, down 15 cents from last month’s projection.
This month’s 2019-20 corn outlook is for lower production, reduced use, and smaller ending stocks. Corn production was forecast at 13.66 billion bushels, down 118 million from last month or down 1 percent from last month’s forecast; 5 percent below a year ago; and a four-year low. Yield was reduced 1.4 bushels to 167 bushels per acre. Area harvested for grain was forecast at 81.8 million acres, unchanged from the previous forecast but up slightly from 2018.
Exports were reduced reflecting the slow pace of early-season sales and shipments. Corn used for ethanol is down 25 million bushels based on September data. With supply falling more than use, corn ending stocks were lowered 18 million bushels from last month. The season-average corn price received by producers was raised 5 cents to $3.85 per bushel based on observed prices to date.
The U.S. soybean outlook is for slightly lower production, reduced crush, and higher ending stocks. Soybean production was forecast at 3.55 billion bushels, down less than 1 million on fractionally lower yields and unchanged harvested area and down 20 percent from a year ago. Based on conditions as of Nov. 1, yields are expected to average 46.9 bushels per acre, unchanged from the previous forecast, but down 3.7 bushels from 2018. Area harvested for beans in the United States is forecast at 75.6 million acres, unchanged from the previous forecast but down 14 percent from 2018. Soybean ending stocks are projected at 475 million bushels, up 15 million.
The season-average soybean price is forecast at $9.00 per bushel, unchanged from last month. The soybean meal price forecast was also unchanged at $325 per short ton.
Cotton production was forecast at 20.8 million 480-pound bales — down 4 percent from the previous forecast, but up 13 percent from 2018. Yields are expected to average 799 pounds per harvested acre, down 34 pounds from the previous forecast and down 65 pounds from 2018. All cotton area harvested is forecast at 12.5 million acres, unchanged from the previous forecast, but up 23 percent from 2018. The marketing-year average price received by upland producers was forecast at 61 cents per pound, 5 percent (3 cents) above the October forecast, but 13 percent lower than the final 2018-19 price of 70.3 cents.
Meanwhile, the USDA’s latest Crop Progress report shows the U.S. corn harvest at 66 percent as of the week ending Nov. 10. This is up from 52 percent the previous week, but down from 83 percent a year ago and 19 percent behind the five-year average.
Eighty-five percent of the soybeans are harvested, up from 75 percent the previous week, but down from 87 percent a year ago and 7 percent behind the five-year average.
Sixty-two percent of the cotton has been harvested, up from 53 percent the previous week, 9 percent ahead of a year ago, and 3 percent ahead of the five-year average.
U.S. dairy cow slaughter totaled 63,500 head for the week ending Nov. 2, according to the USDA, up 800 head or 1.3 percent from a year ago.
Cash cheese prices continued to weaken in the Veteran’s Day week. Block cheddar closed Nov. 15 at $1.89 per pound, down 12.5 cents on the week. This is the lowest Chicago Mercantile Exchange price since Aug. 28, and 34.75 cents below its Sept. 16 peak, but was 43.75 cents above a year ago.
The barrels fell to $2.1975 on Nov. 15, down 13.25 cents on the week but 83.75 cents above a year ago and an inverted 30.75 cents above the blocks. Only four cars of block were traded on the week at the CME and three of barrel.
A lot of the experts are trying to explain the roller coaster cheese prices. FC Stone’s Director of Dairy Market Insight Nate Donnay admits, “It’s hard to put our finger on the exact drivers behind the rally.”
“The single most supportive hard data point I can see is the sharp drop in cheddar production in September which came in 7 million pounds lower than forecast and down 3.1 percent from last year,” Donnay said. “Only fresh cheddar, aged between four and 30 days, trades on the CME spot market. So the cheddar fundamentals have an outsized impact on cheese prices. But it doesn’t look like any one thing is driving this market. It’s a mix of supply and demand issues.”
Dairy broker Dave Kurzawski echoed some of Donnay’s remarks in the Nov. 18 Dairy Radio Now broadcast — adding that the block market is number-one, so the barrel market ends up being kind of a “whipping post,” due to various occurrences in the market such as the increase in mozzarella output, a large shipment of cheese to Mexico, and production issues at various cheese plants in the country.
Kurzawski said that meant the pipeline was not full enough for end users and just enough to tighten the market and send prices above $2. He expects the inversion to correct, as the industry moves forward, but he looks for prices to remain in the $1.90-$2.20 per pound range “longer than people expect.”
Some Midwest cheesemakers reported slower sales this week, according to Dairy Market News. Prices have started to feel pressure, but remain above the comfort zone for many buyers. Some manufacturers continue to report buyers remain motivated during the holiday demand season. Spot milk trading was quiet the first half of the week, but prices were falling within the previous week's range. Cheese production has been busier in November, with some plants producing six to seven days per week, according to Dairy Market News.
Dairy Market News says the western market seems to be weakening. While buyers are making sure they have enough stocks to satisfy holiday needs, sellers are using any strategy possible to maximize sale volumes. Barrel prices are well above blocks due to tighter inventories but stocks are balanced with the needs of the market. Cheese output is seasonally solid with continuous good flows of milk to the vats.
The CME announced it will launch block cheese futures and options in January 2020, pending regulatory review. Tim Andriesen, Managing Director of Agricultural Products stated, "Our clients continue to look for tools to manage their price exposure in physical cheese markets, including food manufacturers and processors of cheese.” The new contracts will be cash-settled to the monthly average price for 40-pound block cheddar as reported by the USDA's National Dairy Products Sales Report with each contract representing the equivalent of 20,000 pounds, according to the CME.
Cash butter closed Nov. 15 at $2.0675 per pound, up 3 cents on the week but 20.75 cents below a year ago, with eight cars finding new homes on the week.
Central butter makers reported a variance in cream supplies. Some managers suggest cream is tightening as demand from Class III producers has pulled from the cream pool. They add a late Thanksgiving will keep demand up through the first week of December. Others report continued ease in finding cream at favorable multiples, with some coming from western sources. Production reports obviously depend on access to cream, says Dairy Market News, but butter demand is strong.
Retail butter sales are strong in the west. Buyers seem satisfied with current prices and are actively filling store shelves for the winter holiday baking season. Contacts suggest that end users already have a lot of their fall and winter bulk butter needs in place but a few butter makers are concerned what could happen if too much of the required 2020 butter is covered in advance of spring output. Current demand is placing a steady draw on inventories, making stocks comfortable for this time of year. Butter makers say they have plenty of cream to keep the churns full, and so far, cream is in good balance with butter needs.
Grade A nonfat dry milk closed the week at $1.2175 per pound, up 1.25 cents on the week, highest since Nov. 4, 2014, and 33.25 cents above a year ago, with 18 sales reported on the week.
FC Stone’s Nov. 12 Early Morning Update says the big issue on powder is the global demand “stemming principally from China. Even though our food crisis here in the states stems around real milk vs. fake milk, real meat vs. fake meat, etc., the Chinese have a much more troubling dilemma. What’s worse than fake pork is no pork. Although the rise in global nonfat dry milk and skim milk powder prices seems rather orderly right now, we believe the situation in China is beginning to have reverberating impacts on the world of dairy.”
CME dry whey finished Nov. 15 at 32 cents per pound, up 4.5 cents on the week and the highest since Oct. 4, but 11 cents below a year ago. Twenty-nine cars were sold on the week, with lots of bids going unfilled.
Checking demand, U.S. cheese disappearance marked the strongest September on record and was spurred higher by both higher domestic and export demand, according to HighGround Dairy. “Domestic disappearance has performed better vs. the prior year for six of the nine months this year to date.”
Butter disappearance was down from August and a year ago, even as total volumes remained higher vs. the slower demand months of May through July.
Nonfat dry milk domestic disappearance fell in half vs. August, down 51.1 percent, says HighGround Dairy, and over the past five years, September domestic demand had grown on average 7.7 percent vs. August, “pushing this September well opposite of trend.”
U.S. fluid milk sales were down in September after slipping in August. The USDA’s latest data shows 3.76 billion pounds of packaged fluid sales, down 0.8 percent from September 2018.
Conventional product sales totaled 3.5 billion pounds, down 1.3 percent from a year ago. Organic products, at 220 million pounds, were up 6.9 percent and represented 5.9 percent of total sales for the month.
Whole milk sales totaled 1.2 billion pounds, up 0.2 percent from a year ago and made up 31.7 percent of total fluid sales in the month. Sales for the nine month period totaled 11.2 billion pounds, up 1 percent from a year ago. Skim milk sales, at 265 million pounds, were down 9.7 percent and made up 7.1 percent of total milk sales for the month.
Total packaged fluid milk sales, January through September totaled 34.2 billion pounds, down 1.7 percent from a year ago. Conventional products year-to-date totaled 32.3 billion pounds, down 1.7 percent. Organic products, at 1.9 billion pounds, were down 2.6 percent and represented about 5.5 percent of total fluid milk sales for the period.
The figures represent consumption of fluid milk products in Federal milk order marketing areas and California, which account for approximately 92 percent of total fluid milk sales in the United States.
HighGround Dairy points out, “Fluid sales continue to be weak overall as the alternative market experiences gains with sales up 5 percent year-over-year through September, driven by almond drinks and oat drink sales in a big way” but they add that soy, coconut and cashew drinks are reporting strong losses in 2019.
The nation’s largest fluid milk producer, Dallas-based Dean Foods, announced it has filed for Chapter 11 bankruptcy, blaming the continuing drop in fluid milk consumption as consumers switch to sodas, juices and plant-based beverages. The company has 65 processing plants in 29 states and 15,000 employees and is reported to be in negotiation with Dairy Farmers of America about a potential sale.
As to what it means for the rest of the industry, that remains to be seen. But FC Stone stated, “It appears that milk will keep flowing to Class I for bottling as the restructure proceeds. In terms of consumer sentiment, it’s a black eye for the industry. Perhaps more importantly, it’s an all-hands-on-deck call for more innovation as the dairy industry faces fierce competition from alternatives — many of which appear inferior in terms of consumer cost and overall nutrition.”
In politics, while the House is fixated on the impeachment process, Speaker Nancy Pelosi stated this week that Democrats and the Trump administration are making progress on approving the U.S.-Mexico-Canada free trade agreement which would replace the NAFTA. Welcomed by most in the dairy industry, the confirmation could come before year’s end.
Lee Mielke is a syndicated columnist who resides in Everson, Wash. His weekly column is featured in newspapers across the country and he may be reached at firstname.lastname@example.org.