The U.S. Department of Agriculture’s monthly World Ag Supply and Demand Estimates (WASDE) report raised the 2017 milk production forecast, citing expectations the U.S. dairy herd will grow during the year. Projected milk output per cow was reduced slightly from last month’s forecast.
Anticipated milk production in 2017 was raised about 100 million pounds from last month’s forecast, to 217.5 billion pounds. If realized, production would be up about 2.4 percent from 2016’s revised total of 212.4 billion pounds.
Forecasted fat-basis dairy exports were unchanged from a month earlier, but skim-solids basis exports were lowered on expected strong competition in international skim milk powder markets.
Affecting Class III prices, the cheese price forecast for 2017 was reduced, pressured by heavy stocks. The whey price forecast was raised reflecting recent market strength. With whey price increases offsetting cheese price declines, the 2017 Class III price was projected in a range of $16.60 to $17.20 per hundredweight (cwt). The midpoint ($16.90 per cwt) would be up $2.03 from 2016’s average.
Affecting Class IV milk prices, the butter price forecast was raised on continued demand strength. The non-fat dry milk price was forecast lower on expectations of slower export growth due to increased competition from global competitors. With the non-fat dry milk price decline more than offsettting the butter price increase, the Class IV price forecast was lowered to a range of $14.85 to $15.55 per cwt. The midpoint of $15.20 per cwt would be $1.43 more than 2016’s average.
The 2017 all-milk price was forecast in a range of $17.80 to $18.40 per cwt. The midpoint of $18.10 per cwt would be $1.86 more than the 2016 average of $16.24 per cwt.
Feed outlook
This month’s 2016/2017 U.S. corn outlook calls for increased corn used to produce ethanol, with reductions for feed and residual use. As a result, ending stocks were left unchanged from last month’s forecast.
The projected range for the 2016-2017 season-average corn price received by producers was unchanged, at $3.20 to $3.60 per bushel, with a midpoint of $3.40 per bushel. The 2015-2016 average was $3.61 per bushel.
The U.S. soybean supply and use changes for 2016/2017 include higher crush, lower exports and increased ending stocks compared with last month’s report.
Prices paid to soybean producers for 2016-2017 were projected at $9.30 to $9.90 per bushel. Soybean meal price prices were projected in a range of $310 to $340 per ton. The 2015-2016 averages were $8.95 per bushel for soybeans and $325 per ton for soybean meal.
USDA’s latest crop production report offered little in the way of new information affecting the markets, although a feed outlook report increased the estimated number of poultry, affecting grain consumption forecasts. Corn production estimates were projected higher for Brazil, Argentina, South Africa and India.
Beef outlook
Impacting cull cow prices, the WASDE report raised the forecast for 2017 beef production. First-quarter 2017 estimated beef production was raised on current slaughter data, and third-quarter production was raised as higher-expected first quarter placements are marketed in the second half of the year. However, carcass weights for the year are forecast lower as feedlot operators are expected to remain current in their marketings. Steer prices are expected to be in a range of $114 to $121 per cwt in 2017, with highest prices in the first half of the year thanks to stronger exports. The 2016 steer price averaged $121 per cwt.
February margins
Dairy margins weakened further over the second half of February due to a sharp drop in milk prices, although feed costs were steady to slightly higher, according to Commodity & Ingredient Hedging LLC.
Margins remain at or above the 80th percentile of the previous decade through the first half of 2017 and at or above the 70th percentile through the second half of the year.
Milk prices continue to be pressured by increasing production and rising stocks of dairy products. New Zealand’s milk production is recovering faster than expected, while January Chinese powder imports were down on the year, which may add to growing global milk powder inventories over the medium term.
Feed costs held mostly steady over the last two weeks of February, although both corn and the soybean complex moved higher in response to rumors the Trump administration may be considering adjustments to the Renewable Fuels Standard, allowing for E15 in domestic gasoline blends year-round and limiting biodiesel credits to domestically manufactured product. 
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Dave Natzke
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