With monthly milk production reports suggesting weaker growth in milk per cow, the USDA’s latest World Ag Supply and Demand Estimates (WASDE) report made further cuts to 2017-18 U.S. milk production forecasts. However, less production didn’t translate into a more optimistic outlook for farmer milk prices.
Anticipated milk production in 2017 was cut about 400 million pounds from last month’s forecast to 216.3 billion pounds. If realized, production would be up about 1.8 percent from 2016’s total of 212.4 billion pounds.
Looking ahead to 2018, the USDA forecast production at 221.2 billion pounds, down 500 million pounds from last month’s estimate. If realized, 2018 production would be up about 2.3 percent from 2017’s estimate.
Fat-basis export forecasts for 2017 and 2018 were raised on continued robust exports of cheese. Skim-solid exports for 2017 and 2018 were raised as nonfat dry milk (NDM) and cheese shipments are expected to remain strong.
For 2017, cheese and whey price forecasts were reduced from the previous month, while butter prices were forecast higher, with similar trends extending into 2018. The NDM price forecast was unchanged.
As a result, projected 2017 and 2018 Class III prices were lowered from last month in line with lower component product prices. The Class IV price forecasts are increased for 2017 and 2018 reflecting higher butter prices. The 2017 all milk price was forecast between $17.65 and $17.95 per cwt, and the 2018 projected price was in a range of $18 to $19 per cwt.
Margins start July stagnant
Dairy margins have been unchanged to slightly weaker since the end of June, with little movement in price for either milk or feed, according to Commodity & Ingredient Hedging LLC.
Milk prices have been rather stagnant in the past two weeks, without much movement in the market. Drought conditions and high temperatures in western states, including California, Idaho and the Dakotas, have impacted milk production recently, and this trend may continue through the rest of the summer.
Feed prices have been more volatile recently following the June acreage and quarterly stocks reports. Recent forecasts returning heat to the Corn Belt have begun to put risk premium back into the market
Feed outlook
The latest 2017-18 U.S. corn outlook is for larger supplies, greater feed and residual use and higher ending stocks. Much of the crop was just entering the critical mid- to late-July pollination period.
The projected 2017-18 season-average corn price received by producers was lowered 10 cents on each end of the range, to $2.90 to $3.70 per bushel, with a midpoint at $3.30 per bushel. The 2016-17 average was about $3.35 per bushel.
However, recent volatility in corn prices indicates concern about the 2017 U.S. corn crop, said Todd Hubbs, ag economist at the University of Illinois. Weather conditions in July have been far from perfect in many of the main production regions. The National Weather Service 8-14 day outlook released on July 16 indicates probabilities of above-normal temperatures and below-normal precipitation over much of the Corn Belt through July 30. There is an expectation of lower yields to be reflected in the USDA's August 10 Crop Production report.
Based on a model of the relationship between average farm price and the end of year stocks to use ratio, the projected ending stocks-to-use ratio for the 2017-18 marketing year projects the average farm price near $3.58 per bushel, Hubbs said.
Despite slightly higher production, expected 2017-18 soybean supplies were reduced. The 2017-18 U.S. season-average soybean price is forecast in a wide range of $8.40 to $10.40 per bushel, up 10 cents to $9.40 per bushel at the midpoint. The 2016-17 average was $9.50 per bushel.
Season-average 2017-18 soybean meal prices are forecast at $300 to $340 per ton, up slightly from last month’s projections. The soybean meal price averaged $320 per ton in 2016-17.
The latest available USDA monthly ag prices report summarizes May 2017 prices. The May 2017 U.S. average price paid to alfalfa hay producers at the farm level was $155 per ton, a $7 jump from April and the highest average since October 2015. The May 2017 U.S. average price for other hay was estimated at $127 per ton, down $5 from April.
Beef outlook
Impacting cull cow prices, the USDA raised the forecast for 2017 beef production, citing both higher cattle slaughter and heavier carcass weights. However, forecasted beef production in 2018 was reduced based on lower expected steer and heifer slaughter in the first part of the year.
Cattle price forecasts for 2017 were lowered from last month as prices have weakened and fed cattle supplies will remain ample. The third-quarter 2017 steer price was estimated in a range of $117-$121 per cwt, declining somewhat in the fourth quarter and yielding an average of $121-$125 per cwt for the year. Early forecasts put the 2018 average steer price in a range of $113-$123 per cwt. The 2016 steer price averaged $121 per cwt.
Dairy Market News 101: Understanding dairy market reports
One of the most comprehensive weekly dairy market summaries is the USDA Agricultural Marketing Service’s Dairy Market News, released each Friday afternoon.
The USDA is offering a free, interactive webinar to help dairy industry stakeholders understand the individual reports. The live webinar will be held Thursday, July 27, 2-3 p.m. (Eastern). Advance registration is requested.
From retail to organic, DMN reports covers the supply, demand and price situation on a regional, national and international basis for milk, butter, cheese, and dry and fluid products.
The presentation will be led by Butch Speth, acting branch chief, and Janet Linder, acting national supervisor for the Madison, Wisconsin DMN office. They will present an overview of how DMN collects information, and direct webinar participants on how to find the latest market news reports and data on the DMN website and news portal.
May fluid milk sales better
Monthly fluid milk sales returned to year-earlier levels, according to the USDA’s Dairy Market News.
May 2017 total U.S. packaged fluid milk sales were estimated 4.06 billion pounds, up 0.4 percent from May 2016. U.S. sales of conventional products totaled 3.84 billion pounds, up 0.1 percent from the previous year, while sales of organic products, at 226 million pounds, were up 4.1 percent. Organic represented nearly 5.6 percent of total sales for the month.
Sales of whole milk again posted the largest gains: conventional whole milk sales were up 4.3 percent compared to a year ago, and sales of flavored whole milk were up 18.3 percent. Sales of organic whole milk were up just 1.4 percent compared to a year earlier.
Through the first five months of the year, U.S. fluid milk sales totaled 20.18 billion pounds, down 2.4 percent compared to the same period a year earlier. Year-to-date 2017 sales of conventional products totaled 19.09 billion pounds, down 2.6 percent. January-May 2017 sales of organic products, at 1.089 billion pounds, were up 1.3 percent. Organic represented nearly 5.4 percent of total sales for the month.
The U.S. 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 U.S. Sales outlets include food stores, convenience stores, warehouse stores/wholesale clubs, non-food stores, schools, the foodservice industry and home delivery.
July's USDEC Dairy Data Dashboard
Every month, the U.S. Dairy Export Council (USDEC) aggregates domestic and global dairy data to create 10 charts displayed in a one-page, printable dashboard. The July Data Dashboard is live and ready for download in PDF format here.
It might be beige, but some dairy producers are seeing red
The Beige Book is a Federal Reserve System publication about current economic conditions across the 12 Federal Reserve districts. Each bank gathers anecdotal information on current economic conditions in its district through reports from bank and branch directors, plus phone and in-person interviews and online questionnaires completed by businesses, community contacts, economists, market experts and other sources.
Only a handful of districts provide economic information on agriculture, and even fewer highlight dairy. According to a summary from the Seventh District (Chicago), lower milk prices contributed to mounting losses for many dairy operations in May and June, forcing some producers to exit the business.
There is potential good news on the demand side. Economies are growing in all 12 districts, while wages and consumer spending are rising in most. 
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Dave Natzke
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