Near-term price declines have halted a U.S. dairy recovery thought to have started this summer. However, global dairy economists see better times ahead.
Dairy Margin Watch: September ended weaker
Dairy margins deteriorated during the final two weeks of September, with milk price declines coupled with steady feed costs, according to the latest CIH Margin Watch report from Commodity & Ingredient Hedging LLC. However, dairy producers are in much better shape than their colleagues in the swine and cattle industries, as dairy margins remain above average and at relatively higher 10-year percentiles of profitability.
USDA’s monthly Milk Production report showed August milk production at 17.7 billion pounds, up 1.9 percent from last year. The number of milk cows increased to 9.36 million head, the highest in nearly 20 years. USDA’s Cold Storage report confirmed continued high stocks of dairy products.
On the feed side, USDA’s Quarterly Grain Stocks report was neutral for corn, with final 2015-16 ending stocks pegged at 1.738 billion bushels. This is down 19 million from the average trade estimate, but up 22 million from the previous forecast.
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California Class 4a/4b milk prices take a step backwards
After showing some signs of recovery, California's September 2016 minimum Class 4a/4b milk prices took a step backwards.
California Class 4a ($ per cwt)
September 2016 – $13.58
August 2016 – $13.99
September 2015 – $15.40
January-September 2016 – $13.26
January-September 2015 – $13.60
California Class 4b ($ per cwt)
September 2016 – $15.24
August 2016 – $16.34
September 2015 – $14.94
January-September 2016 – $13.64
January-September 2015 – $14.62
Source: California Department of Food and Agriculture
California November 2016 Class 1 milk prices fall
California's Class 1 minimum milk prices dropped for a second consecutive month in November. Both North and South Class 1 prices are down $1.64 from October and $1.55 less than a year ago, and are the lowest Class I prices since July, 2016.
USDA will announce the November 2016 federal order Class I base price on Oct. 19.
Class 1 North ($ per cwt)
November 2016 – $16.13
October 2016 – $17.77
November 2015 – $17.68
January-November 2016 – $16.00
January-November 2015 – $17.63
Class 1 South ($ per cwt)
November 2016 – $16.40
October 2016 – $18.04
November 2015 – $17.95
January-November 2016 – $16.27
January-November2015 – $17.90
Source: California Department of Food and Agriculture
September FMMO Class III/IV prices stumble
The federal milk marketing order (FMMO) Class III and IV minimum price rally faltered in September.
FMMO Class III ($ per cwt)
September 2016 – $16.39
August 2016 – $16.91
September 2015 – $15.82
January-September 2016 – $14.38
January-September 2015 – $16.04
FMMO Class IV ($ per cwt)
September 2016 – $14.25
August 2016 – $14.65
September 2015 – $15.08
January-September 2016 – $13.65
January-September 2015 – $13.70
Source: USDA Ag Marketing Service
Global Dairy Trade index lower
The Global Dairy Trade (GDT) overall dairy product price index dipped 3.0 percent during the latest auction, held Oct. 4.
Prices for all products, except buttermilk powder (BMP), fell. The winning bid for BMP was up 9.3 percent, to $2,408 per metric ton (MT).
Declining prices were seen for: anhydrous milk fat (-1.0 percent, to $4,954 per MT), butter (-0.3 percent, to $3,891 per MT); cheddar cheese (-2.3 percent, to $3,430 per MT); skim milk powder (-3.9 percent, to $2,209 per MT); and whole milk powder (-3.8 percent, to $2,681 per MT).
The next GDT auction is Oct. 18.
Rabobank: Drop in global dairy supply expected to fuel price recovery into 2017
Global milk production has fallen faster than expected in recent months, with the resulting rally in global dairy markets expected to be sustained into 2017, according to Rabobank’s latest Dairy Quarterly Report.
The report says dairy export surpluses are expected to reduce by 3.4 million tonnes year-on-year, more than at any time since the global financial crisis. This comes at a time when dairy demand in domestic markets has been remaining firm and when dairy farmers will struggle to grow production – resulting in farmgate prices rising in most export markets.
Rabobank dairy analyst Emma Higgins said while the Oct. 4 Global Dairy Trade index fell by 3 percent, it was still up 21 percent from a year earlier.
The Rabobank Dairy Quarterly said the greater-than-expected fall in milk export surpluses had primarily been driven by key exporting regions registering production drops in comparison to the same quarter in 2015. Among major exporters, only U.S. producers have maintained steady growth in production.
The report identifies five key factors that will shape the course of the global dairy recovery moving into 2017 – government intervention, inventories, Chinese buying, supply development in New Zealand and global economics.
September global dairy price index jumps again
Global consumers paid more for dairy products in September, according to the latest United Nations’ Food and Agriculture Organization (FAO) Food Price Index.
The September 2016 FAO Dairy Price Index increased 13.8 percent from August, and followed a jump of 8.6 percent from July. The dairy index has risen 38 percent since April.
Quotations rose for all dairy products, in particular butter, which was bolstered by reduced stocks and strong internal demand in the European Union (EU). The current price surge stems from expectations that falling milk production in the EU and a muted opening to the dairy year in Oceania would result in tighter availabilities for export, following excess supplies in the preceding two years.
Globally, the FAO Food Price Index – a measure of monthly changes in international prices for five major commodities (cereal, vegetable oil, dairy, meat and sugar) – rose 2.9 percent from August, and is now about 10 percent higher than a year ago.
Feeding California Holsteins and Jerseys
A California Department of Food and Agriculture’s (CDFA) feed cost report summarized financial data voluntarily submitted by Jersey and Holstein herds for the first half of 2016.
The cost to feed a Holstein cow producing 78.8 pounds of milk per day was $6.72, or about $8.53 per hundredweight (cwt) of milk.
The cost to feed a Jersey cow producing 62.8 pounds of milk per day was $6.19, or about $9.85 per cwt of milk.
The October 2016 California Dairy Review provides a breakdown for feed ingredients, analyzing dollars-per-ton fed for each
commodity fed, feed intake and dry matter intake per cow per day, and the percent of total feed cost. This report does not address organic herds, nor does it report milk income.
Northwest Farm Credit snapshot: Dairy margins improving but mixed
Northwest dairies faced improving but mixed profitably in the third quarter of 2016, according to the latest Northwest Farm Credit Service dairy market snapshot. Nationally, dairy producers entered into the fourth quarter of 2016 with volatile milk prices. December class III milk futures increased more than $2 per cwt between May and August. However, prices have since slipped with reports of increased milk production and large cheese and butter inventories.
Favorable weather strengthened milk and crop production. The Northwest corn silage harvest enjoyed higher-than-average yields. Higher forage yields left producers searching for storage capacity as feed prices continue to soften.
Hay growers are reporting one more cutting than average, increasing the overall supply of alfalfa. In Southern Idaho, feeder-hay prices are $60 to $80 per ton delivered. High-quality dairy hay prices are $120 to $130 per ton delivered, down significantly from 2015. In Southern Idaho, dairies’ cost of production is down nearly $1.50 per cwt as new crop inventories enter rations.
In Eastern Washington, many dairy producers chose to harvest alfalfa silage instead of dry hay. In Western Washington, large supplies of silage are reducing alfalfa hay in feed rations to two pounds per head per day (much lower than normal).
Dairy cow prices are stable to higher. In Washington, Holstein cows generally trade around $1,900 per head, although instances of smaller herd sales for $2,100 per head were observed in August. In Idaho, Holstein cows traded around $1,700 per head, while Jersey cows traded around $1,800 per head.
August dairy products report
More milk pushed August U.S. production of most dairy products higher, according to USDA’s monthly report. A summary of August production compared to the previous year and month follows:
• Total cheese output (excluding cottage cheese) was 990 million pounds, 1.2 percent more than August 2015, but 2.2 percent less than July 2016.
• Italian-type cheese production totaled 422 million pounds, 5 percent more than August 2015, but 4.7 percent less than July 2016.
• American-type cheese production totaled 389 million pounds, 1.4 percent less than August 2015 and 2.4 percent less than July 2016.
• Butter production was 129 million pounds, 0.7 percent more than August 2015, but 10.4 percent less than July 2016.
Compared to the same month a year earlier:
• Nonfat dry milk production was 117 million pounds, down 5.8 percent.
• Skim milk powders production was 46.1 million pounds, up 17.2 percent.
• Dry whey production was 75.8 million pounds, down 8.4 percent.
• Whey protein concentrate production was 34.2 million pounds, down 13.7 percent.
FrieslandCampina compensating dairy farmer members for less milk
As of Oct. 1, Dutch dairy processor FrieslandCampina will pay its member dairy farmers 10 euro cents per kilo of milk (not produced) for a period of six months. The payment is intended to accelerate the reduction of phosphate production in anticipation of an announcement regarding Dutch phosphate production rights.
The payment is on top of the European Union Milk Production Reduction Scheme, which will pay 14 euro cents per kilo to enrolled dairy producers for the period of Oct. 1-Dec. 31, 2016.
The FrieslandCampina program is designed to cut milk production by 150 million kilos during the period.
WhiteWave stockholders approve Danone merger
Stockholders of the WhiteWave Foods Company voted to approve the merger agreement with Danone S.A. WhiteWave stockholders will receive $56.25 in cash for each share of WhiteWave common stock when the merger is completed.
WhiteWave and Danone have been working with the European Commission and U.S. Department of Justice (DOJ) to target closing the transaction by the end of 2016.
The closing of the merger remains subject to the satisfaction of customary conditions, including the expiration or termination of all applicable waiting periods under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act and approval of the merger by the European Commission.
On Oct. 3, the U.S. Department of Justice (DOJ) issued a request for additional information, which extends the HSR waiting period. 
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Dave Natzke
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