Two USDA reports suggest dairy income margins should improve through the end of 2016. Days later, the Global Dairy Trade index jumped nearly 13 percent.
Milk production estimate reduced
The August World Ag Supply and Demand Estimates (WASDE) report reduced the 2016 U.S. milk production forecast, improving the outlook for milk prices. 2016 milk production was reduced about 300 million pounds from last month’s forecast, to 212.1 billion pounds. If realized, production would be up about 1.7 percent from 2015. The revised milk production forecast was based on a slowdown in milk production per cow.
Looking ahead to 2017, milk production was raised about 200 million pounds from the previous month’s forecast, to 215.8 billion pounds. If realized, production would be up about 1.7 percent from 2016’s estimate. The production forecast was raised due to a continuing improvement in the relationship between milk prices (higher) and feed costs (lower), leading to a modest expansion in the cow inventory and more rapid growth in milk per cow.
On a skim-solids basis, the export forecasts for 2016 and 2017 are raised on higher sales of whole milk powder and whey products. Expected fat-basis imports were rated.
Cheese, nonfat dry milk (NDM) and whey prices for 2016 were forecast higher as demand remains firm, but the forecast for butter prices was reduced as stocks remain larger than expected (Table 1). The 2016 projected Class III price was raised, reflecting higher cheese and whey prices, but the Class IV price was lowered as the lower butter price more than offsets the higher NDM price.
For 2017, projected prices of cheese, butter and whey were increased, but NDM was unchanged. The Class III and Class IV price forecasts were raised on the stronger component prices.
All milk prices are forecast higher at $16.25 to $16.45 per hundredweight (cwt) for 2016 and $16.15 to $17.15 per cwt for 2017.
Global Dairy Trade index jumps
The Global Dairy Trade (GDT) overall dairy product price index jumped 12.7 percent during the latest auction, held Aug. 16.
Prices for all products rose, led by: anhydrous milk fat (+8.4 percent, to $4,148 per metric ton); butter (+14.1 percent, to $3,274 per MT); butter milk powder (+18.1 percent, to $1,983 per MT); cheddar cheese (+8.9 percent, to $3,157 per MT); skim milk powder (+3 percent, to $2,028 per MT); and whole milk powder (+18.9 percent, to $2,695 per MT).
The next GDT auction is Sept. 6.
Beef outlook
Impacting cull cow prices, the WASDE report raised the forecast for 2016 beef production due to higher expected third-quarter steer and heifer slaughter. Second-quarter production was adjusted lower.
Cattle price forecasts for the second half of 2016 were reduced to average $124 to $127 per cwt; 2017 prices were forecast in a range of $118 to $128 per cwt.
Feed situation: Larger supplies, lower prices
On the feed side of the equation, both WASDE and Crop Production reports point to larger feedstuff production and supplies.
U.S. corn production is forecast at a record 15.2 billion bushels, up 613 million from the July projection. The season’s first survey-based corn yield forecast, at 175.1 bushels per acre, is up 7.1 bushels over July’s projection and above the record 171 bushels in 2014-2015.
The Crop Production report indicates nearly all Corn Belt states, with the exception of Minnesota and South Dakota, are forecast to have yields above a year ago.
U.S. corn supplies for 2016-2017 were projected at a record 16.9 billion bushels, up 1.5 billion from the prior year. Total U.S. corn use for 2016-2017 was projected at a record 14.5 billion bushels. Corn ending stocks for 2016-2017 were projected 328 million bushels higher and, if realized, would be the highest since 1987-1988.
The projected range for the season-average corn price received by producers was lowered 25 cents on both ends, to $2.85 to $3.45 per bushel (Table 2). This would be down 45 cents at the midpoint from the $3.55 to $3.65 per bushel range expected for 2015-2016.
Soybean production for 2016-2017 was forecast at 4.06 billion bushels, up 180 million due to increased yields. The first survey-based soybean yield forecast of 48.9 bushels per acre was 2.2 bushels above last month and would be 0.9 bushels above last year’s record. With higher production only partly offset by lower beginning stocks, soybean supplies for 2016-2017 are projected at a record 4.346 billion bushels.
The U.S. season-average soybean price for 2016-2017 was forecast at $8.35 to $9.85 per bushel, down 40 cents on both ends of the range. Soybean meal prices are forecast at $305 to $345 per ton, down $20 at the midpoint.
Cottonseed harvest up 25 percent
The 2016 cottonseed harvest is expected to total 5.055 million tons, 25 percent more than 2015.
Hay supply outlook improves
USDA’s Aug. 12 Crop Production report forecasts a larger hay harvest in 2016.
Based on growing conditions as of Aug. 1, alfalfa and alfalfa mixture hay yields were expected to average 3.4 tons per acre, up 0.08 ton from last year. Harvested area was forecast at 18.1 million acres, up 2 percent from 2015.
Conditions in the western U.S., although a bit dry, are better than in 2015. Favorable conditions in the Corn Belt have producers expecting improved yields. Record high yields are expected in Indiana and Washington in 2016.
Production of other hay was forecast at 79 million tons, up 5 percent from 2015 and the third highest on record, behind only 2004 and 2003.
Yields are expected to average 2.07 tons per acre, up 0.01 ton from last year and, if realized, a record high. Producers in Alabama, Illinois, Missouri and Nebraska are expecting record high yields in 2016. Harvested area was forecast at 38.1 million acres, up 4 percent from 2015.
Download the World Ag Supply and Demand Estimates report. PD
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Dave Natzke
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