October 6, 2017
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Dairy
Markets
Lee Mielke
Dairy/Livestock
Milk price forecast heads south
By CAROL RYAN DUMAS
Butter
prices melt
at end of
September
By LEE MIELKE
For the Capital Press
C
ME block Cheddar
cheese climbed to
$1.74 per pound last
Thursday but closed Sept. 29
and the month at $1.7350, up
12 1/4-cents on the week, 20
1/4-cents above a year ago,
and 19 1/2- cents above its
Sept. 1 perch.
The barrels hit $1.73 Sept.
27 but ended Sept. 29 at
$1.6925, up 9 1/4-cents on the
week, 18 1/4-cents above a
year ago, and up 17 1/4-cents
on the month. Thirteen cars
of block traded hands in the
final week of the month at the
CME and 61 of barrel.
The blocks eased back
three-quarters Monday and
lost a quarter-cent Tuesday,
slipping to $1.7250, as traders
absorbed the morning’s Glob-
al Dairy Trade auction and an-
ticipated Thursday’s August
Dairy Product report.
The barrels inched a quar-
ter-cent lower Monday and
held there Tuesday at $1.69.
Cheese demand continues
to differ by variety, according
to Dairy Market News. The
football season is underway
and pizza cheese manufac-
turers are adding production
days to fulfill steady to heavy
orders. Milk availability is
mixed. Fresh cheese invento-
ries are reportedly harder to
find, whereas aged stocks are
long.
Western cheese makers re-
port that modest cheese prices
and favorable exchange rates
are helping develop export
opportunities. Domestic de-
mand remains solid. “Inven-
tories are generally long, says
DMN, “but many processors
have come to understand this
as a reality of the times.”
Butter saw a meltdown
to $2.3150 per pound Sept.
29, down 13 1/4-cents on the
week, lowest price since May
12, 2017, but is 41 3/4-cents
above a year ago when it lost
13 cents and was on its way
to a $1.76 bottom in mid-
October. It’s also down 19
1/4-cents from Sept. 1.
The butter was down 2
cents Monday but regained
3 1/2-cents Tuesday and
climbed back to $2.33 per
pound, with 22 cars exchang-
ing hands on the session.
DMN says “Grocers’ or-
ders remain strong, as their
busy season has commenced.”
Cream is available. Offers
from cream suppliers located
in states recently affected by
the hurricanes have increased
but “the butter market tone is
uncertain.”
Western contacts report
that some processors are tak-
ing export orders for fourth
quarter. Supplies in the West
are steady to higher and pro-
duction is steady.
Cash Grade A nonfat dry
milk ended Sept. 29 a half-
cent higher on the week, at 82
3/4-cents per pound, 10 cents
below a year ago, and down 3
1/2-cents on the month.
Monday saw the powder
lose a half-cent but inch back
up a quarter-cent Tuesday, to
82 1/2-cents per pound.
15
Capital Press
Earlier optimism for U.S.
milk prices has taken a turn
for the worse due to strong
milk production and slowing
dairy exports. But dairy econ-
omists at the University of
Wisconsin aren’t counting out
a potential rally in the cheese
market.
Milk production in the
U.S. was 2 percent higher in
July and August year over
year, and stocks of dairy prod-
ucts are fairly high, said uni-
versity economist Bob Cropp
during his latest Dairy Situa-
tion and Outlook podcast.
“That 2 percent is quite a
bit of milk, and markets are
responding to some of that,”
he said.
Prices for butter, cheese
and dry whey have also
dropped.
Futures prices on Class
III and Class IV milk have
dropped substantially in the
last month. CME contract
prices for both pushed $17.50
per hundredweight at the start
of August and dropped below
$16 for September.
Carol Ryan Dumas/Capital Press File
The outlook for milk prices has taken a dip, but dairy economists see the possibility of a rally in
cheese prices.
Part of the downward
pressure on prices is that
buyers are done with their
holiday shopping and are
weighing inventory and pro-
duction against sales opportu-
nities, said Mark Stephenson,
also a dairy economist at the
university.
Another factor is that U.S.
exports have slowed after in-
creasing for 12 months, par-
ticularly for nonfat dry milk.
And there’s a lot of compe-
tition from Europe and New
Zealand, Cropp said.
“Where the cheese market
is right now, we’re dropping
below $16 Class III price
here October, November and
December — unless we get a
rally,” he said.
And that can happen.
When prices are low, buyers
often stay out of the market to
see if they will go lower, he
said.
Last year, the cheese price
was about $1.50 a pound in
early October and went to
more than $1.92 in Novem-
ber. That sent the Class III
milk price from $14.50 per
hundredweight to $17.40, he
said.
If there is a rally, it’ll be
because of exports. Domestic
sales have been pretty good,
but the biggest portion of hol-
iday buying is over, Stephen-
son said.
“I just don’t see any way
for that to build very much
enthusiasm unless we have
the kind of opportunities for
sales of exports. So we’ll
have to look for the rally with
exports,” he said.
Cropp, however, is not
hopeful on that front, particu-
larly for milk powder.
World milk production is
just starting to grow. Looking
to next year, the export situa-
tion could have a dampening
effect on prices, he said.
Prices for Class III and
Class IV in the futures mar-
ket are in the high $15s for
the rest of the year and not
returning to the $16 level un-
til July of next year. That’s
a long way from prices pos-
sibly in the high $17s the
economists were forecasting
a month ago.
“I still think the cheese
market might improve a lit-
tle bit, so I’m staying in the
very low $16s … for the last
quarter and even in next year,
possibly. But it’s going to take
some strength in the cheese
market,” Cropp said.
USDA is expecting milk
production to grow 2 percent
next year, and exports could
be challenging if production
picks up in New Zealand
and the EU. So average milk
prices next year might not be
much better than this year, he
said.
LMIC: Cattle industry swimming upstream
By CAROL RYAN DUMAS
Capital Press
A build-up of the national
cattle herd, dynamics of in-
ternational trade and compe-
tition from pork and chicken
are making 2017 a transitional
year for the U.S. cattle indus-
try.
“We’re still swimming up-
stream against the current, and
that’s an environment where it
takes more decisive business
planning and more business
planning than when times are
easier,” Jim Robb, director of
the Livestock Marketing Infor-
mation Center, said this week
in an outlook video for North-
west Farm Credit Services.
The industry saw re-
cord-high prices in 2014 and
has been building the herd, but
prices have eroded since then.
While the worse seems to be
over, generally lower prices
— but not dramatic declines
— are expected for the next
couple of years, he said.
The floods in Texas —
which have been a disaster
for many producers and have
also damaged forage supplies
— and the drought probably
are not having an enormous
impact in the short term, but
they will likely push cattle to
market, he said.
In other areas, however,
some of the small-grains graz-
ing areas, wheat graze-out ar-
eas and those types of planting
programs are benefiting from
ample moisture.
“So it’s a mixed bag, one
that’s probably too early to
tell. (Although) certainly the
situation in Texas is very dif-
ficult for those producers,” he
said.
On the broader stage, Rus-
sia has stymied the world in
terms of exports there. Rus-
sia is not a big market for
U.S. beef, but its import ban
has an indirect impact as it
affects exporters in com-
petition with the U.S., he
said.
“So the world is very much
interrelated,” he said.
And there are other geopo-
litical uncertainties that could
have a positive or negative ef-
fect on U.S. beef, such as the
meat scandal in Brazil, rene-
gotiation of NAFTA, possible
renegotiation of the U.S.-Ko-
rea trade agreement and
U.S. actions against North
Korea.
There will be opportunities
for U.S. cattle producers, but
it’s a more difficult manage-
ment environment than when
cattle numbers are shrinking in
the U.S., he said.
In putting together financial
plans in the short term, cattle
producers will want to take ad-
vantage of opportunities when
they come along — such as
the run-up in prices since last
October until recently.
GDT plunges 2.4
percent
Tuesday’s Global Dairy
Trade (GDT) auction shift-
ed gears as a weighty 83.75
million pounds of product
made its way to the GDT, up
from 75.2 million pounds
Sept. 19, 73.9 million on
Sept. 5, and 71.1 million on
Aug. 15.
The weighted average for
products offered was down
2.4 percent, following a 0.9
percent increase last time
and a 0.3 percent increase
on Sept. 5.
Cheddar was up 1.9 per-
cent, following a 1.9 percent
drop last time, and rennet ca-
sein inched 0.9 percent high-
er, after it fell 2.4 percent in
the last event.
ROP-40-9-1/HOU