WASDE: U.S. Milk Output will Slow but Remain at Record Levels
Weak international prices and the strong dollar will hinder U.S. dairy exports in 2015.
USDA today lowered its estimate for 2015 U.S. milk production by 1.1 billion pounds from last month’s projection, but its forecast for 210 billion pounds still reflects record output.
Dry conditions in the West will likely constrain growth in per-cow output, resulting in lower production, USDA said in its monthly World Agricultural Supply and Demand Estimates report.
AgDairy Market’s Robin Schmahl, a dairy and commodities trader, doesn’t agree with USDA’s assessment of lower per-cow output. “Producers I talk to will be pushing production as much as they can because of lower milk prices,” said Schmahl.
More than likely, USDA looked at the slower growth trend in milk production, starting with January’s 2.2% increase over year-earlier levels, he said. That was followed by February’s milk production, which reflected only 1.7% growth from February 2014.
Still, USDA’s prediction for 210 billion pounds of milk production this year is a sizeable 4 billion pounds over 2014, Schmahl pointed out.
Noting that U.S. dairy exports remain hampered by relatively weak international prices and the strong dollar, USDA pegged this year’s overseas sales at 10.7 billion pounds, down slightly from last month’s 10.8 billion pound estimate.
Many dairy buyers and manufacturers have developed “a hoarding mentality,” Schmahl said, as they remember the record-high prices they paid last year for dairy products. “They’re building stocks, buying what they need plus some,” he said. “They have confidence in holding more products.”
Hindering U.S. dairy exports are America’s higher butter and cheese prices compared to international levels. U.S cheese prices are trading at about $1.58 per pound, compared to $1.26 in the last Global Dairy Trade auction. Likewise, U.S. butter has been selling for $1.75 per pound, compared to global prices of $1.48, Schmahl said.
Product price forecasts for butter and cheese are raised on domestic demand strength, said USDA.
USDA lifted its 2015 Class III price estimate on the strength of cheese prices, to a range of $16.20-$16.70 per cwt., up 15-25 cents per cwt. from the March estimate. The Class IV price, estimated at an average of $14.75 per cwt., dropped “as a lower NDM price more than offsets a higher butter price,” USDA said.
Next year’s butter price could reach $1.785 per pound, while cheese may climb to $1.675 per pound, USDA estimated. It gauged NDM as high as $1.130 per pound. The whey price was unchanged from last month at 49-52 cents per pound.
The 2015 All-Milk price forecast, at $17.10 to $17.60 per cwt., is slightly higher than March’s outlook.
Schmahl agrees with USDA on these price levels. “Where futures are now is a good indication of where they may stay,” he said.
