Dry dairy prices begin 2018 at multi-year lows

by Ron Sterk
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Ron Sterk

U.S. dry dairy product prices ended 2017 down 20% to 50% for the 12 months, representing one of the weakest sectors of ingredient markets for the year. Even butter and cheese prices weakened amid strong demand and tight supplies (though full-year average prices were higher). The question is, what does 2018 have in store for a market in which production of the main raw material — milk — continues to increase?

“High stocks have continued to pressure prices lower, especially for products with high skim-solids content,” the U.S. Department of Agriculture said in its December Livestock, Dairy and Poultry Outlook, based on October data, which then was the most recent available. October ending stocks on a milk-fat milk-equivalent basis were up 1% from October 2016 and on a skim-solids, milk-equivalent basis were up about 23%, the U.S.D.A. said.

As a result, the U.S.D.A. in its Outlook and in its December World Agricultural Supply and Demand Estimates report lowered or left unchanged from November its estimated milk and dairy product prices for 2017 and lowered from November all price forecasts for 2018, which already were below 2017 estimates except for cheese and butter, which showed a wide range both above and below the 2017 estimated ranges.

Milk production line
The U.S.D.A. lowered or left unchanged from November its estimated milk and dairy product prices for 2017 and lowered from November all price forecasts for 2018.
 

Most expect U.S. prices in the dairy sector to hit bottom in 2018 as low milk prices finally encourage farmers to slow the rate of dairy cow herd expansion, but the change isn’t expected to be large or fast. The U.S.D.A. forecast the dairy herd at the end of 2018 at 9,435,000 head, up 40,000 head from the end of 2017 but smaller than an increase of 67,000 head in 2017. Total milk production in 2018 was forecast at 219,300 million lbs, down 400 million lbs from the November forecast but up 3,600 million lbs, or 1.7%, from 2016, compared with an increase of 3,300 million lbs, or 1.6%, in 2017 as higher milk output per cow boosts the 2018 total.

Even though dairy cow numbers at the end of November were up 53,000 head, or 0.6%, from a year earlier, dairy cow slaughter also has increased this year. January-November slaughter totaled 2,741,100 head, up 4% from the same period last year, according to U.S.D.A. data, suggesting older cows were being culled.

The U.S.D.A. in December forecast milk prices to average $17.05 a cwt (midpoint of forecast price range) in 2018, down 3.4% from $17.65 a cwt in 2017. Prices of the four products used to determine milk prices were mixed but mostly lower. Butter prices were forecast to average $2.32½ a lb, down just a half cent from 2017, with cheddar cheese at $1.66 a lb, up 2.5c. Dry product forecasts were lower, though, with dry whey at 32½c a lb, down 12c, or 27%, from 2017 and nonfat dry milk at 77½c a lb, down 9c, or 10%.

Milk product prices chart
 

The U.S. market also must contend with international milk production and dairy product supplies and prices. In its December Dairy: World Markets and Trade report, the U.S.D.A. noted that for the January-November period, global whole milk powder (W.M.P.) prices were down 12% from the same period a year earlier, skim milk powder (S.M.P.) was down 28%, butter was up about 40% and cheese was up about 10%. Butter prices hit a record high $8,140 per tonne in Europe with shortages reported in some countries.

“What is particularly striking is the differential between butter and S.M.P. underscoring the premium that milk fat now commands in response to changing consumer preferences,” the U.S.D.A. said.

“For 2018, the price outlook points to a continued sharp correction in butter prices, although strong consumer demand should keep prices from dropping far below $4,000 per tonne,” the U.S.D.A. said of global prices. “Cheese and W.M.P. will likely decline moderately while S.M.P. prices will continue to struggle at prices below $2,000 per tonne due to ample exportable supplies in the European Union and the United States.”

The U.S.D.A. forecast 2018 milk production to increase 1% in the five major exporting countries/regions and 1.8% globally from 2017. Abundant domestic and global grain supplies, resulting in low feed prices, were noted as a contributing factor in increased milk production.

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