Dairy product prices at multi-year lows

by Ron Sterk
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Cheese and butter prices were lower, but not to the degree of dry products, supported by strong demand.

Domestic prices for some dry dairy products sank to six-year lows in mid-July, and some milk powder prices were at 13-year lows in international markets. Cheese and butter prices also were lower, but not to the degree of dry products, supported by strong demand.

Just as the U.S. dairy program and the formula to arrive at milk pricing is complicated, the current dairy market is no less complicated due to the combination of domestic and international trade and pricing and the mix of milk-equivalent milk-fat basis (butter and cheese) and milk-equivalent skim-solids basis (dry products) demand and trade, strength in the dollar and other factors.

Ample milk supplies and competitive domestic prices to lower international prices have pressured values in the United States, while reduced buying by China and Russia’s ban on imports beginning Aug. 6, 2014 (which recently was extended to August 2016), have contributed to lower prices globally.

Domestic values in mid-July for benchmark nonfat dry milk (low/medium-heat) were down 55% from a year ago with dry products overall down about 45% to 60%. Prices were the lowest since October 2010 (dry whey) to March 2009 (buttermilk powder), with lows for other products falling into that range.

Mid-July U.S. butter prices were down about 25% and cheese prices (CME Group cheddar barrels and blocks) were down 20% to 25% from a year ago but were only around three-month lows.

The U.S. Department of Agriculture in its July World Agricultural Supply and Demand Estimates forecast U.S. milk production at a record 208.8 billion lbs in 2015, up 100 million lbs from its June forecast and up 1.4% from 2014. Production in 2016 was projected at 213.6 billion lbs, down 300 million lbs from June but up 2.3% from this year.

“The milk production forecast for 2015 is raised on a slightly more rapid increase in cow numbers and milk per cow,” the U.S.D.A. said. “However, higher expected feed prices and weaker milk prices during late 2015 and 2016 are expected to temper the rate of growth in production and the 2016 production forecast is lowered.”

Milk production in the first six months of 2015 totaled 105,564 million lbs, up 1.6% from the same period in 2014, although the rate of increase in the second quarter slowed from the first quarter, the U.S.D.A. said in its July 21 Milk Production report. June production of 17,445 million lbs was up only 0.7% from June 2014, compared with January production at 17,680 million lbs up 2.3% from January 2014. Contributing to the slower increase has been steadily declining production in top-producing California due to the ongoing drought, as well as consistently lower outturn in Washington, Oregon, New Mexico and Texas. June production in California was down 4.3% from June 2014.

The U.S.D.A. expects sharply lower U.S. milk prices in 2015. The 2015 average all-milk price was forecast in a range of $17.05 to $17.35 a cwt, down 28% (midpoint) from $23.97 a cwt in 2014. The all-milk price low was thought to be set in the second quarter, with modest increases forecast for the third and fourth quarters.

Cheese prices were forecast to average between $1.65 and $1.68 a lb in 2015, down 23% from 2014; butter prices were forecast at $1.81 to $1.87 a lb, down 14%; nonfat dry milk prices were forecast at 95½c to 97½c a lb, down 48%; and dry whey prices were forecast at 44c to 46c a lb, down 31%. Cheddar and butter prices were seen firming in the second half of the year, while nonfat dry milk and dry whey values were expected to weaken further, especially in the third quarter.

The U.S.D.A. forecast 2015 U.S. exports on a skim-solids basis at a record 39.7 billion lbs, up 500,000 million lbs from the 2014 record, based on low nonfat dry milk prices in the United States. Exports on a milk-fat basis, though, were forecast at 10.5 billion lbs, down 16% from 2014. At the same time, imports on both a skim-solids and a milk-fat basis were expected to increase in 2015. The increase was attributed at least in part to the European Union’s search for buyers due to Russia’s ban on imports.

In 2016, the U.S.D.A. expects U.S. prices for dry products to recover modestly, cheese to remain about flat and butter values to soften slightly. The all-milk price also was forecast to increase from 2015.

The global market remains complicated but some trends are evident.

“Markets are adjusting as the low product prices are being transmitted to farmers as lower milk prices,” the U.S.D.A. said in its July Dairy: World Markets and Trade report. “Consequently, milk production forecasts for a number of countries have been scaled back.”

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