Mielke: Global forecast sees tighter supply, improved U.S. demand
By LEE MIELKE
For the Capital Press
The Agriculture Department's latest World Agricultural Supply and Demand Estimates report lowered its 2013 milk production forecast by 100 million pounds from last month, to 201.8 billion pounds, due to lower milk per cow in the first quarter. 2012 milk output totaled 200.3 billion, up from 196.2 billion in 2011.
With slightly lower forecast 2013 milk production and improved domestic product demand, price forecasts for cheese, butter, nonfat dry milk and whey were raised. As a result Class III and Class IV milk price forecasts are higher.
Look for the 2013 Class III to average $17.85-$18.35 per hundredweight, according to USDA, up from the $17.55-$18.15 expected a month ago, and compared to $17.44 in 2012 and $18.37 in 2011. The 2013 Class IV price is now projected to range $18.10-$18.70, up from the $17.35-$18.05 range expected last month. The Class IV averaged $16.01 in 2012 and $19.04 in 2011.
U.S. feed grain ending stocks for 2012-13 was projected higher this month as an increase in ending year corn stocks more than offset reductions for sorghum, barley, and oats. Domestic corn use for 2012-13 was projected 100 million bushels lower as a 50 million bushel increase in corn used to produce ethanol partly offset the lower projection for feed and residual disappearance. Larger-than-expected March 1 corn supplies, lower corn prices, and favorable margins for producing and blending ethanol limit the expected year-to-year decline in ethanol production during the second half of the marketing year.
Corn exports for 2012-13 were projected 25 million bushels lower reflecting the continued sluggish pace of sales and shipments and additional competition from Brazil and the Ukraine. Projected U.S. corn ending stocks were raised 125 million bushels. The projected ranges for the season-average corn price were lowered to $6.65-$7.15 per bushel. Soybean meal was unchanged, at $13.80-$14.80 per bushel, but soybean meal was dropped $10, to $415-$435 per ton.
The Cooperatives Working Together program accepted two requests for export assistance this week to sell 50,706 pounds of cheddar cheese and 661,387 pounds of butter to customers in Asia and the Middle East.
The U.S. dairy export picture is brighter in view of the New Zealand drought however. The April 9 Daily Dairy Report warned that the U.S. dollar rose to four-year highs against the Japanese yen April 8, and "the greenback is nearing the 100-yen mark."
"The dollar has gained more than 7 percent against the yen since Thursday," the DDR cautioned, when the new governor of the Bank of Japan promised to inject about $1.4 trillion into the Japanese economy in less than two years.
"The weakening yen is meant as a monetary policy tool to combat deflation and serves to make Japanese imports more expensive because the yen is used to buy products denominated in stronger foreign currencies. Japan is the third largest importer of U.S. cheese, behind Mexico and South Korea.
"The U.S. is poised to capitalize on rising export demand, as its competitors struggle with declines in milk production," the DDR wrote. "However, as global currencies weaken relative to the dollar, U.S. dairy products become less competitive relative to exports from nations with weaker currencies. The United States will likely gain market share from New Zealand, as its currency is also on the rise. But the opportunity for global dairy product exports could diminish, as import volumes from nations like Japan could decline along with their currencies."
DairyBusiness Update reports that absent another drought, dairy producers can look forward to moderating feed prices, according to two ag finance specialists who spoke at National Milk Producers Federation's National Dairy Producers Conference April 9 in Indianapolis. Farm Credit's Leland Strom is quoted as saying, "If we had a good crop year this year, I would not be surprised to see corn go sub-$4 per bushel."
"Things are lining up to be a bin buster," said Sam Miller, managing director of ag banking for DMO Harris, the eighth largest agricultural bank in the U.S. While he said corn could approach $4 per bushel, he adds the caveat: "You could have said the same thing a year ago at this time. There's a long way to go between now and harvest."
Chris Hurt, Purdue ag economist, told attendees the impact of the past three years of below-trend corn production, combined with federal renewable fuel policy, could finally come to an end. He projects a slowdown in corn demand from China and forecasts corn futures prices in the $4.50-$5.50 per bushel range for 2013-16, with soybean meal averaging about $350 per ton over the same period. He adds that "when corn and soybean prices moderate, crop acreage shifts to other crops, which also could help moderate alfalfa hay prices."
Attendees were also told that "the benefits of adopting the Dairy Security Act as part of the next farm bill will be obvious to farmers and policy makers as Congress begins assembling new agricultural policy this spring," according to a NMPF press release. Panelists agreed that the risk management approach embodied in the DSA "provides a cost-effective safety net for farmers."
University of Minnesota economist Marin Bozic reported that farmers who enroll in the DSA will find that the program "works as catastrophic risk insurance. It reduces extreme margin risk, as it pays you the most when you need it the most."
He said that farmers will likely view the risk of not enrolling in the program as far greater than being part of it. Regarding concerns that milk production growth could be restricted by the DSA's market stabilization component, Bozic told the crowd that producers using the three-month rolling base will experience milk production growth over the long term similar to if they were not part of the program.
DBU's Dave Natzke attended the conference and reported in Friday's DairyLine that attendees were told: "About 58 percent of U.S. dairy farm workers were born in a country other than the U.S., so dairy has a big stake in the current immigration reform debate. And, due to the political nature of that debate, immigration reform faces a small window of opportunity in the 113th Congress," according to Kristi Boswell, with the American Farm Bureau Federation.
Some key bipartisan congressional committees are expected to introduce immigration reform proposals this month, according to Natzke, "but, as we all know, agreement doesn't come easy for this Congress, and Boswell warned dairy co-op leaders if there is no consensus by August, this latest opportunity to provide dairy with a legal, stable workforce may be lost."
NMPF's Jamie Casteneda said Texas A&M University research shows dairy farms with foreign-born workers produce about 70 percent of all milk in the U.S. Through its membership in the Agricultural Workforce Coalition, NMPF is working with other groups to craft a plan that not only addresses the current dairy workforce, but helps develop a visa program to ensure an adequate dairy labor supply in the future.
The California Department of Food and Agriculture announced its May Class I milk price this week at $19.39 per hundredweight for the north and $19.66 for the south, down 10 and 11 cents respectively from April but $2.45 above May 2012. That put the 2013 northern average at $19.66, up from $18.03 at this time a year ago. The southern average, at $19.93, is up from $18.30 a year ago. The May Federal order Class I base price is announced by USDA on April 17.
The California Assembly Agriculture Committee postponed a hearing on a bill concerning the whey value in Class 4b milk price formulas until May 1. Originally scheduled for April 17, the hearing will begin at 1:30 p.m. in room 126 at the State Capitol, Sacramento, Calif., according to Western United Dairymen.
DBU reports that California Assemblyman Richard Pan, D-Sacramento, introduced AB 31 in December 2012 which would require the CDFA to more closely align the whey value in the California 4b formula with the regulated minimum price for whey found in surrounding states.
The formula could set the whey value at no less than 80 percent of the dry whey value used in federal market order minimum producer prices Class III milk. Both Class 4b and Class III milk are used to produce cheese. If approved by the Ag Committee, it would move to the Assembly Appropriations Committee for fiscal review, and then on to the Assembly floor for consideration by the 80-member chamber, says DBU.
Back to the futures
First half federal order 2013 Class III contracts portended a $17.41 average on March 1, $17.60 on March 8, $17.55 on March 15, $17.85 on March 22, $17.82 on March 29, $17.92 on April 5, and was trading around $18.03 late morning April 12, including the announced January, February, and March Class III prices.
Cash cheese continued its climb the second week of April. The blocks moved higher for the seventh consecutive session, closing Friday at $1.8375 per pound, up 7 1/2-cents on the week, 35 cents a year ago, and the highest it's been since November 2012. The barrels closed at $1.7550, up 6 1/4-cents on the week and 29 1/2-cents above a year ago. Nine cars of block found new homes on the week and eight of barrel. The lagging AMS-surveyed U.S. average block price jumped 3.8 cents, to $1.6593, while the barrels averaged $1.6412, down 0.9 cent.
The Daily Dairy Report explains that AMS prices "reflect the time lag built into in the survey process and the heavy influence of contract sales based on the prior week's average. Each week, manufacturers report all sales to the Dairy Product Mandatory Reporting Program with some exclusions. The DDR states that "because spot sales comprise a much smaller portion of total sales, it could take several weeks for the AMS prices to align with spot prices."
Cheese production across the country was mixed the first week of April, according to USDA's Dairy Market News. Midwest output remains strong as larger milk supplies and good component levels add to inventories.
Cash butter closed the week 3 cents higher, at $1.74, 31 1/2-cents above a year ago. Three cars sold this week. AMS butter averaged $1.6446, down 1.4 cents.
Cash Grade A nonfat dry milk saw another week of gain, closing Friday at $1.78, up 9 3/4-cents and the highest it's been since March 2011. Twelve cars sold on the week. Extra Grade closed at $1.68, up 9 cents. AMS powder averaged $1.4920, down 1 1/2-cents, and dry whey averaged 58.73 cents, up 0.8 cent.
And, as I reported last week, fluid milk sales remain a challenge to turn around. DMN reports that January fluid sales totaled 4.57 billion pounds, down 1.4 percent from January 2012. After adjusting for calendar composition, sales totaled 4.55 billion, down 2.1 percent. That means more milk to the cheese vat.