US trade data released for the month of July suggest that the high-valued US dollar exchange rate continues to create a drag on US exports of red meat and dairy products.
USDA lowered projected dairy exports from last month’s forecast on both the milk-fat and skim-solids milk-equivalent bases.
While other domestic economic factors work to slow US shipments abroad – strong domestic demand for US dairy products, for example – the high-valued US dollar effectively reduces the competitiveness of US products in foreign markets by raising their prices for foreign buyers.
Import forecasts have been raised on a milk-fat milk-equivalent basis. Forecasts for the all-milk price have been raised to $16.80-$17.00/cwt for 2015 but lowered to $16.10-$17.10/cwt for 2016.
Recent developments in dairy markets
Dairy exports fell from June to July on both the milk-fat and skim-solids milk equivalent bases, reflecting weak global demand and competition from foreign countries. Products with significant month-over-month declines in exports included milk powder, fresh cheese, and cream.
Dairy imports increased from June to July on a milk-fat milk-equivalent basis.
Products with significant month-over-month increases in imports included butter, anhydrous milk fat (AMF), and cheese. On a skim-solids basis, imports declined on a month-over-month basis, with imports of milk protein concentrate (MPC) showing the greatest decline.
The US domestic nonfat dry milk price (NDM) averaged $0.744/lb in August, the lowest monthly price since June 1988.
The price reached a low point of $0.736/lb for the week ending August 22 but increased to $0.755 for the week ending September 5.
The domestic dry whey price averaged $0.311/lb in August, the lowest monthly level since September 2009. The price fell from $0.355 for the week ending August 8 to $0.269 for the week ending September 5.
Export prices of major competitors for skim milk powder (SMP) and dry whey were similar for August. SMP prices for Oceania and Western Europe were $0.737 and $0.798/lb, respectively. The Western Europe dry whey export price for August was $0.303/lb.
In contrast to NDM and dry whey, butter showed large differences between the August US domestic price and foreign export prices. The US domestic price was $2.044/lb, while the Oceania and Western Europe export prices were $1.24 and $1.28/lb, respectively. The over-quota tariff for butter is about $0.70/lb.
With large gaps between foreign and domestic prices, some importers have found it economical to import at the over-quota tariff rate. In recent months, most of the butter was imported at the relatively high over-quota tariff rate.
In recent weeks, domestic butter prices have moved further upward, reaching $2.229 for the week ending September 5, as reported in the USDA National Dairy Product Sales Report.
The domestic cheddar cheese price in August was $1.739/lb, notably higher than the Oceania export price of $1.35/lb, but not high enough to attract substantial quantities of over-quota imports at the high-tier tariff for cheddar cheese of about $0.58/lb.
USDA National Agricultural Statistics Service (NASS) revised milk production higher for June, increasing milk cows by 4000 head and yields by 4lb a cow. Milk production in July was 1.2% higher than the previous year, larger than the 0.9% year-over-year increase in June.
Feed price situation for dairy
The 2015-16 forecast for corn is raised from last month to $3.45-$4.05 a bushel. The soybean meal price forecast is unchanged at $310-$350 per short tonne. The alfalfa hay price fell from $178 to $169 per short tonne from June to July.
Dairy forecasts for 2015
With low international prices and weaker exports in July, dairy export forecasts for 2015 have been lowered from last month’s forecasts to 9.1 billion pounds on a milk-fat basis (-0.7 billion pounds) and to 38.6 billion pounds on a skim-solids basis (-0.9 billion pounds). Forecasts for imports have been raised to 5.9 billion pounds on a milk-fat basis (+0.2 billion pounds) but are unchanged at 6.6 billion pounds on
a skim-solids basis.
Based on recent data, the milk production forecast for 2015 has been increased to 208.9 billion pounds, 0.1 billion pounds higher than forecast last month and a year-over-year increase of 1.4%. Milk cows are forecast at 9.320 million head, and milk per cow at 22,420 pounds.
The forecast for domestic commercial disappearance on a milk-fat basis has been increased to 203.8 billion pounds (+0.8 billion pounds), largely due to expectations of greater demand for butter and cheese. The forecast for domestic commercial disappearance on a skim-solids basis has been raised to 175.9 billion pounds (+1.0 billion pounds), based upon higher expected demand for NDM and cheese.
With recent higher prices for butter and the higher expected demand for butterfat products, the 2015 butter price forecast has been raised to $1.915-$1.955/lb.
The NDM price is forecast at $0.880-0.900/lb, with an expectation of a rebound in the remainder of the year. The cheese price is forecast at $1.645-$1.665/lb, an increase from last month, and the whey price is forecast at $0.380-
$0.400, a decrease from last month.
The 2015 Class III milk price forecast is lowered to $15.80-16.00/cwt due to the lower whey price forecast. With the higher price forecasts for butter and NDM, the Class IV milk price forecast is raised to $13.55-$13.85. The higher Class IV milk price more than offsets the lower Class III milk price, resulting in an all-milk price forecast of $16.80-$17.00 per cwt, an increase from the $16.75-$16.95 forecast last month.
Dairy forecasts for 2016
Lower exports of dairy products, compared to last month’s forecasts, are projected to continue in 2016. Commercial exports are projected at 10.0 billion pounds (-0.7 billion pounds) on a milk-fat basis and 39.5 billion pounds (-0.2 billion pounds) on a skim-solids basis. The forecast for imports on a milk-fat basis have been raised to 5.7 billion pounds (+0.3 billion pounds), while the forecast for imports on a skimsolids basis is unchanged at 6.4 billion pounds.
The milk production forecast for 2016 is 213.0 billion pounds, unchanged from last month. The forecast for domestic commercial disappearance on a milk-fat basis has been raised to 207.8 billion pounds (+1.1 billion pounds) due to higher expectations of butter demand and, to a lesser extent, cheese demand. The forecast for commercial disappearance on a skim-solids basis has been raised to 178.6 billion pounds (+0.2 billion pounds). The forecasts for ending stocks have been raised by 0.1 billion pounds on a milk-fat basis and are unchanged on a skim-solids basis.
With continued firm expected butter demand, the forecast for the 2016 butter price has been raised to $1.785-$1.915. The cheese price forecast has been lowered to $1.590-$1.690, as higher expected cheese production may pressure prices despite growing domestic demand. The NDM price forecast of $0.950-$1.020 is unchanged from last month. The dry whey price forecast has been lowered to $0.345-$0.375, reflecting relatively weak domestic demand and lower expectations for exports.
With lower cheese and whey price forecasts, the Class III price forecast for 2016 is lowered to $15.00-$16.00/cwt. With the higher expected butter price forecast, the Class IV price has been raised to $13.60-$14.70/cwt. The lower projected Class III price more than offsets the higher Class IV price, resulting in an all-milk price forecast of $16.10-$17.10/cwt, a reduction from $16.40-$17.40 forecast last month.
Enrollment in Margin Protection Programme for dairy producers
The Margin Protection Programme for dairy producers (MPP-Dairy) is a voluntary risk management programme that offers protection to dairy producers when the difference between the all-milk price and the average feed cost (the margin) falls below a specified dollar amount selected by the producer. The deadline for enrolling in MPP-Dairy for 2016 is September 30, 2015.
