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DairyBusiness Update: August 18, 2014


USDA Dairy Outlook: August 18, 2014
   As it always does, USDA’s monthly Livestock, Dairy, and Poultry Outlook, issued this morning, mirrored dairy projections contained in the latest World Agricultural Supply and Demand Estimates report issued August 12. Milk production was raised in this month’s forecast for both this year and next, mostly on higher output per cow. Milk and feed prices continue to favor higher milk production. Fat-basis exports were trimmed for both this year and next, while skim-solids basis exports were raised fractionally in both years. Prices were increased this month for most products and milk. Year-over-year, milk and product prices will be lower next year, says USDA.
   Record corn yields due to excellent growing conditions have led to a record production forecast of 14.0 billion bushels. Higher forecast production lowers the 2014/15 corn price forecast from last month to $3.55-$4.25 per bushel.
   The soybean supply and use balance for 2014/15 is changed fractionally on slightly higher production. The soybean meal price forecast for the 2014/15 year is lowered from last month to $340-$380 per ton. The attractive feed and milk prices have provided an incentive for producers to raise milk production.
   Forecast milk cow numbers are unchanged from July at 9.26 million head for 2014 and 9.34 million head next year. High replacement heifer prices and strong cull cow prices may have dampened the expansion. Milk per cow is increased from July for both this year and next to 22,250 and 22,760 pounds, respectively, based on relatively lower feed costs and improved forage in much of the Country.
   Milk production is increased slightly from July to 206.0 billion pounds in 2014 and to 212.5 billion pounds next year.   Fat-basis milk equivalent imports are raised by 200 million pounds for August to 3.7 billion pounds for this year and by 100 million pounds to 3.6 billion pounds for 2015, based on high U.S. butterfat prices relative to world prices. The skim-solids import forecasts are unchanged from last month at 5.2 billion pounds in 2014, falling to 5.1 billion pounds next year.
   Fat-basis exports are lowered to 12.8 billion pounds for 2014, based on lower shipments of butter and cheese. Fat-basis exports are lowered this month to 11.8 billion pounds for 2015. Butterfat exports in June were well below year-earlier levels as U.S. prices are uncompetitive with world prices. Russia’s announced ban on agricultural imports from a number of dairy-exporting countries, including the United States, will likely increase competition for sales to other markets. Although U.S. dairy exports to Russia are small, Russia has been a large destination for butterfat exports from the European Union (EU) and has accounted for nearly a third of EU cheese exports in recent years.
   Current-year skim-solids exports are bumped up from last month to 40.6 billion pounds on the basis of nonfat dry milk (NDM) and whey exports, which continue to exceed expectations despite strong world competition. Skim-solids exports are lowered slightly to 39.0 billion pounds in 2015 on continued strong global milk production and increasing global competition.
   Fat-basis ending stocks are raised slightly in August for 2014 on higher milk production, although stocks are lower on a year-over-year basis. Fat-basis ending stocks are unchanged from July 2015 as continued strong domestic use is expected to absorb increased milk production. Skim-solids ending stocks are forecast unchanged from July for this year and are expected to climb slightly next year on higher production and lower retreat.
   Product price projections for cheese, butter, NDM, and whey are raised from July on continued strong domestic and world demand. Cheese prices are forecast at $2.050-$2.070 per pound for the current year but are unchanged from July at $1.670-$1.770 a pound for 2015. Butter prices are record-high, and U.S. domestic prices have charged ahead of world prices. Butter prices are projected at $2.040-$2.080 this year and for 2015 are forecast higher this month than July’s projection at $1.655-$1.785 a pound; however, the forecast represents a sharp year-over-year decline as butter stocks will likely build by year-end. The NDM price is expected to be $1.845-$1.865 a pound in 2014 and to fall to $1.605-$1.675 next year as the domestic price begins to reflect recent declines in the Oceania butter price. NDM exports continue apace, supporting the high price this year, but prices are expected to weaken next year. Exports are also contributing to stronger prices for whey, which is forecast at 64.0-66.0 cents a pound this year. Lower exports will lead to whey prices softening next year to an average 56.5-59.5 cents a pound.
   Milk prices follow the pattern of the dairy product prices, high this year and falling in 2015. Class III milk prices for 2014 are increased from July to $21.25-$21.45 per cwt this year and to $17.00-$18.00 per cwt in 2015. However, on a year-overyear basis, prices are sharply down on lower export prospects and higher expected milk production. Current-year Class IV prices were raised this month to $22.35-$22.65 per cwt and are then expected to fall to $18.70-$19.80 per cwt in 2015, an unchanged forecast from July. The all milk price is forecast at $23.55-$23.75 per cwt, an increase from the July forecast. Next year, the all milk price is expected to slip to $19.75-$20.75 per cwt, unchanged from last month’s forecast.
   To view the entire report log on to http://www.ers.usda.gov/media/1550226/ldpm242.pdf.

Quick Glance:
Quarterly and annual milk prices and projections
Year            All milk        Class III          Class IV




























































































                                     2012    2013    2014  1st     2nd  3rd     4th     2015  1st     2nd
Milk Output (bil.lbs.)  200.5   201.2   206.0 51.0 52.8  51.0  51.2  212.5  52.8  54.4  
Cow #s (mil)                 9.23     9.22    9.26   9.21  9.25  9.28  9.30   9.34   9.32  9.33

Corn Crop 51% in Good Condition
   The Agriculture Department’s latest Crop Progress report, issued this afternoon, shows that 21% of the nation’s corn is rated in excellent condition, as of the week ending August 17. That’s unchanged from the previous week and compares to 17% a year ago. Fifty one percent is rated good, down from 52% the previous week, and compares to 44% a year ago. The 18 states which comprised 91% of the 2013 crop and their current rating are listed below:

State                               Week Ending   August 17, 2014

                Very poor           Poor          Fair          Good       Excellent  
Colorado      1%                   5%          23%          52%        19%
Illinois           1%                   4%          15%          51%        29%
Indiana         1%                   5%           21%         52%        21%
Iowa             2%                   5%          18%          51%        24%
Kansas         5%                   9%          30%          42%        13%
Kentucky      5%                  13%         24%          46%        12%
Michigan       2%                   7%          19%         56%        16%
Minnesota     1%                   6%          25%         55%        13%
Missouri        -                       2%          15%         49%         34%
Nebraska      3%                   6%          21%         50%         20%
N Carolina    3%                  12%         24%          45%        16%
N Dakota      1%                    4%         17%          56%         22%
Ohio              1%                   4%          20%         53%         22%
Penn.            1%                   3%          16%         47%         33%
S Dakota       2%                   5%          24%         56%         13%
Tennessee    -                       5%          19%         54%         22%
Texas           1%                    5%          29%         49%         16%
Wisconsin     3%                    9%          21%        46%          21%

   The report shows 70% is in the dough stage, up from, 54% the previous week, 49% a year ago, and 7% ahead of the five year average. Twenty two percent is showing dent, up from 11% a week ago, 10% a year ago but 5% behind the five year average.
   Ninety five percent of the soybean crop was blooming, as of the week ending August 17, up from 92% the previous week, up from 91% a year ago, and dead even with the five year average. The report shows 83% of the crop is setting pods, up from 72% the previous week and 70% a year ago, and is 4% ahead of the five year average. Seventeen percent of the soybean crop is rated as excellent, with 53% rated as good.
   There is 88% of the cotton setting bolls, up from 83% the previous week, up from 83% a year ago, and even with the five-year average. The report shows 12% of the cotton has bolls opening, up from 7% a week ago, 8% a year ago, and dead even with the five year average. The report indicates that 11% of the cotton crop is rated in excellent condition and 39% as good.

Some Thoughts on Corn and Soybean Acreage
   The University of Illinois’ Dr. Darrel Good writes in his latest FarmDocDaily posting that the debate about the likely size of the USDA's final estimate of the 2014 U.S. average corn and soybean yields continues, with the market apparently anticipating that those estimates will exceed the August forecasts, particularly for corn. At the margin, the size of the crops will also be influenced by the magnitude of harvested acreage.
   The first acreage issue is the magnitude of planted acreage and the second is the magnitude of harvested acreage. The current planted and harvested acreage forecasts are based on the June USDA surveys, adjusted for any new information revealed in the August crop production surveys. The August forecasts were unchanged from the June forecasts. History suggests that final acreage estimates will differ from current forecasts, with the direction and magnitude of those changes being the issue.
   Since 1996, when agricultural policy changed to accommodate more planting flexibility, the final estimate of corn planted acreage ranged from 2.014 million acres less (2013) to 750,000 acres more than the June forecast.  The difference exceeded one million acres in only four of the 18 years from 1996 through 2013. The average difference was a decline of 432,000 acres, statistically not different from zero. However, the final estimate was below the June forecast in 13 of the 18 years. The larger declines were in years of late planting, but not all late planted crops resulted in large declines from the June forecast to the final estimate. During that same time period, the final estimate of soybean planted acreage ranged from 1.464 million acres less (2010) to 1.185 million acres more (2008) than the June forecast. The difference exceeded one million acres in six of the 18 years. The average difference was a decline of 141,111 acres, statistically not different from zero. However, the final estimate was below the June forecast in 11 of the 18 years from 1996 through 2013. The difference between the June forecast and the final estimate of planted acreage during that period was not correlated to either the lateness of corn or soybean planting.
   For the current year, a larger than average percentage of the corn acreage in the 18 major corn producing states was planted late (defined here as after May 20).  Much of the late planting was in northern and eastern states. A late planted crop along with the historical tendency for the final estimate of planted acreage to be less than the June forecast suggest that the final estimate this year will likely be below the June forecast of 91.641 million acres. The average difference in the 13 previous years of a drop in acreage estimates from June to final was 690,000 acres, in a range of 28,000 to 2.014 million.  The average excluding the large decline last year was 580,000 acres. A decline of 500, 000 to 700,000 acres would not be a surprise this year. The checkered pattern of historical differences between the June forecast and final estimate of planted acreage of soybeans provides little guidance for forming expectations this year. The tendency since 1996 for the final estimate to be less than the June forecast may influence expectations for acreage to be below the June forecast of 84.839 million acres. In those years since 1996 when the final estimate was less than the June forecast, the average difference was 705,800 acres, in a range of 32,000 to 1.464 million acres.
   The USDA's Farm Service Agency (FSA) released its first report of planted and prevented acreage on August 15. Estimates in that report are based on required acreage certification by those producers participating in federal commodity programs.     
   The August report, however, provides little guidance for forming expectations about changes in acreage forecasts by the USDA's National Agricultural Statistics Service (NASS) for two reasons. 
   First, the FSA report reflects only acreage certifications to date. Those numbers will increase by an unknown amount in future reports.  Last years' experience suggests that the September estimates, and certainly the October estimates, will be very close to the final estimates. Second, the magnitude of prevented acreage that was already reflected in the NASS June acreage forecast is not known.
   From 1996 through 2013, the difference between planted acreage of corn and acreage harvested for grain averaged 7.464 million acres, in a range of 6.585 million (1996) to 9.78 million (2012).  That difference has increased by a very modest amount over time as total corn acreage has increased, and tends to vary by the nature of the growing season. The large difference in 2012, for example, reflected widespread dry conditions with more acreage harvested for silage or abandoned. Based on the USDA's June surveys, the difference between planted and harvested acreage this year is forecast at 7.802 million acres, about equal to the trend value. The actual difference should be within a few thousand acres of the forecast.
   For soybeans, the difference between planted and harvested acreage averaged 1.095 million acres, in a range of 595,000 acres (2007) to 1.858 million acres (2000). The difference has trended lower over time. Based on the USDA's June surveys, the difference between planted and harvested acreage this is forecast at 781,000 acres.  That is nearly 200, 000 acres less than the trend value for this year. Based on reports of more than the normal amount of acreage lost to flooding, the actual difference may be closer to trend value.
   While average yield will be the driver of the size of the 2014 U.S. corn and soybean crops, harvested acreage may be marginally less for both crops than currently forecast.

Cheese Demand Still Strong
   Cheese production is declining, except in the West, where production is mostly steady, reports USDA’s Dairy Market News. Although milk production is declining in most of the country, some Midwest and Western manufacturers with multiple product options are shifting milk from nonfat dry milk into cheese, attracted by current increasing cheese prices in contrast with weakening prices for some dry dairy products.
   As Labor Day draws closer, barrel cheese remain tight in the Midwest due to lower than expected production, which will cause some order deliveries to be slightly reduced. U.S. demand for imported and foreign type cheeses is steady for this time of year with some good orders for blue, gorgonzola and Swiss cheeses. The Foreign Agricultural Service (FAS), reports that January – June 2014 U.S. cheese and curd exports totaled 438.7 million pounds, a 34 percent increase from last year.

Butter Marketers in Catch 22 Situation
   USDA called the butter market tone firm. Production levels vary as churn operators’ decisions are mixed on handling cream supplies. Spot load availability of cream improved following increased skimming as more schools start. Manufacturers realize inventory levels are not where they need to be to fill upcoming demand. However, a few are hesitant to overstock with the potential of stored supplies depreciating. U.S. butter prices diverged in relation to the European and Oceania butter markets, slowing export sales. Domestic retail demand is active.

Fluid Going to School
   Milk production is holding steady in the Midwest, Northeast and Mid-Atlantic States, according to USDA’s weekly update, and is moving lower in most of the West and Florida; but has increased slightly in some parts of the Southeast. Florida suffered from up to 6 inches of rain over three days, leaving pastures muddy with moisture contributing to heat indexes over 100.
   Demand from schools and educational institutions is a factor drawing increasing volumes of milk into bottling use in all areas. Some powder manufacturers are looking to sell milk rather than dry it. In the West, some cream loads are staying within state borders due to discrepancies in cream pricing bases.

Mielke Market Daily 
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update Associate Editor Lee Mielke)
   Cash traders are anticipating tomorrow’s Global Dairy Trade and July Milk Production report, but after solid gains in cash cheese last week, they started the week on a down note. The block Cheddar was down 3.5¢ this morning, to $2.1850/lb., on one lonely offer, but the barrels were unchanged at $2.21/lb., with no activity. The inverted spread is back and is at 2.5¢.
   FC Stone risk management consultant, Chris Hildebrand, wrote in this morning’s Insider Opening Bell: “Barrel cheese tightness in the mid-west is still a concern for traders, and may continue to be an underlying theme for the trade this week."
   Cash butter saw a little melt down this morning as well, as product continues to find its way to Chicago, dropping 2.5¢, following a skyrocketing 26¢ gain last week. Spot butter today is at $2.6350/lb. and you could bet a trainload that tomorrow’s GDT butter price won’t be anywhere near that level. Sixteen loads traded hands this morning, with the first five loads selling at $2.61/lb., but the price inched higher from there. An offer at $2.64/lb. was left on the board.
   Cash Grade A nonfat dry milk saw its 11th consecutive session of loss today, down 2.25¢, to $1.3750/lb. A bid at $1.35/lb. went nowhere, nor did an offer at $1.3750/lb.
   Dairy Market News says powder inventories are growing. Central and Western manufacturers are diverting some milk from nonfat dry milk into higher returning production such as cheese. European and Oceania markets moved lower, putting downward pressure on U.S. prices.

Today’s Market Closing Prices
Butter: Down 2.5¢, to $2.6350/lb.
Cheddar blocks: Down 3.5¢, to $2.1850/lb.   
Cheddar barrels: Unchanged, at $2.21/lb.
Grade A nonfat dry milk: Down 2.25¢, to $1.3750/lb.  
Class III milk (prelim.): Aug. $22.10/cwt., -6¢; Sept. $22.43, -21¢, Oct. $20.94, -16¢; Nov. $19.71, -11¢; & Dec. $18.96, -7¢. Based on today’s CME settlements, the Fourth Quarter 2014 average now stands at $19.87, -11¢ from Friday. The First Quarter 2015 average is now at $18.04, -9¢ from Friday. The Second Quarter 2015 average today stands at $17.92, -3¢ from Friday.
Looking ahead:
   The Global Dairy Trade auction is tomorrow morning. USDA issues its preliminary July Milk Production report tomorrow afternoon. The September Federal order Class I base milk price is announced by USDA Wednesday afternoon and the weekly National Dairy Products Sales Report is issued. The monthly Livestock Slaughter report is out Thursday and preliminary data from the July Cold Storage report is issued Friday afternoon.

Tuesday on DairyLine:
   FC Stone dairy economist, Bill Brooks, discusses the current butter price.
   It’s back to school time with Diane Pratt-Heavner from the School Nutrition Assn.