DairyBusiness Update for 12.16.13Print
USDA dairy outlook: December 2013
As it always does, USDA’s monthly Livestock, Dairy & Poultry Outlook report mirrored dairy projections contained in the World Ag Supply & Demand Estimates (WASDE) report, released Dec.10.
Dairy product prices are generally higher both in 2013 and 2014. However, current-year cheese prices were lowered from last month to $1.760-$1.770/lb., based on year-to-date reported prices. Cheese prices for 2014 were raised this month from November to $1.690-$1.770/lb. Butter prices are raised for both 2013 and 2014 from November to $1.530-$1.560/lb. and $1.500-$1.610/lb., respectively. Similarly, NDM prices are raised to $1.695-$1.715/lb. in 2013 and $1.715-$1.775 per pound next year. Whey prices are boosted to 58.5-59.5¢/lb. in 2013 and to 55.0-58.0¢//lb. in 2014, although this represents a year-over-year decline in whey prices. Strong demand both internationally and domestically for dry products supports the higher December forecast prices.
The Class III price forecast for 2013 is unchanged from November at $17.90-$18.00 per cwt, but is raised for 2014 to $17.05-$17.85/cwt. based on higher cheese and whey prices. The Class IV price for 2013 is raised from last month to $18.95-$19.15/cwt. and is raised for 2014 from last month to $19.00-$19.90/cwt.
The better Class IV price outlook is due to higher forecast NDM and butter prices next year. The all milk price is increased from November to $19.90-$20.00/cwt. for this year and raised for 2014 to $19.70-$20.50/cwt.
Outlook: Cows and heifers
One area of the USDA’s monthly Livestock, Dairy & Poultry Outlook report where additional information was supplied concerned cows and replacement heifers, left in question with the government shutdown and the usual survey-based July 1 cow and heifer inventory report. With little information available since the Jan. 1, 2013 Cattle report, the state of replacement heifer retention is largely unknown ahead of the Jan. 1, 2014 estimates.
On the beef side, heifers have constituted relatively large shares of feedlot placements and inventories in 2013. These high heifer proportions of cattle on feed, combined with the relatively large cow slaughter, will likely result in another year-over-year decline in total cow inventories on Jan. 1, 2014.
While cow slaughter that has increased steadily since mid-summer has been most pronounced in dairy cows, beef cow slaughter has also ramped up seasonally as 2013 reaches its end. Annual beef cow slaughter for 2013 is expected to be relatively high – over 15% of the Jan. 1, 2013, cow inventory – for the fourth consecutive year. Typically, a beef cow slaughter rate of around 13% to 14% of the Jan. 1 total cow inventory, accompanied by a heifer retention rate of about 14% to 17%, will maintain a stable total beef cow inventory.
Dairy cow culling rates – at 25% to 33% – are about 2 to 3 times beef cow culling rates. As a result, beef cow slaughter and replacement rates are lower than those for dairy cows because dairy cows are replaced more often than beef cows. At the same time, dairy heifer replacement shares of the dairy heifer-calf crop are much higher than beef replacement heifer shares of the beef heifer-calf crop, because larger numbers of dairy heifers are needed to keep up with the higher culling rates characteristic of dairy cow herds.
Dairy margin summary: December strengthens
Dairy margins strengthened significantly since the end of November due to a sharp rally in milk prices over the past couple weeks, according to the latest CIH Margin Watch report from Commodity & Ingredient Hedging, LLC.
Both Class III and Class IV milk futures have surged recently in response to strong prices for both cheese and non-fat dry milk powder. Spot NDM prices on the CME are trading at their highest level since October 2007, while CME block cheddar prices on the spot market have been flirting over $1.90/lb. – unusual for December – and represents price strength that similarly has not been witnessed since 2007.
It appears that dairy product markets remain supported by strong global demand, while U.S. milk production has been slow to respond. This dynamic is supporting strong projected margins through 2014 as feed costs are expected to continue moderating. Corn prices appear to have stabilized recently although the market remains under pressure due to the cancellation of Chinese cargoes resulting from the presence of MIR162 while a bipartisan bill was introduced in Congress last week to scrap the ethanol mandate altogether. Soybean meal prices have been supported by strong export demand, although South America is poised to harvest a large soybean crop this season should the weather remain favorable.
In the December World Ag Supply & Demand Estimates report, USDA increased the forecast of 2013-14 marketing year exports of U.S. soybeans by 25 million bushels, to a total of 1.475 billion bushels. That forecast is 155 million bushels larger than exports of last year and only 26 million bushels smaller than the record exports during the 2010-11 marketing year, according to Darrel Good, University of Illinois ag economist.
Developments over the next few weeks will be critical for the direction of old-crop soybean prices. A combination of export sales cancellations, a larger U.S. crop estimate, or a larger South American crop estimate would likely trigger a lower price trend. Without such developments, current high prices would likely persist a while longer in order to finish the rationing of old crop supplies. Protecting the downside price risk appears prudent. Read more …
Expectations for a record corn harvest in 2013 have helped lower corn prices since this summer, improving ethanol production margins and spurring an increase in the supply of ethanol.
Between October 2012 and January 2013, the ethanol margin for producers was close to zero, according to the U.S. Energy Information Administration. Between January and November 2013, corn prices fell from about $7.50/bushel to below $4.50/bushel. A $3 reduction in the price of a bushel of corn translates into a roughly $1.08 reduction in the cost of ethanol production. While ethanol prices have also declined, ethanol producer margins have risen above $0.50/gallon in recent months.
Improved margins have incentivized greater levels of ethanol production, with output recovering to pre-drought levels. At the same time, lower prices have made ethanol more economically attractive for refinery blending, and output of ethanol-blended gasoline has risen. Read more …
Mielke’s Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
Cash cheese prices start the week before Christmas headed in opposite directions. One unfilled bid this morning took the 40-lb. cheddar blocks up 0.25¢, to $1.9275/lb. But, an uncovered offer took the 500-lb. barrels down 0.75¢, following Friday’s 3¢ jump and 2¢ gain Thursday. The barrels rolled to $1.8225/lb. and that widened the spread to 10.5¢.
Cheese production is varied, according to USDA’s Dairy Market News (DMN). Manufacturing milk supplies are tight with added pulls from Class II and IV for the holidays. Retail demand is strong for blocks with time running short to fill orders in time for holiday delivery. Higher prices have slowed both spot barrel demand and export interest.
Cash butter was down another 2¢ today, following losses Friday of 3¢ and 6¢ on Thursday, and is now trading at $1.55/lb., down 11¢ since Dec. 9. One car was traded this morning at $1.55/lb. while an offer at $1.56/lb. was left on the board.
Butter prices are mixed across the regions, according to Friday’s DMN, but that’s not reflected in CME trading. Many churn operators had reduced production rates due to tight cream supplies and high demand. International interest in butter picked up resulting in additional butter manufacturers producing 82 percent (butterfat). DMN adds that retail stores, bakeries, and food processors are driving good domestic demand as year-end holidays near and butter stocks are being worked lower, but are sufficient to meet most needs.
Nobody is selling any powder yet, as the Grade A winds its way to within 2¢ of the all-time high in Nov. 2007. Today was the fourth session of gain in a row on bids and was up 1¢, to $2.09/lb. on 1 bid. Extra Grade was up 1.5¢ on a bid and hit $2.06/lb.
Today’s market closing prices:
Butter: Down 2¢ , to $1.55/lb.
Cheddar blocks: Up 0.25¢, to $1.9275/lb.
Cheddar barrels: Down 0.75¢ , to $1.8225/lb.
Grade A nonfat dry milk: Up 1¢, to $2.09/lb.
Extra Grade nonfat dry milk: Up 1.5¢, to $2.06/lb.
Dairy market traders will have lots to feed on this week. The U.S. Bureau of Labor’s Consumer Price Index is issued tomorrow and will include dairy product prices. The January 2014 federal order Class I base milk price is announced by USDA on Wednesday afternoon. The monthly Livestock Slaughter report is issued on Thursday, as well as preliminary data in the November Milk Production report. The Cattle on Feed report rounds out the week on Friday.
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Wednesday in DairyBusiness Weekly:
(Our digital-only magazine)
• Up on the rooftop: DairyUS delivering ‘REAL’ dairy message
• Livestock, dairy embrace FDA antibiotic guidance
• Tell your stories
• More milk anticipated in 2014
• One youth’s generosity launches ‘100-Cow-Countdown’
• Breeder spotlight: Quad-R Holsteins
• Volunteers shine bright at World Dairy Expo dinner
• Registration now open for National Genetics Workshop
• Youth spotlight: Steven Nelson
• Check out our industry briefs and show and sale calendar, view our product spotlight, listen to our podcasts and more!
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