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Exports May Be the Deciding Factor for 2016 Prices

Published on: 17:45PM Aug 17, 2015

Current milk prices leave much to be desired compared to last year, but they have been better than anticipated at the beginning of the year. The futures market certainly put out a scare when Class III prices fell below $14.00 early in the year. Fortunately, prices rebounded from those levels with announced prices holding in a range from $15.56 to $16.72 so far. Class IV milk prices have not faired as well with announced prices ranging from $13.15 to $13.91.

 

Even though milk prices have been substantially lower than last year, dairy farmers have maintained strong milk production and cow numbers. So far, milk production has surpassed last year and is expected to do so the rest of the year. Feed supply is plentiful in most areas and gain prices should remain reasonable according to the latest World Agricultural Supply and Demand report released last week. USDA increased corn and soybean production from their previous estimates showing an increase of corn production 2 bushels per acre from their July estimate to168.8 bushels per acre. This puts production at 13.686 billion bushels and ending stocks at 1.713 billion bushels. The average price is now estimated at $3.65. Soybean production was raised almost one bushel per acre to the current estimate of 46.9 bushels. This puts production at 3.916 billion bushels and ending stocks of 470 million bushels. The average price is now estimated at $9.15.

 

It appears feed prices will not be deciding factor for milk output. The deciding factor will boil down to milk prices received at the farm level. Class III milk futures have been in steady decline in 2016 contracts while Class IV futures have shown a slight rebound and are now holding steady. More pressure on futures contracts next year has been the result of world dairy prices and what has been happening on the Global Dairy Trade auction. This dims the price outlook as well as prospects for increased exports. If exports continue in the direction they have been, then lower product prices and subsequently lower milk prices will follow.   

 

The latest export figures released by the Foreign Agricultural Service for the month of June did not make anyone feel warm and fuzzy. The total value of dairy exports for the month was $451 million, down 33% from the previous year. It appears the slowing of exports is gaining momentum. Cheese exports had been holding well, but June showed a decline of 22.3% and the largest decline from the previous year since January. Year-to-date exports are down 12.1%. Butterfat exports were down 75.1% and the lowest monthly exports since August 2009 with YTD exports down 75.0% from last year. Whey exports declined 10.0% with YTD exports down 8.2%. Nonfat dry milk/skim milk powder exports were down 23.2% and down 3.5% for the year. Whole milk powder exports for June were down 45.3% and down 29.9% for the year.

 

The current trend of exports is increasing the concern for milk prices next year. With the current disparity of U.S. prices to world prices, there is little hope for increasing international business anytime soon and it may be very difficult to increase export business to any great extent even if prices become competitive. It will then take time for already contracted supply to run out and new contracts to be made. The longer prices remain at such a difference, the longer it will take to turn around once prices become competitive again.

 

 

Upcoming reports:

 

-Global Dairy Trade auction on August 18

-July Milk Production report on August 19

-July Livestock Slaughter report on August 20

-July Cold Storage report on August 21

-July Agricultural Prices report on August 31

 

 

 

 

Robin Schmahl is a commodity broker and owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, Wisconsin. He can be reached at 877-256-3253 or through their website at www.agdairy.com.

 

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