As I reported last week, the Agriculture Department raised its milk production estimates in the latest World Agricultural Supply and Demand Estimates report, as “stronger growth in milk per cow more than offsets a slower expected recovery in the cow inventory.”
    Cheese and nonfat dry milk (NDM) price forecasts for both 2019 and 2020 were raised from last month on strength in demand. Butter and whey prices for 2019 and 2020 were lowered on current price weakness which is expected to carry into 2020.
    The 2019 Class III and Class IV price forecasts were raised as the higher cheese price more than offsets the lower expected whey price. The 2019 Class III average is now projected at around $17.00 per hundredweight, up a nickel from last month’s projection and compares to $14.61 in 2018 and $16.17 in 2017. The 2020 average is now put at $17.50, up 30 cents from last month’s estimate.
    The 2019 Class IV price was raised as the higher NDM price more than offsets a weaker butter price, but for 2020, the lower butter price outweighs the higher NDM price and the Class IV price was reduced.
    Look for the Class IV to average $16.30, up a dime from a month ago and compares to the 2018 average at $14.23 and $15.16 in 2017. The 2020 Class IV average is expected at $15.95, down 15 cents from last month’s projection.
    This month’s 2019/20 corn outlook is for lower production, reduced use, and smaller ending stocks. Corn production was forecast at 13.66 billion bushels, down 118 million from last month or down 1% from last month’s forecast, 5% below a year ago, and a four year low. Yield was reduced 1.4-bushels to 167 bushels per acre. Area harvested for grain was forecast at 81.8 million acres, unchanged from the previous forecast but up slightly from 2018.
    Exports were reduced reflecting the slow pace of early-season sales and shipments. Corn used for ethanol is down 25 million bushels based on September data. With supply falling more than use, corn ending stocks were lowered 18 million bushels from last month. The season-average corn price received by producers was raised 5 cents to $3.85 per bushel based on observed prices to date.
    The U.S. soybean outlook is for slightly lower production, reduced crush, and higher ending stocks. Soybean production was forecast at 3.55 billion bushels, down less than 1 million on fractionally lower yields and unchanged harvested area and down 20% from a year ago. Based on conditions as of November 1, yields are expected to average 46.9 bushels per acre, unchanged from the previous forecast but down 3.7 bushels from 2018. Area harvested for beans in the US is forecast at 75.6 million acres, unchanged from the previous forecast but down 14% from 2018. Soybean ending stocks are projected at 475 million bushels, up 15 million.
    The season-average soybean price is forecast at $9.00 per bushel, unchanged from last month. The soybean meal price forecast was also unchanged at $325.00 per short ton.
    Cotton production was forecast at 20.8 million 480-pound bales, down 4% from the previous forecast but up 13% from 2018. Yields are expected to average 799 pounds per harvested acre, down 34 pounds from the previous forecast and down 65 pounds from 2018. All cotton area harvested is forecast at 12.5 million acres, unchanged from the previous forecast, but up 23% from 2018. The marketing-year average price received by upland producers was forecast at 61 cents per pound, 5% (3 cents) above the October forecast, but 13% lower than the final 2018/19 price of 70.3 cents.
    Meanwhile, the USDA’s latest Crop Progress report shows the US corn harvest at 66%, as of the week ending November 10, up from 52% the previous week but down from 83% a year ago and 19% behind the five year average.
    85% of the soybeans are harvested, up from 75% the previous week but down from 87% a year ago and 7% behind the five year average.
    62% of the cotton has been harvested, up from 53% the previous week, 9% ahead of a year ago, and 3% ahead of the five year average.
    US dairy cow slaughter totaled 63,500 head for the week ending November 2, according to the USDA, up 800 head or 1.3% from a year ago.
    Cash cheese prices continued to weaken in the Veteran’s Day Week. Block Cheddar closed that Friday at $1.89 per pound, down 12.5 cents on the week, lowest CME price since August 28, and 34.75 cents below its September 16 peak, but was 43.75 cents above a year ago.
    The barrels fell to $2.1975 Friday, down 13.25 cents on the week but 83.75 cents above a year ago and an inverted 30.75 cents above the blocks. Only 4 cars of block were traded on the week at the CME and 3 of barrel.
    A lot of the experts are trying to explain the roller coaster cheese prices. FC Stone’s Director of Dairy Market Insight, Nate Donnay, admits “It’s hard to put our finger on the exact drivers behind the rally.”
    “The single most supportive hard data point I can see is the sharp drop in Cheddar production in September which came in 7 million pounds lower than forecast and down 3.1% from last year.” “Only fresh Cheddar, aged between 4 and 30 days, trades on the CME spot market,” he explained, “So the Cheddar fundamentals have an outsized impact on cheese prices. But it doesn’t look like any one thing is driving this market, it’s a mix of supply and demand issues.”  
    Dairy broker Dave Kurzawski echoed some of Donnay’s remarks in the November 18 Dairy Radio Now broadcast, adding that the block market is Number 1 so the barrel market ends up being kind of a “whipping post,” due to various occurrences in the market such as the increase in mozzarella output, a large shipment of cheese to Mexico, and production issues at various cheese plants in the country.
    He said that meant the pipeline was not full enough for end users and just enough to tighten the market and send prices above $2. He expects the inversion to correct, as the industry moves forward, but he looks for prices to remain in the $1.90-$2.20 per pound range “longer than people expect.”
    Some Midwest cheesemakers reported slower sales this week, according to Dairy Market News. Prices have started to feel pressure but remain above the comfort zone for many buyers. Some manufacturers continue to report that buyers remain motivated during the holiday demand season. Spot milk trading was quiet the first half of the week but prices were falling within the previous week’s range. Cheese production has been busier in November, with some plants producing six to seven days per week, according to DMN.
    DMN says the western market seems to be weakening. While buyers are making sure they have enough stocks to satisfy holiday needs, sellers are using any strategy possible to maximize sale volumes. Barrel prices are well above blocks due to tighter inventories but stocks are balanced with the needs of the market. Cheese output is seasonally solid with continuous good flows of milk to the vats.
    The Chicago Mercantile Exchange announced that it will launch block cheese futures and options in January 2020, pending regulatory review. Tim Andriesen, Managing Director of Agricultural Products stated; “Our clients continue to look for tools to manage their price exposure in physical cheese markets, including food manufacturers and processors of cheese.” The new contracts will be cash-settled to the monthly average price for 40 pound block Cheddar as reported by the USDA’s National Dairy Products Sales Report with each contract representing the equivalent of 20,000 pounds, according to the CME.
    Cash butter closed Friday at $2.0675 per pound, up 3 cents on the week but 20.75 cents below a year ago, with 8 cars finding new homes on the week.
    Central butter makers reported a variance in cream supplies. Some managers suggest cream is tightening as demand from Class III producers has pulled from the cream pool. They add that a late Thanksgiving will keep demand up through the first week of December. Others report continued ease in finding cream at favorable multiples, with some coming from Western sources. Production reports obviously depend on access to cream, says DMN, but butter demand is strong.
    Retail butter sales are strong in the West. Buyers seem satisfied with current prices and are actively filling store shelves for the winter holiday baking season. Contacts suggest that end users already have a lot of their fall and winter bulk butter needs in place but a few butter makers are concerned what could happen if too much of the required 2020 butter is covered in advance of spring output. Current demand is placing a steady draw on inventories, making stocks comfortable for this time of year. Butter makers say they have plenty of cream to keep the churns full, and so far, cream is in good balance with butter needs.
    Grade A nonfat dry milk closed the week at $1.2175 per pound, up 1.25 cents on the week, highest since November 4, 2014, and 33.25 cents above a year ago, with 18 sales reported on the week.
    FC Stone’s November 12 Early Morning Update says the big issue on powder is the global demand “stemming principally from China.” “Even though our food crisis here in the states stems around real milk versus fake milk, real meat versus fake meat, etc., the Chinese have a much more troubling dilemma. What’s worse than fake pork is no pork. Although the rise in global nonfat dry milk and skim milk powder prices seems rather orderly right now, we believe the situation in China is beginning to have reverberating impacts on the world of dairy.”
    CME dry whey finished Friday at 32 cents per pound, up 4.5 cents on the week and the highest since October 4, but 11 cents below a year ago. 29 cars were sold on the week, with lots of bids going unfilled.
    Checking demand; US cheese disappearance marked the strongest September on record and was spurred higher by both higher domestic and export demand, according to HighGround Dairy (HGD). “Domestic disappearance has performed better versus the prior year for six of the nine months this year to date.”
    Butter disappearance was down from August and a year ago, even as total volumes remained higher versus the slower demand months of May-July.
    Nonfat dry milk domestic disappearance fell in half versus August, down 51.1%, says HGD, and over the past five years, September domestic demand had grown on average 7.7% versus August, “pushing this September well opposite of trend.”
    US fluid milk sales were down in September after slipping in August. The USDA’s latest data shows 3.76 billion pounds of packaged fluid sales, down 0.8% from September 2018.
    Conventional product sales totaled 3.5 billion pounds, down 1.3% from a year ago. Organic products, at 220 million pounds, were up 6.9% and represented 5.9% of total sales for the month.
    Whole milk sales totaled 1.2 billion pounds, up 0.2% from a year ago and made up 31.7% of total fluid sales in the month. Sales for the nine month period totaled 11.2 billion pounds, up 1.0% from a year ago. Skim milk sales, at 265 million pounds, were down 9.7% and made up 7.1% of total milk sales for the month.
    Total packaged fluid milk sales, January through September totaled 34.2 billion pounds, down 1.7% from a year ago. Conventional products year-to-date totaled 32.3 billion pounds, down 1.7%. Organic products, at 1.9 billion pounds, were down 2.6% and represented about 5.5% of total fluid milk sales for the period.
    The figures represent consumption of fluid milk products in Federal milk order marketing areas and California, which account for approximately 92% of total fluid milk sales in the U.S.
    HighGround Dairy points out that “Fluid sales continue to be weak overall as the alternative market experiences gains with sales up 5% year over year through September, driven by almond drinks and oat drink sales in a big way” but they add that soy, coconut and cashew drinks are reporting strong losses in 2019.
    The nation’s largest fluid milk producer, Dallas-based Dean Foods, announced that it has filed for Chapter 11 bankruptcy, blaming the continuing drop in fluid milk consumption as consumers switch to sodas, juices and plant-based beverages. The company has 65 processing plants in 29 states and 15,000 employees and is reported to be in negotiation with Dairy Farmers of America about a potential sale.
    As to what it means for the rest of the industry, that remains to be seen but FC Stone stated; “It appears that milk will keep flowing to Class I for bottling as the restructure proceeds. In terms of consumer sentiment, it’s a black eye for the industry. Perhaps more importantly, it’s an all-hands-on-deck call for more innovation as the dairy industry faces fierce competition from alternatives, many of which appear inferior in terms of consumer cost and overall nutrition.”
    In politics, while the House is fixated on the impeachment process, Speaker Nancy Pelosi stated this week that Democrats and the Trump administration are making progress on approving the US-Mexico-Canada free trade agreement which would replace the NAFTA. Welcomed by most in the dairy industry, the confirmation could come before year’s end.