The handwriting is on the milk house wall and the walls of USDA. The Agriculture Department again lowered its 2018 and 2019 milk production estimates in the latest World Agricultural Supply and Demand Estimates report (WASDE), due to “slower growth in milk per cow and lower cow numbers. Relatively weak returns are expected to result in a smaller 2019 cow herd,” says the USDA.
    2018 production and marketings were projected at 217.8 and 216.8 billion pounds respectively, down 100 million pounds from last month’s estimates. If realized, 2018 production would still be up 2.3 billion pounds or 1.1 percent from 2017.
    2019 production and marketings were estimated at 220.6 and 219.6 billion pounds respectively, down 300 million pounds on both. If realized, 2019 production would be up 2.8 billion pounds or 1.3 percent from 2018.
    Fat basis import forecasts were raised for 2018 and 2019, as strong domestic demand supports higher imports of butter. Fat basis export forecasts were raised for both years on higher sales of butteroil and anhydrous milk fat (AMF).
    The 2018 skim-solids export forecast was raised on higher expected sales of skim milk/nonfat dry milk powder (SMP/NDM), but the 2019 export forecast was unchanged as higher SMP/NDM sales are offset by weaker exports of lactose.
    The price forecast for cheese was lowered for 2018 on current price weakness and continued high stocks, but the forecasts for butter, NDM, and whey were unchanged. The 2019 cheese and butter price forecasts were reduced, while the NDM price forecast was unchanged. The 2019 whey price forecast was raised from last month as stocks remain relatively low.
    The 2018 and 2019 Class III milk price forecasts were lowered from last month due to the lower cheese prices. The 2018 and 2019 Class IV milk prices were unchanged at the midpoint of the range.
    Look for the 2018 Class III to average around $14.55 per cwt., down from $16.17 in 2017 and $14.87 in 2016. The 2019 average is at a range of $14.65-$15.45, down from the $15.15-$16.05 projected a month ago.
    The 2018 Class IV price average is expected at around $14.20, down from $15.16 in 2017 and compares to $13.77 in 2016. The 2019 average is now put at a range of $14.40-$15.30 per cwt.
    This month’s 2018/19 U.S. corn outlook is for lower corn used for ethanol, reduced imports, and larger ending stocks. Imports were lowered based on observed trade to date. Corn used to produce ethanol was reduced 50 million bushels to 5.6 billion, based on the most recent data. The season-average corn price received by producers was unchanged at a midpoint of $3.60 per bushel but the range was narrowed 5 cents on each end to $3.25 to $3.95 per bushel.
    Total U.S. oilseed production was forecast at 135.5 million tons, up slightly due to an increase for cottonseed. Soybean supply and use projections for 2018/19 were unchanged from last month. With soybean exports and crush unchanged, soybean ending stocks were projected at a record 955 million bushels.
    The U.S. season average soybean price is forecast at $7.85 to $9.35 per bushel, unchanged at the midpoint. Soybean meal and oil price forecasts were also unchanged at $290 to $330 per short ton and 28-32 cents a pound, respectively. Global 2018/19 oilseed production was forecast at 600.5 million pounds, with greater production for Brazil and Nigeria.
    FC Stone says there are reports that China bought 30 cargoes of soybeans. “While the news is welcome news to anybody with a bin full of soybeans, it will take much more to save this grain marketing year. The grain market is waking up to the idea that even with China buying, there’s a lot of soybeans around.”
    This month’s cotton forecasts include slightly higher production and ending stocks. Production was raised 180,000 bales due mainly to a 300,000-bale increase in Texas. Domestic mill use and exports were unchanged. Ending stocks, forecast at 4.4 million bales, are 100,000 bales above both last month and the 2017/18 estimate. The forecast range for the marketing year average price received by producers was unchanged from November, 71 to 77 cents per pound, with a midpoint of 74 cents.
    Dairy prices strengthened the second week of December as traders awaited the last GDT auction of 2018 on December 18, plus the December 19 November Milk Production report. Cheddar block cheese, after falling to the lowest CME level since May, 2016, rallied and closed Friday at $1.4075 per pound, up 5 3/4-cents on the week but 12 1/4-cents below a year ago. The barrels finished at $1.31, up 8 3/4-cents on the week, 35 cents below a year ago, and 9 3/4-cents below the blocks. 5 cars of block were sold on the week and 27 of barrel.
    Demand reports are on the slower side ahead of the end-of-year holidays, says Dairy Market News, though cheese output saw some upticks. The spot milk price range widened from $3 under to $2.50 over Class III. Some plant managers suggest production upticks will last until the last week of December, then drop off through January 1. Midwestern cheese inventories are generally heavy, but some managers relay that their stocks are intentionally “scant.” Cheese markets are far from healthy, says DMN.
    Cheese production is very active in the West with most facilities at full capacity or close to it. Inventories surpass demand but end of the year buying interest is stable to up a bit. The low price trends are enhancing sales but buyers are closely monitoring prices and limiting purchases as they have enough inventory. The U.S. market tone is weaker, but remains competitive, according to DMN.
    Butter fell to $2.1750 per pound Thursday, lowest CME price since July 6, 2018, but closed Friday at $2.19, still 1 3/4-cents lower on the week and 5 1/2-cents below a year ago. Only 1 sale was reported for the week.
    Churns have begun to run actively in the Central region, according to DMN. “As cream prices continue their seasonal declivity, butter plants are building stocks for the spring holiday demand push early in 2019.”
    Western butter makers say retail orders are still coming in and while print sales normally trail off after Thanksgiving, so far, they have been relatively steady. Bulk butter buyers seem willing to make purchases for first and second quarter needs as the market price eases. Inventories are shrinking along seasonal patterns.
    Spot Grade A nonfat dry milk closed Friday at 94 cents per pound, up 5 1/2-cents and the highest CME price since June 1, 2017, and 28 1/4-cents above a year ago. 23 carloads found new homes on the week at the CME.
    Cash dry whey saw a Friday close at 45 cents per pound, up 1 1/4-cents on the week, with 4 sales reported for the week at the CME.
    The USDA’s latest Livestock, Dairy, and Poultry Outlook shows overall milk use in October was higher than year-earlier levels but FC Stone dairy broker Dave Kurzawski stated in the December 17 Dairy Radio Now broadcast that the data speaks volumes to what has happened on the cheese futures and spot market.
    American cheese demand was down 9.9 percent from a year ago, unusual for this time of year, he said, but up 2.5 percent from September. The problem is that we price milk on American cheese, though he believes that will turn around.
    The good news is that demand for the “other” cheese category set a new record, topping 731 million pounds, up 6.7 percent from 2017 and up 7.4 percent from September. Total cheese use was down 0.1 percent from a year ago but 5.5 percent above September. Thus far, 2018 American cheese use is up 1 percent and other than American cheese use is up 3.2 percent, putting total cheese use 2.3 percent higher.
    Butter disappearance was up 9.5 percent from 2017, a record October volume, while nonfat dry milk use was down 9.8 percent; “so we’ll file those numbers under doesn’t really matter today,” he said.
    “We have a market right now that is making three month highs on nonfat and three month lows on butter.” For the year we’re up 6.9 percent on nonfat and up 2.9 percent on butter, according to Kurzawski.
    The U.S. Dairy Export Council (USDEC) reports that U.S. dairy exports are on track for a record year despite flat sales on both a volume and value basis in October due to a loss of sales to China since implementation of retaliatory tariffs.  And, while negotiations continue between the U.S. and China to resolve their trade differences, shipments of milk powder, whey, lactose, cheese and butterfat to China were down 47 percent in October, while U.S. exports elsewhere were up 14 percent, with large gains in sales to Southeast Asia and Mexico.
    On a total milk solids basis, U.S. exports were equivalent to 15.3 percent of U.S. milk production in October, bringing the year-to-date percentage to 16.3 percent.
    The calendar year record is 15.4 percent in 2013.
    In the four months since China put additional tariffs in place, U.S. whey exports to China were down 36 percent compared with a year ago, according to USDEC. SMP sales were down 54 percent, WMP sales were down 97 percent and cheese exports were down 56 percent. On a value basis, total dairy exports to China were down 36 percent in the July-October period.
    Exports to Mexico and Southeast Asia were up 25 percent and 29 percent, respectively, however, in October (on a value basis) mostly on the strength of improved sales of nonfat dry milk/skim milk powder (NDM/SMP).
    U.S. exports of NDM/SMP totaled 60,672 tons in October, a 19 percent increase versus a year ago. The 2018 total through 10 months, at 617,096 tons, has already established a new annual high, with two months to go.
    Shipments to Mexico totaled 32,734 tons, up 37 percent, and remained heavy in October, while sales to Southeast Asia (a six-month high of 20,401 tons, mostly Indonesia, Philippines and Malaysia) were up 39 percent. Sales to China, Peru, Pakistan, Japan and the Middle East/North Africa (MENA) region were negligible, down more than 5,800 tons between them compared with a year ago.
    U.S. suppliers also moved greater volumes of whole milk powder (WMP) to Southeast Asia. Total September exports hit 4,227 tons, up 124 percent, and nearly half went to Vietnam. Sales to China were just 38 tons, a fraction of what was shipped last year, but overall, U.S. WMP exports doubled this year.
    Cheese exports totaled 26,931 tons and were on par with a year ago. Cheese to Mexico improved despite retaliatory tariffs, up 31 percent against a weak comparable. U.S. suppliers also saw slower sales to China, down 59 percent, as well as Japan, down 26 percent, and Australia, off 25 percent. The most notable gains were posted in sales to the MENA region, up 36 percent, and Southeast Asia, up 28 percent.
    In politics, the Senate by a vote of 87 to 13 passed the $867 billion Conference Committee’s Farm Bill, the “2018 Agricultural Improvement Act.” The House followed, approving the measure 369 to 47. The passage drew praise from the National Milk Producers Federation (NMPF) and the International Dairy Foods Association (IDFA). President Trump is expected to sign the five year measure.
    NMPF stated in its press release that the bill “includes much-needed reforms to help American dairy farmers.” President and CEO Jim Mulhern said the bill will benefit U.S. agriculture and ensure safe, affordable food for Americans and the world. “A new law is especially important for dairy, a sector struggling with low prices and disrupted exports.”
    The IDFA stated that the bill would “allow greater access to risk management tools for dairy foods companies and farmers to address price fluctuations. The bill would also extend the Dairy Forward Pricing Program to 2023, improve the safety net for dairy farmers and create a new milk incentive program within the Supplemental Nutrition Assistance Program (SNAP) to improve participants’ diets by increasing fluid milk consumption.”
    NMPF says “The Dairy Margin Coverage program (DMC) includes higher coverage levels from the Margin Protection Program (MPP) that address deficiencies in the current feed-cost formula. It gives greater flexibility to allow producers of all sizes to access Tier 1 premium rates, expanded access to additional risk management tools, allowing producers to participate in both MPP and the Livestock Gross Margin insurance program, continued support for land and water conservation programs that assist producers, and has full funding for Farm Bill trade promotion programs, a crucial concern in an era of markets lost to tariffs and nutrition provisions intended to enhance consumption of fluid milk.”
    National Milk also praised the U.S. Environmental Protection Agency (EPA) and U.S. Army Corps of Engineers for beginning the process of replacing the 2015 Waters of the U.S. (WOTUS) rule. NMPF says it was given an overview of the newly proposed WOTUS rule that will replace the 2015 version and said that as NMPF reviews the proposal, they are “highly confident it will improve upon the current rule, which has led to unnecessary legal fees, compliance costs and confusion for U.S. dairy producers.”
    “Dairy farmers have a vested interest in the outcome of this rulemaking and its potential impact on their operations,” said NMPF’s Jim Mulhern. “We look forward to working with the EPA and the U.S. Army Corps of Engineers to achieve the proper clarity that dairy farmers need on WOTUS.”