meta Cheese Consumption Increases Pushing Milk Prices Higher :: The Bullvine - The Dairy Information You Want To Know When You Need It

Cheese Consumption Increases Pushing Milk Prices Higher


A lapse in U.S. cheese consumption increases during the first half of this year had a serious impact on milk prices and dairy industry profitability. Consumer demand for cheese during the first half of the year normally holds steady at levels seen at the end of the prior year and then improves in the second half of the year. American-type cheese consumption declines during the first half but is offset by increased consumption of Italian-type cheeses. During the first half of 2016, even Italian-type cheese consumption declined. Cheese consumption during the summer and fall quarters of 2016 was on track to post quarter-to-quarter increases, which resulted in milk prices increasing by 20% from the lows of the spring quarter.

Weak domestic demand for cheese coincided with a surplus in world milk production relative to global usage. Milk powder prices in Europe and Oceania were at their lows last spring, similar to the U.S. This limited the ability of the U.S. to export surplus milk production in the form of powder to other parts of the world. Since that time, milk production in Australia and New Zealand has declined, helping to lift international dairy prices and improving prospects for U.S. milk powder sales overseas. U.S. non-fat dry milk prices averaged below 80 cents per pound during the first half of the year, but were able to reach the $1 mark as 2016 came to a close.

U.S. milk powder export volumes were down 20% from a year earlier during the spring quarter but should top year ago levels during the second half of this year by 10%-15%.

Cheese production during the first nine months of the year was up 2%-3% compared to 2015’s. As consumption lagged, inventories of cheese in cold storage accumulated to record high levels. With the rebound in 950 1000 1050 1100 1150 1200 1250 1300 JAN MAR MAY JUL SEP NOV Mil. Pounds TOTAL CHEESE IN COLD STORAGE End of the Month Avg. 2010‐14 2015 2016 Data Source:  USDA/NASS cheese consumption in recent months, cheese inventories in cold storage have been reduced, and as of the end of November were only up 3% from twelve months earlier, but down 5%-10% (depending on the type of cheese) from the highest levels earlier this year. Cheddar cheese prices reached their lowest values, near $1.30 per pound last May, but should average above $1.70 for 2017’s first quarter as the lower inventories support values. The lower inventories should also provide price support during the first half of 2017, helping to keep the “all farm” milk price near $17 per cwt. This would not have been possible in the absence of better cheese demand that would have left cheese inventories (cold storage) at much higher levels.

Milk producers have responded to the rising prices with more milk. The milk cow herd increased 4,000 cows from October to November, compared to a 2,000 cow increase in November 2015 and contrary to expectations calling for a decline a few months earlier. Milk cow productivity is also sprinting higher, up more than 2% per cow compared to twelve months earlier. That’s an increase in per cow production; last spring was only up 1% year-over-year.

HOG/PORK MARKETS: IMPORTANT DEVELOPMENTS DURING LATE 2016

In the hog/pork markets, three key items during the fourth quarter of 2016 are well worth reviewing. First, the Quarterly Hogs and Pigs report from USDA’s National Agricultural Statistics Service (NASS) showed 2% more market hogs than anticipated. That will translate into larger hog slaughter than earlier forecast well into 2017. Further, the overall breeding herd as of December 1, 2016 was a bit larger than anticipated. Regarding prices, on the positive side were recent trends in both frozen pork stocks and export trends.

As of December 1st (NASS report released December 23, 2016), the total number of hogs in the U.S. was estimated based on surveys at 71.5 million head, an increase of 3.7% year-over-year and the largest ever. The number of market hogs was 4.0% (about 2.5 million head) above one year earlier, while the breeding herd grew by 1.0%. The larger than anticipated number of market hogs was caused by a jump, compared to expectations, in the number of sows farrowed from September-November. Also, the number of pigs born per litter continued to increase on-trend.

The monthly NASS Cold Storage report (released December 23, 2016) showed that at the end of November frozen pork stocks were down month-over-month (falling 13%) and year-over-year (dropping 7%). Very large hog slaughter occurred in both October and November and the concern was that frozen tonnage was where product was going. But that was clearly not the situation. In fact, declining stocks given record large production in several weeks last fall was a positive surprise. Overall, frozen pork stocks are not burdensome.

Weekly whole muscle pork product export tonnage data from USDA’s Foreign Agriculture Service had been indicating the U.S. pork exports were doing better than a year ago during late 2016. That situation was confirmed in recent official monthly export data. In fact, exports exceeded expectations. In October and November U.S port export tonnage (carcass weight basis) was 9% and 18% above a year ago levels, respectively. November’s export tonnage was nearly 510 million pounds on a carcass weight basis, which was the largest month ever.

LMIC currently forecasts U.S. commercial pork production in 2017 will be just over 25.6 billion pounds, up in the range of 2% to 4% year-over-year and record large. Even with a rather good export demand profile hog prices are forecast to be a bit below 2016’s throughout the first three quarters of 2017. New hog packing plants opening in the fourth quarter should provide increased competition for animals to harvest and process, which could pull hog prices above 2016’s late in the calendar year.

U.S. FROZEN LAMB AND MUTTON STOCKS DECLINE

Huge frozen stocks of lamb and mutton overhung the U.S. market since the summer of 2014. To put those stocks in context, consistently beginning in 2014 the frozen tonnage exceeded one full quarter’s worth of U.S. commercial production. But, that picture has changed, finally. Frozen tonnage in commercial facilities is provided monthly in the NASS Cold Storage report, the latest data were as of the end of November 2016. NASS does not break-out the source or type of lamb and mutton, but indications were that much of the huge stockpile was imported product.

As of the end of November, frozen lamb and mutton was reported to be down 51% from a year ago and declined 26% month-over-month. Stocks have been declining in each NASS report since the end of July 2016. That is an important market adjustment and may indicate some improvement in consumer demand during late 2016.

 

Source: NDSU Agriculture


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