For the second month in a row, USDA is giving dairy farmers hope with its World Agricultural Supply and Demand Estimate (WASDE) report. On Tuesday USDA lowered the milk production forecast for the remainder of 2016 from last month, citing the pace of cow herd expansion slowing. The agency also increased the all-milk price range to $15.55 - $15.85 per cwt for 2016, up 20-50 cents from the month prior and 45-80 cents higher since the May report. In the Tuesday report, USDA also bumped up the 2017 all-milk price forecast to $15.70 - $16.70 per cwt. USDA also moved cheese, butter, nonfat dry milk, and whey price forecasts higher for 2016 and 2017 as “demand remains robust.” As a result of improved component product prices, USDA also increased Class III and Class IV price forecasts.
Higher Milk Production in 2017
Perhaps the most bearish news of the report is an increased production forecast for 2017. According to USDA, “higher forecast milk prices and lower feed costs in late 2016 and early 2017 are expected to lead to higher 2017 cow numbers.” In a market struggling to crawl out from more than ample supplies, an increase in milk production next year could delay full milk price recovery many analysts say.
Exports
The butterfat rally could be over. USDA reported in its July WASDE report that fat basis exports are lowered for the remainder of 2016 as “slowing sales of butterfat products more than offset higher whole milk powder (WMP) exports.” The agency left the forecast for 2017 unchanged. However, on a skim-solids basis, USDA says the export forecasts for 2016 and 2017 are raised on higher WMP sales.