MPP Forecast: April
April 7, 2017
The U.S. average all-milk price dropped $0.40 per hundredweight from January to February, to $18.50 per hundredweight. The February all-milk price decline was consistent with the February federal order prices announced at the beginning of March.
Milk prices have come under pressure from increased U.S. milk and cheese production, as well as recent weakness in global nonfat skim milk powder/nonfat dry milk markets. These developments have dragged the CME price for block cheese down by almost $0.50 a pound from its high in early February, to a mid-March low. The daily CME price for Grade A nonfat dry milk dropped by $0.26 between early January and the beginning of March.
However, the domestic cheese market became oversold and subsequently rebounded by $0.15 a pound later in March. This price rebound occurred despite significant American-type cheese stock levels at the end of February that have been exceeded only during the dairy surplus years of 1983-1986. Prices were also influenced by indications that milk production growth has likely stabilized at around 2.5 percent per year.
The March 30 CME futures prices indicated that the U.S. average all-milk price should bottom out in the high $16-per-hundredweight range during the spring months, and average about $17.80 per hundredweight during calendar year 2017 — $1.50 higher than 2016. USDA currently forecasts that average milk prices for all of 2017 will fall within in the range of $17.80-$18.40.
Feed ingredient prices announced by NASS for February translate into a monthly Margin Protection Program feed cost of $7.92 per hundredweight and a monthly MPP margin of $10.58 per hundredweight for February, which makes the January-February margin equal to $10.82 per hundredweight.
USDA’s current MPP margin forecast, based on the March 29 CME futures settlements, projects the margin will remain above $9 during most of 2017. USDA is currently projecting a lower probability than it did a month earlier in that the margin will fall below the $8 coverage level during 2017, with an 18 percent probability that this will occur during May-June and a lower likelihood during other bimonthly periods this year.