Rabobank: U.S. Domestic Dairy Demand Will Rebound in Second Half of Year
Domestic demand for dairy products, primarily for natural cheese, butter and premium dairy products, will likely rebound in the second half of 2018, projects Rabobank in its Dairy Quarterly Q1 Report issued this week.
“The stronger economic growth is projected to come mostly from tax policy change, which translates to stronger demand for dairy through increased food service and retail sales,” say Rabobank economists.
They project Class III prices to rebound to $14.90/cwt in the third quarter, coming off a low of $13.70 in April, May and June. Rabobank sees Class III prices averaging $16.17/cwt in the fourth quarter. Class IV prices will also climb above $14 by the third quarter and above $14.50 in the fourth.
Stocks are still burdensome, however. Rabobank notes that nonfat dry milk powder stocks remain high, at 154,000 tons. That’s 50% higher than a year ago, and the highest level since 2005 when USDA removed NFDM from the market through the dairy support program. U.S. butter stocks are also a few percentage points higher than a year ago, and total cheese stock are up 7%.
Rabobank notes that U.S. imports of dairy products are down, following a trend that started in 2017. “This trend has sustained into 2018, with imports lagging January 2017 figures across the board,” it says. The reason: Sufficient domestic availability and international price premiums “made choosing local easy.”
“Looking ahead, 2018 U.S. exports will remain competitive, with [U.S.] prices generally sitting below international levels and a persistently weak dollar,” says Rabobank.
“In summary, the year-on-year U.S. exportable surplus is expected to increase by more than 8%, or 450,000 tonnes, during the first of 2018,” says the bank. “However, the optimistic domestic demand outlook, in tandem with slowing year-on-year milk production, could curb the availability of exportable surplus during the second half of 2018.”