DairyBusiness Update: Dec. 26, 2013

A “butter” view of what’s happened
   Butter inventories have been through a lot the past year, according to High Ground Dairy’s Eric Meyer. He reports in his daily update today that, between Nov ‘12 and May ’13, butter stocks grew from 127.3 to 322 million lbs., an increase of 195 million lbs. This is a record, he said, both for the steepest six month inventory build and for the most manufacturer-held stocks in a single month. “But,” he quickly adds, “Thanks to a combination of a lull in prices this summer along with strong exports and weaker-than-expected milk production over the past three months, butter inventories have been decimated and have lost more than 200 million lbs. since May. “Cold storage warehouses cannot be happy with this reversal of fortune.”
   He adds the caveat that, “While the decline has certainly been impressive, 121.4 million lbs. of butter in storage at the end of November is not historically tight. This was the first time since July ‘11 that stocks declined versus the previous year but overall, November ’13 ending stocks were above 2009 and 2010 levels by 51 and 28 million lbs., respectively.” He believes that weaker-than-anticipated milk production and US competitiveness to sell into the global market will likely keep butter prices somewhat supported in the near term.”

The cheese stands alone
   USDA latest Cold Storage report shows that cheese stocks saw a fairly typical decline between October and November, according to High Ground Dairy’s Eric Meyer, and “Based on the upward price trend of CME block cheese prices over the past six weeks as well as reports of strong export demand, November ending stocks can be considered slightly bearish after the wave of bullish news this market has absorbed over the past month.”
   Meyer believes domestic cheese demand has “suffered from historically high prices in November and December, which caused stocks to decline a bit less than expected.” He says “mild cheddar availability has tightened as milk production in many cheese-producing regions of the US remains sluggish. Based on stronger global demand for milk powders and the wide spread between Class IV and Class III milk prices, any excess milk typically available this time of year will move to the driers and not to the cheese vat.”

Minnesota Dairy Farm Wins Photo Contest, Visit from NFL Player
   A Hastings, Minnesota dairy family has won the dairy checkoff’s 2013 "Show Your Pride"  photo contest. The contest encouraged dairy producers to submit images showing their support of the checkoff’s partnership with the NFL and the Fuel Up to Play 60 school program. The Bremer family, welcomed Vikings running back Toby Gerhart to their dairy farm on Dec. 17 for a visit and tour of the dairy, plus he fed calves and gained a deeper understanding about the importance of the dairy industry. Gerhart’s visit and positive experiences on the farm were shared through local media coverage.

“America’s Dairyland” takes its title to street level
It states it on their license plates, “America’s Dairyland,” but Wisconsin is “milking it for all its worth,” once again in the city of Milwaukee. A trial program there is using a mixture of cheese brine and salt to keep roads from freezing, according to the New York Times. Lots of alternatives to salt and sand have been tried over the years to save on costs and environmental impacts. Only time and effectiveness will tell if these driven “cheeseheads” have found a new road of profitability for its many dairy farmers and safer driving for its residents, or their cheese trial is full of holes.
Mielke’s Market Daily for Thursday
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   While beautiful crumpled gift wrap lines living rooms throughout the country following yesterday’s Christmas Day break, FC Stone risk management consultant, Chris Hildebrand, says Chicago is like a “ghost town.” That was evidenced by CME cheese trading this morning, or the lack thereof. “Unchanged” sums up the day. The 40lb. Cheddar blocks remained at $2/lb., and the 500lb. barrels held at $1.97/lb., with no activity in either market.
   USDA’s Dairy Market News reports that Midwest milk output is rising and some cheese plants are scheduled to run 7 days a week through the holidays to utilize available milk. Western wholesale cheese prices were markedly higher this week and cheese production should see some increase this week as some other manufacturing plants closed for the midweek holiday. Domestic cheese sales are good with retail demand helping to clear American and aged cheese inventories. The big question is, will the $2 attract product to Chicago?
      Cash butter was unchanged as well, following Tuesday’s surprise 1.5¢ drop, to $1.5850/lb. One bid at $1.58/lb. went unfilled this morning and an offer at $1.5850 /lb. was left uncovered.
   Central butter prices are hanging in longer than some expected, behind good sales and tight supplies, according to DMN. “Most butter manufacturers look to replenish depleted inventories after securing additional cream supplies this week,” and churn rates are expected to increase.
   Western butter prices are lower this week, reports DMN, “but the market tone is mixed about price direction. Butter production will increase this week as more cream becomes available over the midweek holiday. Butter manufacturers are welcoming the added supply of cream to fill domestic orders through yearend and to begin to build stocks.”  Large sales during October and November have reduced those stocks and buyers are noting the tighter supplies.  In addition, export demand is good and opportunities for offshore sales are available.
   Cash powder was also “unchanged” this morning, with Grade A holding at $2.11/lb. and Extra Grade at $2.09/lb., with no activity.

Today’s market closing prices:
Butter: Unchanged, at $1.5850/lb.
Cheddar blocks: Unchanged, at $2.00/lb.
Cheddar barrels: Unchanged, at $1.97/lb.
Grade A nonfat dry milk: Unchanged, at $2.11/lb.
Extra Grade nonfat dry milk: Unchanged, at $2.09/lb.
Class III milk: Jan.$19.60, -4¢, Feb.$18.97 Unchanged, Mar.$18.78 unchanged. Based on current CME closing prices, the Q4 2013 average is $18.68/cwt.; with an overall 2013 average of $17.99/cwt.; and a 2014 average of $18.10/cwt.

California powder still below the CME
The California Department of Food and Agriculture announced its latest surveyed nonfat dry milk prices Tuesday at $1.9321/lb. for the week ending December 20, on sales of 7.82 million lbs. The price was up from $1.9190/lb. the week before, on sales of 6.73 million lbs.
Looking ahead:
      There were no USDA reports scheduled for today or tomorrow which we regularly monitor. The monthly Ag Prices report is issued Monday, and will include the latest milk feed price ratio. The Chicago Mercantile Exchange has regular trading hours on Tuesday but is closed Wednesday for the New Year’s Day holiday and reopens Thursday and Friday. USDA announced December Federal order Class II, III, and IV milk prices on Thursday, January 2, and the California Department of Food and Agriculture announces its December Class 4a and 4b milk prices. The November Dairy Products report is issued by USDA on Friday, January 3.

Tomorrow on DairyLine:
Market analyst Jerry Dryer gives his perspective on the dairy markets, particularly on butter, and the latest commercial disappearance data.
   Why would cows not be milking as well this year as last?  Dr. Mike Hutjens looks at forage quality and other factors that may be the cause.