DairyBusiness Update: February 14, 2014

USDA Dairy Outlook: Modest Herd Expansion Predicted
As it always does, USDA’s monthly Livestock, Dairy & Poultry Outlook report mirrored dairy projections contained in its World Agricultural Supply and Demand Estimates report issued Monday. Milk supplies were predicted to increase in 2014 as a modest herd expansion is forecast for the second half of the year. Yield per cow was forecast to rise year-over-year, but no change was made in the February forecast from January. Exports remain strong, but higher milk production, both domestically and globally, could pressure prices later in 2014, according to the Outlook.
• 2013 production and marketings were projected at 201.2 billion lbs. and 200.2 billion lbs., respectively. If realized 2013 production and marketings would be up about 0.45% from 2012.
• 2014 production and marketings were projected at 205.7 billion lbs. and 204.7 billion lbs. respectively. If realized, 2014 production and marketings would be up about 2.2% from 2013.

What Goes Up Must………OK, But How Low Will it Go?
   Cash cheese prices set new record highs at the end of January but plunged last week, although they’re still unseasonably high and still above $2 per pound. I asked FC Stone dairy broker Dave Kurzawski, in this morning’s DairyLine broadcast, how low they would go. Kurzawski said there are two camps out there, one that believes we’re settling into a stabilized price at $2.1050 per pound on the blocks and $2.06-$2.07 on the barrels. The other camp believes that the market clearing price is somewhere below $2, perhaps $1.90 or $1.85 per pound and the split between the camps is 50/50.
   He thinks there is cheese that is coming to the CME but there’ll be buyers stepping in although end users are still in a “wait and see mode.”
   Export prospects for 2014 are still good, according to Kurzawski, but will “ebb and flow like any other year.” “We’ve spent the better part of 8 to 12 months looking at burgeoning export prospects,” he explained, “And they will ebb and flow and if that’s so we could be at a period now where things start to slow down as milk production comes on, pretty strong out there in Europe.
   He adds that there’s a “very competitive atmosphere” right now on butter and cheese out of Europe where “they’re taking some of our business.” As that happens, he warns that “our price has to adjust to be competitive.”
  As to his read on butter overall, salted butter in the U.S. is largely tight, he said, but exports have slowed some. He said we may be entering a period now of “quiet trading, sideways, in the mid $1.70s” until we get to the Easter holiday.

Milk Production Down Under is Up
   Australian milk production continues to be suppressed by bouts of extreme heat and dry weather, according to Dairy Market News (DMN). The breaks between the various heat waves have offered some bounce back in production, but the continuing cycle of heat has accelerated production declines. Milk production is hanging on in northern Victoria where irrigation systems are maintaining pastures and also due to supplemental feeding to help extend the production season. Areas without irrigation have very limited or no pastures. Dairy Australia reports December milk production up 1.4% from December 2012.
   New Zealand milk production continues to be well above year ago levels. Weather conditions have been supportive. Some producers have implemented supplemental forage feeding to maximize late season production. Overall, the season looks to end strong for most producers. The gains in late season are allowing manufacturers to more confidently manage and build stocks for the upcoming carryover. Global demand for milk powders remains strong. China's trading activity is slowly coming back following the New Year's holiday but butteroil and milk powder prices have reached levels, where some prospective buyers are considering alternative products.

European Output Mixed
   Current Western Europe milk production continues to increase at volumes well above year ago levels, according to DMN. Mild winter weather, higher milk prices, herd expansion, moderate to lower feed costs and strong global demand for milk powders have all combined to support milk production increases. Production levels in some areas of Europe are approaching or exceeding year ago peak levels. 
   ZMB Dairy World reported December milk production in the EU-28 up 4.6%, compared to the same period last year. Ireland, +26.2%; Netherlands, +5.4%; Germany, +3.9%; and France +5.0%. Milk production volumes are projected to increase towards the seasonal peak, in April-May, and will surpass milk powder manufacturing capacities, despite expected increases in drying capacities.
   Eastern European milk production for 2013 did not reflect the increases seen in the west. The Czech Republic, Croatia, Slovakia and Slovenia all reported milk production declines compared to the previous year. Poland saw only a marginal increase, 0.8%, compared to the previous year. Severe winter weather has reduced milk production in some regions with heavy snows and a major ice storm in Slovenia.  Cheese and butter manufacturers continue to receive good export interest.

Fonterra Increasing its Offerings   
   High Ground Dairy’s Eric Meyer reports that, for the second straight auction, Fonterra increased their 12 month GDT volumes on most dairy commodities versus the previous event. At 1.8 billion lbs., Fonterra is projecting its largest annual GDT volume since mid-July. Over the past two events, Fonterra has upped their estimate by 40.3 million lbs., or 6.1%.   
   Meyer adds however, that total volume at Tuesday’s auction is declining in step with the New Zealand milk production curve. WMP for sale next week (across all delivery months) is at its lowest since Q2 2013, he said, when product was scarce due to drought. So will increased long-range forecasts or incremental volumes added to auctions over the next two months soften GDT prices or will buyers be at the ready to soak up the excess, Meyer asks?    “At some point in the future prices will decline under the weight of heavier production,” Meyer concludes, “But at this point there is no clear indication that whole and skim milk powder buyers have seen demand wither at these extreme levels. We expect prices to remain stable in the near term.”

California to Hold Drought Information Meetings
   The California Department of Food and Agriculture and the U.S. Department of Agriculture will hold informational sessions on drought resources for farmers, ranchers and farmworkers in several locations throughout the state in the coming weeks. The sessions will provide information on state and federal government programs designed to assist farmers with water conservation, crop insurance, and other on-farm management tools. Information on farmworker assistance programs will also be available.
   Upcoming application deadlines for federal programs include crop insurance programs offered by the USDA’s Risk Management Agency (February 28th); non-insured crop insurance offered by the USDA’s Farm Service Agency (March 1st); and water conservation enhancements offered by the USDA’s Natural Resources Conservation Service (March 3rd). These programs offer a variety on-farm assistance including cover crops and tree pruning as well as market-based risk management tools.

Informational sessions will be held on the following dates/locations:
February 18, 2014 - 6p.m. to 8p.m. (Redding/Palo Cedro)
Junction Elementary School – Theater Room
9087 Deschutes Road
Palo Cedro, CA 96073                                              
February 19, 2014 – 6p.m. to 8p.m. (Salinas)
Monterey County Agricultural Commissioner’s Office
1428 Abbott Street
Salinas, CA 93901
 February 20, 2014 – 6p.m. to 8p.m. (Fresno)
Fresno County Farm Bureau
1274 W. Hedges Ave
Fresno, CA 93728
 February 25, 2014 – 6p.m. to 8p.m. (Ventura/Camarillo)
Ventura County Agricultural Commissioner’s Office
555 Airport Way, Suite E
Camarillo, CA 93010
 February 26, 2014 – 6p.m. to 8p.m. (San Diego/Escondido)
San Diego County Farm Bureau
1670 E. Valley Parkway
Escondido, CA 92027

   Several state/federal government entities will be represented at these information sessions, including: USDA Farm Service Agency; USDA Risk Management Agency; USDA Natural Resources Conservation Service; USDA Rural Development; the California Employment Development Department; and other community resources.
   For more information concerning drought resources for California farmers, ranchers and farmworkers, please visit www.cdfa.ca.gov/drought.

Mielke Market Daily / Week’s End Review

(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   There seemed to be a collective sigh of relief this morning as spot cheese prices held in Chicago and no product showed up. The 40lb. blocks close the week at $2.1050/lb. (unchanged for 3 days in a row). A bid at $2.09/lb. was not filled. The 500lb. barrels remain at $2.0625/lb. A bid at $2.06/lb. got no response.
   The blocks are down 12.75¢ on the week (down 12.75¢ last week) but still 43¢ above a year ago. The barrels are down 14.25¢ on the week (down 11.5¢ last week) and 43.25¢ above a year ago. Twenty four loads of block traded hands this week and 16 of barrel.
   FC Stone risk management consultant Chris Hildebrand wrote in this morning’s Insider Opening Bell: "Milk will likely be tight for the next couple of months but not as tight as it has been. There is a lot of uncertainty, and it is evident with the current price action in the Class III market." He adds that "There are a lot of variables at play in the cheese market. EU and Oceania cheese prices are now above U.S. cheese prices, which could boost U.S. exports. At the same time milk is starting to loosen up and higher prices will soon hit consumers.”
   Cash butter was also unchanged today, holding at $1.77/lb., following a 2¢ jump yesterday and a 1.5¢ loss on Wednesday. Two bids at $1.77/lb. drew no seller and an offer at $1.79/lb. drew no buyer. CME butter is down 5¢ on the week but 16.5¢ above a year ago. Nine cars found new homes this week.
   With respect to butter, Hildebrand says "On a technical basis, there is still more upside for the butter market, and fundamentally product is still pretty tight." The Easter holiday season is late this year, with Easter falling on April 20, but that's still only a little more than two months away.
   The nonfat dry milk roller coaster stopped today, holding at $2.02/lb., following a 3.5¢ loss yesterday, 0.75¢ gain Wednesday, and 3¢ jump on Tuesday. A bid at $2.02/lb. this morning was unfilled and 2 offers at $2.05/lb. were uncovered. Spot powder is up 0.25¢ this week and 10 carloads were sold this week.

The markets are closed Monday for the President’s Day holiday.

Today’s Market Closing Prices:
 Unchanged, at $1.77/lb.
Cheddar blocks: Unchanged, at $2.1050
Cheddar barrels: Unchanged, at $2.0625/lb.
Grade A nonfat dry milk: Unchanged, at $2.02/lb.
Class III milk: Feb. $23.14, +2¢ (+25¢ on the wk.); Mar. $21.04, Unchanged (+54¢ on wk.); Apr. $19.87, +21¢ (+55¢ on wk.), May $19.23, +13¢, & Jun. $18.98, +4¢. Based on today’s CME settlements, the Second Quarter 2014 average now stands at $19.36, +13¢ from Thursday. The 2nd half average is $18.37, +1¢ from Thursday.
Looking ahead:
   With the markets being closed Monday, there’ll be no DairyBusiness Update but we’ll be back on Tuesday and there’ll be lots to report. The biweekly Global Dairy Trade Auction takes place on Tuesday morning. Thursday afternoon, USDA issues the January Milk Production report and the latest Consumer Price Index data. The Livestock Slaughter report is issued Thursday afternoon and the March Federal order Class I base milk price is announced. Preliminary January Cold Storage data is issued by USDA Friday afternoon.
Monday on DairyLine:

 Tulare dairyman Jeff Wilbur tells us how he has survived in California the last 20 years.
 Plus, our weekly installment of "Make the Connection" with dairy team facilitator Kristy

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