DairyBusiness Update: February 19, 2014

GDT Dip Not Alarming
Yes, GDT prices were down yesterday from the previous auction but they remain at historically high levels. And, High Ground Dairy’s Eric Meyer adds that “With whole and skim milk powder prices only slightly lower as Fonterra’s short and long term volume projections continue to increase, we view this as supportive to the market.”
   Meyer added that unconfirmed reports this week from Algeria and Mexico are suggesting strong volume commitments at prices at or even slightly higher than current GDT or CME.
   “Milk supplies will continue to grow (and accelerate) in major milk producing regions as record prices encourage expansion,” says Meyer, “But until demand softens, we do not see powder prices making a significant decline any time soon.”
   He does add a caution: “Bearish price action in the fat complex (AMF & butter) is the main story in this week’s event and should continue to be monitored. However, those commodities have shown impressive gains over the past few months and may be working through a bullish correction.”
   Total volume at yesterday’s event came in at 34,568MT (76 million lbs), a 2.3% decrease vs. two weeks ago but 3.3% higher than the corresponding week last year. Event times are also declining, according to Meyer, with the new rules implemented last month. This week’s auction only took 1 hour, 36 min to complete, GDT’s fastest since Feb 2012.

Butter Churns Are Spinning/Demand is Recovering
   Butter production in the Northeast is at increased levels, with some churns running 6 day schedules, according to USDA’s Dairy Market News (DMN). Some manufacturers report cream supplies as substantial and exceeding demand. Sellers are searching for buyers to purchase surplus loads as multiples decline.
   Domestic butter demand is growing. Some butter makers are clearing high volumes of specialty product for contractual customers as the Easter holiday season approaches. International butter interests are increasing steadily following recent declines in butter prices and export assistance developments. The market tone is steady.
   Many Midwest butter churn operators are also churning heavily, ,according to DMN, taking advantage of plentiful cream supplies. Some manufacturers are focused on rebuilding stocks, while others with 82% production capabilities are busy filling export orders. The market tone is steady with domestic retail sales picking up and good international interest. Retail orders are beginning to go back to normal seasonal orders after large Fourth Quarter holiday orders. Bulk butter availability continues to be limited with most supplies spoken for in the near term.

Cheese Output is Easing
   Northeast cheese production has eased with some cheese maker emphasis on supplying contractual volumes, according to DMN. Buyers in the region are hesitant about making purchases, with concerns that cheese prices have not yet settled. Some contacts report the unusual winter weather conditions have significantly impacted food service sales. Export interest continues to drive demand in the cheese market and the tone is steady, says DMN.
   Meanwhile; mixed signals are coming from Midwest cheese manufacturers, according to DMN. Some report sales are up while others report that orders are average. Many manufacturers believe that there is pending strength in cheese orders once buyers resolve that relative price stability has developed.
   Cheese buyers are alert to signs that prices have stabilized as a signal to increase purchases. One cheese manufacturer believes that "a few more days with little price movement will lead to increased ordering."
   Milk supplies available for cheese manufacturing are increasing. There is little evidence of manufacturers seeking out additional milk. One manufacturer commented "nobody in their right mind is looking for more milk."

California Dairies Adds New Executive
   David Camp has become senior vice president and CFO for California Dairies, Inc. (CDI), the nation’s second largest dairy processing cooperative in Visalia. Camp, a certified public accountant, will be responsible for the financial, accounting, treasury, information technology and risk management functions within CDI.
   Camp joins CDI with nearly 25 years of leadership experience as CFO and controller with expertise in the areas of audits, risk management and financial reporting. Camp was most recently with Roll Global, LLC, a globally integrated private farming and consumer packaged goods enterprise, where he was the vice president and group controller.

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   Yesterday’s uptick in cheese prompted the question, will that be sustained today or will it slip back? The answer was, neither! It was as if no one showed up today in the cash cheese market, where the 40lb. Cheddar blocks held at $2.1075/lb., following yesterday’s 0.25¢ increase on an unfilled bid. The 500lb. barrels remain at $2.0675/lb., following yesterday’s 0.5¢ gain on some sales but there was no activity in either market this morning.
   FC Stone risk management consultant, Joe Kobel, wrote in this morning’s Insider Opening Bell: "People are planning to replenish cheese inventories. They need it."
   Spot Grade A butter was also unchanged today, holding at $1.77/lb., where it’s been since last Thursday. One offer at $1.79/lb. was uncovered.
   With GDT butter priced at $2.08/lb. yesterday, Kobel says U.S. prices are “still at a significant discount to international prices.”
   An unfilled bid took the Grade A powder up 1.25¢ this morning, following a 1¢ gain yesterday on some trades. It’s now at $2.0425/lb.
   The trend is higher and demand is there on powder, according to Kobel, but nonfat also is “meeting price resistance at these levels,"

Today’s Market Closing Prices:
Butter: Unchanged, at $1.77/lb.
Cheddar blocks: Unchanged, at $2.1075/lb.
Cheddar barrels: Unchanged, at $2.0675/lb.
Grade A nonfat dry milk: Up 1.25¢, to $2.0425/lb.
Class III milk: Feb. $23.14, unchanged; Mar. $21.33, +7¢; Apr. $20.53, +20¢; May $19.69, +20¢, & Jun. $19.35, +20¢. Based on today’s CME settlements, the Second Quarter 2014 average now stands at $19.86, +20¢ from Tuesday. The 2nd half average is $18.50, +9¢ from Tuesday.
Looking ahead:
   Tomorrow is a busy day. Preliminary January milk production data will be released by USDA tomorrow afternoon, along with preliminary data from the 2012 Agricultural Census, and the latest Livestock Slaughter report. The Agriculture Department announces the March Federal order Class I base milk price as well and the January preliminary Cold Storage report is out tomorrow afternoon.
   USDA’s Agricultural Outlook Forum is happening tomorrow and Friday in Arlington, Virginia. Agriculture Secretary Tom Vilsack will moderate two plenary panels exploring the future of agriculture. For complete details, log on to www.usda.gov/oce/forum.
Thursday on DairyLine:
   NMPF’s Chris Galen has a CWT update
   Dr. Tom Earleywine has tips on keeping calves well cared for in the cold weather