DairyBusiness Update: March 4, 2014

Dairy Products Report: More Milk to Vat & Dryer/Less to Churn
January 2014 milk production was up 1% compared to a year ago, and most of the extra milk found its way into the cheese vat and dryer and less into the churn, according to USDA’s latest Dairy Products report issued this afternoon. January 2014 dairy product output, compared to January 2013 was as follows:
Total cheese: 950.76 million lbs., up 1.6%; (down 1.9% from December 2013)
Total Italian cheese: 418.4 million lbs., up 4.6% (down 1.2% from December)
Mozzarella: 332.0 million lbs., up 6.6% (down 0.3% from December)
• American-type cheese: 380.4 million lbs., up 1.1% (up 0.7% from December)
Cheddar: 277.9 million lbs., down 1.0% (Up 2.0% from December)
• Butter: 182.4 million lbs., down 3.0% (up 12.9% from December)
Dry milk powders:
   Nonfat dry milk, human: 139.5 million lbs., down 2.3% (up 11.1% from December)  
   Skim milk powders: 58.8 million lbs., up 22.6% (up 1.1% from December)                                                                                                        
Dry whey (total): 70.0 million lbs., down 22.8% (down 14.3% from December)
Yogurt: 395.3 million lbs., up 0.1% (up 3.8% from December)

Global Dairy Trade Auction Down 4%
Today’s Global Dairy Trade (GDT) auction saw the weighted average for all products drop 4.0%, led by a 5.8% plunge in buttermilk powder and a 5.7% drop in whole milk powder. Skim milk powder was down 3.9%, while butter was up 3.9%, and Cheddar cheese was up 0.7%.
   The average butter price equated to about $2.1527/lb. U.S., up from $2.0802/lb. in the February 18 event ($2.1002/lb. on 80%, up from $2.0294). The Cheddar average was $2.1940/lb., down from $2.1977/lb.; skim milk powder, $2.1128/lb., down from $2.1682/lb., and the whole milk powder average was $2.1332/lb., down from $2.2675 in the last event.
                                                                             Source: GDT & INTL FC Stone

More Cheese & Butter Leaving U.S. Shores
   Cooperatives Working Together (CWT) accepted 11 requests for export assistance today from Foremost Farms USA, Maryland & Virginia Milk Producers Cooperative Association, Northwest Dairy Association (Darigold) and Tillamook County Creamery Association to sell 782,641 pounds of Cheddar cheese and 3.142 million pounds of 82% butter to customers in Asia, Central America, Europe, the Middle East and North Africa. The product will be delivered through June 2014.
   Year-to-date, CWT has assisted member cooperatives in selling 26.072 million pounds of cheese, 10.418 million pounds of butter and 698,865 pounds of whole milk powder to 19 countries on four continents. These sales are the equivalent of 475.3 million pounds of milk on a milkfat basis.

February Dairy Margins Strengthened
   Dairy margins strengthened over the second half of February, with higher milk prices more than offsetting increased feed costs, according to Chicago based Commodity & Ingredient Hedging (CIH). Nearby margins in spot Q1 and Q2 essentially remain at the 100th percentile of the past 10 years, while deferred margins in Q3 and Q4 are at the 94th and 89th percentiles, respectively.
   As expected, higher milk prices appear to be encouraging increased milk production, with the latest report from the USDA showing January milk production of 17.3 billion pounds, up 2.8% from December and 0.9% above last year.
   Cheese prices remain very strong, with block cheddar on the CME spot market on its second-longest run in the past 10 years above $2.00/lb.
   There is some concern however moving forward that high prices for both cheese and beef could negatively impact demand moving into the grilling season (if the U.S. ever thaws out).
   Unrest in Ukraine has added some risk premium back to grain prices, although the main grain export terminals in the Black Sea are far removed from the Crimean flashpoint.
   USDA will update their next monthly World Agricultural Supply and Demand Estimates for the corn and soybean markets on March 10. At the end of the month, USDA will provide both the Prospective Plantings report for 2014 as well as March 1 quarterly grain stocks. For more details on CIH, log on to www.cihmarginwatch.com.

Will Supply Management Survive in Canada?
   Menafn-Canada NewsWire reports that pressure is mounting on Canada’s dairy quota system. Global markets offer dairy producers enormous growth potential. Reform to Canada's outdated dairy supply management policy must be accompanied by a push to expand into global markets with rapidly-growing demand, according to The Conference Board of Canada's second release of findings from its analysis of dairy supply management.
   "Dairy supply management is an old solution to an old problem. When the current system came into effect, international trade in dairy products was very limited. Today, countries such as China are growing markets thirsting for quality dairy products. We're not in a position to take full advantage because our system is now outdated," said Michael Bloom, Vice-President, Industry and Business Strategy.
   The Conference Board report, Canada's Reforming Dairy Supply Management: The Case for Growth, argues that a win-win reform package needs to be accompanied by a new vision for industry growth. Since dairy consumption in Canada is stagnant, export markets are key to industry growth.
   The complete article is posted at http://www.menafn.com/632f3563-4106-49bb-bd2d-6ftdd3ede38dd/Dairy-supply-management-system-needs-reform-Success-hinges-on-growth?src=main.

Cheese Names Being Contested
   NPR’s Latoya Dennis details the issue, writing “What's in a name? It's an age-old question Juliet once asked Romeo in Shakespeare's famed play.
   Today, it's a serious question between the U.S. and the European Union, which has said it wants U.S. food makers to stop using European names.
   But depending on what food you're talking about, a name could be a lot, says Kyle Cherek, the producer and host of a TV show called Wisconsin Foodie.
   Cherek argues that certain products are so unique that only one country or region should be allowed to lay claim. So, for example, he says only onions from Vidalia, Ga., should be called American Vidalia, and Lambic beer absolutely has to come from a specific valley in Belgium.
   "Roquefort, of course, has to come from that region" of France, he adds, because there's a distinctive fungus that gives the cheese its flavor.
   But not everything fits into that category. Take, for instance, cheddar cheese — which is big business in Wisconsin
  "They simply can't legislate that into a region," Cherek says. "Cheddar is made in Australia, in the U.S., in Canada. It's made in probably seven or eight countries."
   And therein lies the problem.
   As part of negotiations over the Transatlantic Trade and Investment Partnership, the European Union wants the U.S. to prohibit food makers here from using names with historical ties to Europe.
   That means popular cheeses like Gruyere, Brie and Parmesan could all be in line for a name change, thanks to the EU's proposed restrictions. The problem, says Steve Stettler, who owns Decatur Dairy in Brodhead, Wis., is that U.S. food makers have spent a lot of money building their brands.
   "How do we educate our consumers? People have spent a great deal of money on labeling, building traditions, building a name on a product," Stettler says. "And then not being able to use that name would be kind of horrific."
    Read more details at http://goo.gl/n7YVdP

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   Cash cheese trading was mixed again today. The blocks were unchanged, following yesterday’s 0.5¢ gain, and remain at $2.2275/lb. but the Cheddar barrels lost another 3.25¢, after dropping 4¢ yesterday, and are now trading at $2.1275/lb., an atypical 10¢ below the blocks. Two cars of barrel were sold, 1 at $2.1550/lb. and 1 at $2.14/lb., but an offer at $2.1275/lb. took the price to its closing loss.
   Butter did a repeat of yesterday, unchanged in price at $1.88/lb., with no activity to report. FC Stone risk management consultant Joe Kobel credits China's huge purchase of whole milk powder late last week for Friday's activity in the spot butter market.
   The Cash Grade A nonfat dry milk was steady at $2.0275/lb., after losing 1.25¢ yesterday. A bid at $2.02/lb. was unfilled.

Today’s Market Closing Prices:
Butter: Unchanged, at $1.88/lb.
Cheddar blocks: Unchanged, at $2.2275/lb.
Cheddar barrels: Down 3.25¢, to $2.1275/lb.
Grade A nonfat dry milk: Unchanged, at $2.0275/lb.
Class III milk: Feb. $23.18, -2¢; Mar. $22.10, +21¢; Apr. $20.26, unchanged; May $19.61, -6¢, & Jun. $19.57, -10¢. Based on today’s CME settlements, the Second Quarter 2014 average now stands at $19.81, -6¢ from Monday. The 2nd half average is now $18.91, -5¢ from Monday.
Looking ahead:
   This is one of those lean weeks in terms of Agriculture Department reports that we regularly monitor, in fact there are no more the rest of this week. February Federal order Class II, Class III, and Class IV milk prices are announced tomorrow afternoon by USDA and the National Dairy Products Sales Report (NDPSR surveyed) product prices are announced.
Wednesday on DairyLine:
   Why has ‘Milk Life’ replaced “got milk?” – MilkPEP’s Victor Zaborsky tells us.
   Dan Basse from AgResource tells shares some insight into his keynote speech next
     week at PDPW’s Business Conference.