DairyBusiness Update: March 10, 2014

California Class I Prices Slip 50 Cents/Up $5.39 from 2013  
   The California Department of Food and Agriculture announced the state’s April Class I milk prices this morning at $24.88 per hundredweight (cwt.) for the north and $25.15 for the south. Both are down 50 cents from March record highs but are still $5.39 and $5.38 per cwt. respectively above April 2013.
   The north 2014 Class I average now stands at $24.05, up from $19.72 at this time a year ago and $18.30 in 2012. The southern average, at $24.32, is up from $20.00 a year ago and $18.57 in 2012. The Federal order Class I base price is announced by USDA on March 19.

March WASDE: 2014 Milk Output Forecast Unchanged; Prices Up   
   The 2014 milk production forecast in USDA’s World Ag Supply & Demand Estimates report, released March 10, was unchanged from last month, but historical data was adjusted to reflect revised data for 2012 and 2013. Fat-basis exports for 2014 were raised on higher sales of cheese and butter. Skim-solid exports were unchanged as lower lactose and weaker-than-expected early year sales of nonfat dry milk (NDM) offset gains in cheese. Fat basis imports were unchanged. Skim-solid imports were raised on strong demand for milk protein concentrates.
   • 2013 production and marketings were projected at 201.2 billion lbs. and 200.3 billion lbs., respectively. The marketing estimate was raised 100 million lbs. from last month’s report. That would place 2013 production and marketings up 0.35% from 2012. 
• 2014 production and marketings were projected at 205.7 billion lbs. and 204.7 billion lbs., respectively, unchanged from last month’s report. If realized, 2014 production and marketings would be up about 2.2% from 2013. 
   Product price forecasts for cheese, butter, NDM, and whey were higher, supported by strong demand and price strength to date. Class III and Class IV price forecasts were raised on higher product prices. The all milk price was forecast at $21.40-$22.00 per cwt. Read more at: http://usda01.library.cornell.edu/usda/current/wasde-03-10-2014.pdf.

Dairy price forecasts 
Estimated Forecast
Product 2012 2013 2014    
Class III ($/cwt) 17.44 17.99 18.95-19.55
Class IV ($/cwt) 16.01 19.05 20.35-21.05
All milk ($/cwt) 18.53 20.01 21.40-22.00
Cheese ($/lb.) 1.7076 1.7683 1.8600-1.9200
Butter ($/lb.) 1.5943 1.5451 1.6050-1.6950
NFDM ($/lb.) 1.3279 1.7066 1.8250-1.8750
Dry whey (¢/lb.) 59.35 59.02 0.5800-0.6100

Source:USDA WASDE report, June 12, 2013

Feed Grains Update:WASDE
   Corn exports were projected 25 million bushels higher on stronger world imports and the rising pace of shipments in recent weeks, according to today’s World Agricultural Supply and Demand Estimates report (WASDE). Continued strong export sales also support the higher figure. Projected corn ending stocks were lowered 25 million bushels.
The season-average farm price for corn is narrowed 5 cents on both ends of the projected range to $4.25 to $4.75 per bushel.
   U.S. soybean supply and use projections for 2013/14 include higher imports and exports, reduced crush, and reduced ending stocks compared with last month’s report.
Soybean exports were raised 20 million bushels to a record 1.53 billion reflecting continued strong sales and shipments through February. Soybean crush was reduced 10 million bushels to 1.69 billion reflecting weaker-than-expected domestic soybean meal use through the first quarter of the marketing year. Soybean stocks were projected at 145 million bushels, down 5 million from last month. Soybean and soybean product prices were all projected higher this month. The season-average price range forecast for soybeans was raised 25 cents on both ends of the range to $12.20 to $13.70 per bushel. Soybean meal prices were projected at $450 to $490 per short ton, up 25 dollars at the midpoint.

Cheese Sales Are Steady
   Domestic cheese demand for retail is steady with some increased interest for process cheese, according to USDA’s Dairy Market News (DMN). Mozzarella sales are also said to be increasing. Export demand is steady, with some additional forward sales receiving price assistance. Cheese production is increasing as milk supplies build seasonally across the country. Some Midwestern plants are buying surplus milk to increase production and fill orders.

Butter Exports Still Strong/U.S. Remains Competitive
   U.S. butter prices remain competitive with international prices fostering good export sales, reports Dairy Market News. The market tone is steady with supplies and retail orders gradually building. Additional cream supplies available in Q1 have allowed many butter churn operators to fulfill domestic and international needs, therefore using less bulk inventories. Production rates are steady to slightly higher.

Frozen Desserts/Ice Cream Pulling Cream from the Churn
   More milk is moving through manufacturing plants as Class I sales are sluggish, according to Dairy Market News. Processors are ramping up production of Class II products as warmer weather moves into the U.S. Frozen dessert and ice cream accounts are increasing cream intakes, helping to keep cream supplies manageable. Butter/powder plants are seeing increased volumes of milk.

NMPF Defends Ri$ing Milk Prices
   The National Milk Producers Federation (NMPF) newsletter reports that a rash of news stories in February has focused on the potential impact of rising farm-level milk prices, stoking fears of record-high consumer prices for dairy foods.
   NMPF says it has provided important context to the issue, reminding the media that farm prices are just now climbing back to where they were in 2007-2008, before the Great Recession devastated dairy markets.
   Also, of course, dairy farmers don’t have any control over retail milk prices, which vary widely from store to store. And farmers still get only about 35 cents of every dollar the consumer spends on milk and dairy products.
   Farm prices are rising because increased global demand for dairy products, now being met in part with U.S. exports, which are now more than 15 percent of total U.S. production. As a result, the supply of milk in this country is not keeping up with demand.
   Last year, milk production rose just four-tenths of one percent, as feed costs, weather, and past low prices combined to keep a lid on farmers’ ability to expand output. Even with the recent price rise, however, dairy food inflation has lagged behind both the general inflation rate and the rise in all food costs for a decade, according to NMPF.

Fallout of Last Week’s GDT Drop
   The Daily Dairy Report’s Sarina Sharp points out in the March 7 Milk Producers Council newsletter that March Class IV futures climbed and April was steady last week, but the other contracts lost as much as 64¢. She adds that much of the Class IV weakness can be blamed on a disappointing Global Dairy Trade (GDT) auction. The GDT index fell 4% due to a 3.9% decline in the average winning skim milk powder (SMP) price and a 5.7% slide in whole milk powder (WMP) prices. The other products fared better than the milk powders. Cheddar was essentially unchanged, while butter prices jumped 3.9%.
   The dairy markets are in a period of transition, according to Sharp. After six months of milk production deficits and lofty prices, buyers have been forced off the sidelines and pent-up demand has pushed dairy product prices to sustained highs. But now that demand is being answered by truly impressive supply growth. If the GDT is any indication, global milk powder buyers are not willing to buy blindly at any price. Even China, whose January import volumes bordered on alarming levels, seems a little more patient. The looming supply glut is unlikely to cause a near-term collapse in dairy product prices. End users are likely under-covered and will continue to buy at the first sign of lower prices. However, milk prices could drift down from record highs as milk flows increase.

Answers to Questions Over a California Federal Order
   Staff for the U.S. Department of Agriculture published a working document with a series of frequently asked questions on the issue of a potential California Federal Milk Marketing Order (FMMO), along with responses. The document is featured in Friday’s Milk Producers Council newsletter.
   The three major California cooperatives (CDI, DFA and LOL) have been working collaboratively on a draft petition to be submitted to USDA for the purpose of establishing a FMMO in California. During that process, USDA staff have made several visits to California, and have heard from many dairy families and their representatives. They have collected some of those questions in a document, provided responses, and posted the document on their website at: http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELPRDC5106626.

Playing Chicken Who is Next?
    A posting on The Blaze says Attorneys general in six states are supporting a lawsuit against California’s cage-free requirement for egg-laying hens, going into effect in 2015. Other states argue the law violates the Constitution’s Commerce Clause, because it requires the hens laying eggs that are imported into California also comply with the law. The Humane Society and some farmers are on board with the new requirements while others, including those in pork and cattle, worry about how the costly change could put a damper on the animal farming industry.
   Five states have joined Missouri in a lawsuit against California, contesting a provision in its state law that requires hens laying eggs to be “cage-free,” or at least have larger spaces. California voters passed approved a proposition in 2008 that’s set to go into effect next year, banning “extreme confinement” cages of animals within the state.
   So why are other states getting involved, in addition to other animal farming industries? As it turns out, the law extends to eggs sold within California, not just to the chickens raised there. All eggs would have to come from hens who also have enough room to spread their wings, even if the chicken is in a different state.
   Missouri launched a lawsuit against the state last month, with Iowa, Nebraska, Kentucky, Oklahoma and Alabama joining it Wednesday, alleging that it violates interstate commerce, according to the Wall Street Journal.
   For Missouri’s egg farmers to bring their systems into compliance with California law, it is estimated to cost them a total of $120 million. “We can’t have our farmers and ranchers at the whim of California’s voters, and that’s why we filed the lawsuit,” Nebraska Attorney General Jon Bruning told NPR.
   California Attorney General Kamala Harris countered that if this lawsuit were successful, achieving what previous legislative amendments failed to do, “it will limit the ability of voters in any state to enact laws they deem in their best interest.”
   Wayne Pacelle, president and CEO of the Humane Society of the United States, echoed this sentiment. “State officials trying to curry favor with agribusiness interests are letting their political grandstanding trump their better judgment about the rights of states to make laws and about the wisdom of having some minimal standards for the care of animals,” Pacelle said.

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   Unfilled bids did it again this morning. Cash 40lb. Cheddar cheese was up 0.75¢ on 1 unfilled bid and is now at $2.30/lb. 6¢ shy of its January 31 record. The 500lb. barrels were up 2¢ on a single bid, to $2.27/lb. No seller was in sight.
   FC Stone Risk management consultant, Chris Hildebrand, wrote in this morning’s Insider Opening Bell that "The spot cheese market could retest is latest highs. Inventories are not building as one might expect, which could support prices in the near term." At the same time, though, he says that the cheese market looks somewhat overbought from a technical perspective.     
   Cash butter dropped to $1.87/lb. on the first 4 trades this morning, but a 5th car sold at $1.88/lb., and a 6th sold for $1.8850/lb., up 0.5¢ on the day, after holding all last week at the $1.88/lb.
   FC Stone’s Hildebrand says "The butter futures market is still technically strong and there's still room for butter to move higher."
   Cash Grade A nonfat dry milk was unchanged, holding at $2.04/lb. A carload was offered at $2.04/lb. but no one bit.
   Hildebrand concurs with Sarina Sharp’s comments (see above story) regarding last week's drop in GDT milk powder prices. “People are more patient in their purchases,” he said, “And are looking for lower prices to secure product."
Today’s Market Closing Prices:
Butter: Up 0.5¢, to $1.8850/lb.
Cheddar blocks: Up 0.75¢, to $2.30/lb.
Cheddar barrels: Up 2¢, to $2.27/lb.
Grade A nonfat dry milk: Unchanged, at $2.04/lb.
Class III milk: Mar. $22.86, +21¢; Apr. $21.42, +17¢; May $20.35, +10¢; & Jun. $20.10, +9¢. Based on today’s CME settlements, the Second Quarter 2014 average now stands at $20.62, +12¢ from Friday. The 2nd half average is now at $19.27, +8¢ from Friday.
Looking ahead:
   The National Dairy Products Sales Report (NDPSR) dairy product prices are released Wednesday afternoon and the monthly Livestock, Dairy, and Poultry Outlook is issued on Friday.
Tuesday on DairyLine:
   Penn State's James Dunn provides his monthly dairy outlook & BouMatic's
   Denise Benhke has a SmartDairy Update: