DairyBusiness Update: March 18, 2014
Global Dairy Trade Average Drops 5.2%
Today’s Global Dairy Trade (GDT) auction saw the weighted average for all products drop 5.2%, following a 4% drop in the March 4 event. Today’s downfall was led by a 10.7% plunge in anhydrous milkfat and a 10.7% drop in rennet casein. Whole milk powder was down 5.8%. Butter was down 4.4%, Cheddar cheese was down 4.1%, and skim milk powder was off 1.7%.
FC Stone reports the average butter price equated to about $2.0567/lb., down from $2.1527/lb. in the Jan. 7 event ($2.0065/lb. on 80% butterfat, down from $2.1002/lb.). The Cheddar cheese average was $2.1052/lb., down from $2.1940/lb.; skim milk powder, at $2.0792/lb., was down from $2.1128/lb., and the whole milk powder average was $2.0136/lb., down from $2.1332/lb. in the last event.
Source: GDT & INTL FC Stone
Dairy Margins Continue Improving Says Latest CIH Margin Watch
Dairy farm margins continued to improve through the first half of March, according to the latest Margin Watch from Chicago-based Commodity & Ingredient Hedging LLC., due mainly to a mid-month surge in milk prices while feed costs increased as well since the end of February. Nearby Second Quarter margins have now reached the historic highs of 2004 while deferred margins are likewise historically strong, at or above the 90th percentile of the past 10 years.
Milk continues drawing support from the spot cheese market, with block cheddar prices at the CME reaching new all-time highs last week. January cheese and curd exports of 70.8 million pounds were up 3.3% from December and 46% higher than the previous year. The January numbers were the largest monthly commercial cheese trade on record for the U.S., with exports accounting for 7.8% of total cheese production for the month.
It should be noted that most of this strength followed business executed at lower prices during Fourth Quarter 2013 and there is some concern that current prices may discourage future demand. There are signs that U.S. dairy product prices are becoming expensive on the world market with milk production recovering in other exporting countries.
Feed prices meanwhile have firmed over the past few weeks as strength in ethanol margins and the conflict in Ukraine support corn while a tightening balance sheet in the latest March World Agricultural Supply & Demand Estimates report for both corn and soybeans provides underlying support.
Complete details are posted at www.cihmarginwatch.com
CWT Keeps Moving Product Offshore
The farmer-funded Cooperatives Working Together (CWT) accepted 10 requests for export assistance today from Dairy Farmers of America, Foremost Farms USA, Michigan Milk Producers Association, Upstate Niagara Cooperative (O-AT-KA) and Tillamook County Creamery Association to sell 220,462 pounds of Cheddar cheese, 2.535 million pounds of 82% butter and 1.268 million pounds of whole milk powder to customers in Africa, 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 27.205 million pounds of cheese, 14.309 million pounds of butter and 2.573 million pounds of whole milk powder to 20 countries on five continents. These sales are the equivalent of 573.4 million pounds of milk on a milkfat basis, according to CWT.
California Talk of Federal Market Order Continues
A panel discussion focusing on the details of creating a Federal milk market order (FMMO) for California was a highlight of the convention of Western United Dairymen held Mar. 5 - 7 in San Luis Obispo. The spread between California's lower class 4 prices and the higher FMMO class 3 price, resulting at least in part from the value of whey, has been a driver in dairy discussions here in California since 2009. The possibility of creating an FMMO for California in an effort to capture those higher prices has been discussed and currently representatives of California’s three major dairy co-ops… CDI, LOL and DFA… are reportedly at work drafting a Federal Order for California that could be put to a vote of all producers.
There was a full house for this FMMO discussion. Tom Barcellos, dairyman from Modesto and WUD president, set the stage saying that this complicated topic requires that producers be educated as they make decisions about future policy. The presenters were Chip English, partner in the law firm of Davis, Wright, Tremaine LLP, of Washington DC, with nearly 30 years experience with federal orders; John J. Vlahos, partner in Hanson Bridgett LLP, a law firm in San Francisco experienced in dealing with the California milk order; and Dana Hamilton Coale, Deputy Administrator, Dairy Programs in the Agricultural Marketing Service / USDA. The discussion was moderated by WUD's Mike Marsh, CEO, and questions were fielded from the audience in two sessions.
Video clips of English and Coale are available for viewing:
http://youtu.be/YsuDj_DK6FM - Chip English
http://youtu.be/_H0kpV2llYU - Dana Hamilton Coale
Food CPI Largest Increase Since September 2011
The Consumer Price Index for food rose 0.4 percent in February, its largest increase since September 2011, according to the U.S. Bureau of Labor Statistics. The food at home index increased 0.5 percent as four of the six major grocery store food group indexes increased. The index for meats, poultry, fish, and eggs rose 1.2 percent while the indexes for dairy and related products and other food at home saw more modest increases of 0.7 percent and 0.2 percent, respectively.
The index for fruits and vegetables rose 1.1 percent after five consecutive declines, though fresh vegetables declined 0.2 percent. The index for cereals and bakery products was down 0.4 percent, and the index for nonalcoholic beverages declined 0.3 percent.
The food index has risen 1.4 percent over the past year, with the food at home index up 0.9 percent and the index for food away from home up 2.2 percent. The index for meats, poultry, fish, and eggs has risen 4.0 percent over the last 12 months, compared to more modest increases for dairy and related products, cereals and bakery products, and other food at home. The index for fruits and vegetables and the index for nonalcoholic beverages both declined over the same period.
Dairy Good Sign of the Times?
Dairy Foods magazine reports that Kraft Foods announced last week the launch of its Kraft Singles with No Artificial Preservatives.
"We know families today want convenient foods that have no artificial preservatives and a simpler, more recognizable ingredient list, and Kraft is working to deliver more of these options for some of our most beloved brands," said Brian Gelb, senior associate brand manager, Kraft Foods. "Kraft is excited to deliver the same great tasting American cheese it always has with Kraft Singles, always made with real cheese, milk and no artificial flavors, and now with no artificial preservatives. It's just simpler this way, and it's the way cheese fans want it."
Kraft Singles with No Artificial Preservatives, available now in the dairy aisle of leading grocery stores nationwide, are offered for the American and White American varieties (currently does not include 2% milk varieties).
Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
If it weren’t for the two unfilled bids of butter this morning, you’d think the CME cash dairy market was closed, or was it reaction to the fall in today’s GDT?
Spot cheese was unchanged, with the blocks holding at their record high $2.40/lb., ending 9 consecutive sessions of gain. The Cheddar barrels held at $2.3050/lb., still 9.5¢ below the blocks. There was no activity in either market today.
FC Stone risk management consultant, Joe Kobel, wrote in this morning’s Insider Opening Bell that "International demand is higher and short-term demand is driving up the block price. People are bidding blocks up but no one is willing to release it."
Class III futures retreated today, March-December.
Butter was unchanged, following yesterday’s 2¢ rise yesterday on a trade. Two bids this morning at $1.89/lb. were left on the board.
"The strong cheese and Class III market will siphon milk and that will put support into butter and powder markets," says Kobel.
Cash Grade A nonfat dry milk was unchanged for the 8th consecutive session today, holding at $2.04/lb., also with no activity.
Today’s Market Closing Prices:
Butter: Unchanged, at $1.90/lb.
Cheddar blocks: Unchanged, at $2.40/lb.
Cheddar barrels: Unchanged, at $2.3050/lb.
Grade A nonfat dry milk: Unchanged, at $2.04/lb.
Class III milk: Mar. $23.32, -17¢; Apr. $23.02, -10¢; May $21.40, -11¢; & Jun. $20.80, -21¢. Based on today’s CME settlements, the Second Quarter 2014 average now stands at $21.74, -14¢ from Monday. The 2nd half average is now at $19.59, -9¢ from Monday.
The Agriculture Department issues its preliminary February Milk Production report tomorrow afternoon and the April Federal order Class I base milk price is announced. USDA issues its monthly Livestock Slaughter report on Thursday and the February Cold Storage report is out Friday afternoon.
Wednesday on DairyLine:
We head to the corner of Strategy & Discipline with Patrick Patton of Stewart-
Plus, it’s our weekly “Your Bottom Line” segment from PDPW.