DairyBusiness Update: March 26, 2014

Butter Update: Still Looking Good
Northeast butter output is seeing a marginal decline from last week's volumes, according to USDA’s Dairy Market News (DMN) as cream prices and reported tight supplies, affect butter makers capability to contract additional last minute holiday butter sales. With minimal Easter holiday orders left to fill, some manufactures are now focusing on rebuilding light inventories as strong export sales are continuing to influence the butter market.
   Some Midwest butter churn operators' production rates were slightly reduced as a result of cream supplies firming up from Easter demand for Class II dairy products. U.S. butter prices continue to have a comparative advantage over most international market prices, keeping U.S. export orders steady to higher. The market tone is firm with print demand improving. Many butter makers are primarily focused on Easter/Passover print orders. However, a few manufacturers are electing to produce 82% unsalted over 80% salted. Inventories are adequate for current demand.
   Western butter prices are stronger this week. The market is showing a firm undertone as buyers are showing good demand. Domestic buyers are looking to increase inventories for upcoming Easter/Passover observances.

Cheese Output Strong but Manufacturers Cautious
   Northeast cheese manufacturers in the region are producing cheese volumes that fulfill their termed contracts, with milk supply levels slightly below what some manufacturers had anticipated, according to DMN. Domestic demand is steady to rising as mozzarella cheese sales increase. Export demand is strong, with added forward sales.
   The Midwest cheese market is strong, both in terms of prices and sales. Cheese manufacturers are working to meet the demand. More cheese manufacturers have increased production schedules. Some are using additional nonfat dry milk and condensed skim to help boost cheese output. Milk production regionally continues to increase which benefits cheese making. Spot milk is available for those looking, but the $2.00 over class price is higher than many cheese manufacturers believe is  economically sensible, leaving most to rely on existing contracted and patron milk.
   Demand in the West remains good for cheese in the face of the higher prices. Increased export sales are keeping stocks tight despite seasonal increases in milk supplies. Cheese production is increasing slowly, but demand is still outstripping current supplies. Block demand is strong as both export and domestic buyers are looking for additional product. Barrel demand is steady with fewer problems sourcing additional stocks.

Lagging NDPSR Prices Up Except NFDM
The latest Agricultural Marketing Service’s National Dairy Products Sales Report (NDPSR), released this afternoon shows the U.S. average block Cheddar cheese price at $2.2650/lb., up 6.1¢, while the barrels averaged $2.2806, up 4.6¢. Butter was up 1.1¢, to $1.8506/lb. Nonfat dry milk averaged $2.0892/lb., down 1¢, and dry whey averaged 65.46¢/lb., up 0.4¢. These prices are used in determining Federal order Class milk prices.

California Powder Continues to Slip But Sales Creep Higher
   The California Department of Food and Agriculture announced its latest surveyed nonfat dry milk prices yesterday at $2.0332/lb. for the week ending March 21, on sales of 12.75 million lbs. The price was down from $2.0490/lb. the week before, on sales of 11.71 million lbs.

China Milk Shortage to Last Until at Least 2015
So reports Agrimoney.com. The shortfall in Chinese milk output, which has sent imports soaring, will continue until at least 2015, the country's top dairy supplier said - unveiling a rise in profits which contrasted with a tumble in earnings at New Zealand giant Fonterra.
   Bai Ying, senior vice-president at China Mengniu Dairy, said that China's "raw milk shortage situation will continue this year", albeit with a declining influence on the group itself.
   "It may still have an impact on the company, but to a lesser extent," he said, highlighting China Mengniu's efforts to ramp up its own output, having four dairy operations in production, a further four set to open this year, and two on the drawing board. Read more at http://goo.gl/TcLgwr

Fonterra Takes Earnings Hit
Reuters reports that New Zealand's Fonterra , the world's largest dairy exporter, should be flying high on the back of record prices and a "white gold" rush as Chinese demand for milk powder soars. But the nation's biggest company is expected to reveal a sharp decline in first-half profit on Wednesday, as higher costs, too much milk and a lack of capacity to process higher-yielding products hit earnings.
   The co-operative, which controls about a third of global dairy exports, said in December that it expected full-year earnings to fall by up to half from last year's NZ$1 billion ($854 million) and has slashed its dividend payout.
   World dairy prices have hovered near record highs for the past year due to surging demand from China and other emerging countries, where growing middle classes are developing a voracious appetite for milk, infant formula, and other products.
   Fonterra earns its best returns from milk powder, which it ships to China for the fast-growing infant milk formula market, but has been struggling to meet demand due a lack of factory capacity for the product.
   At the same time a bumper dairy season in New Zealand has resulted in all-time high volumes, which Fonterra is obliged to buy at historically high milk prices. What can't be made into milk powder has been used for lower-margin cheese products.
   The company said in December this was cutting about NZ$800 million from its revenues, and analysts said it was still having an impact.
   Read more at http://mobile.reuters.com/article/idUSL5NOMLORC20140325?irpc=932.

AMPI Reports $1.8 Billion in Sales
   Leaders of Associated Milk Producers Inc. (AMPI) announced that the dairy marketing cooperative recorded sales of $1.8 billion and earnings of $7.5 million in 2013. The annual business meeting of the cooperative owned by 2,600 Upper Midwest dairy farmers concludes tomorrow at the Double Tree Hotel in Bloomington, Minn.
   “Our manufacturing capacity and production flexibility made it possible for AMPI to reap the benefits of increased demand for our core product line — cheese, butter and powdered dairy products,” AMPI President and CEO Ed Welch told some 400 members, employees and guests at the meeting. “Coupled with plant improvements, the cooperative’s performance improved and balance sheet strengthened.”
   American-style cheese production totaled 400 million pounds in 2013, and remains the cooperative’s top product category. AMPI was also a leader in Midwest powder production. Products such as nonfat dry milk, whey protein concentrate and lactose were sold to domestic and global customers as demand for milk proteins increased worldwide.
   Cheese and butter packaged for consumers at the cooperative’s manufacturing plants grew once again. Cheese sales increased 7 percent, while butter sales rose for the eighth consecutive year, posting a 3 percent gain. Nearly 70 percent of AMPI’s consumer-packaged business is sold to foodservice customers.
   AMPI Chairman of the Board Steve Schlangen reviewed the steps taken in the past year to position the cooperative for strategic growth. “Being the best milk market for Midwest dairy farmers requires constant improvement,” Schlangen said. “Through carefully considered moves made at every level of our cow-to-consumer business, we made great progress in 2013. This was done by focusing on a core product line and taking an active role in reforming dairy policy that provides meaningful options for reducing price risk.”
   The annual meeting culminates with delegates considering resolutions and reviewing the cooperative’s legislative priorities.
   Read more: http://dairybusiness.com/seo/headline.php?title=ampi-reports-1-8-billion-in-sales&date=2014-03-25&table=headlines#ixzz2x0Fn6Hr7

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   A crack appears to be developing in the cash cheese market as the 40lb. blocks lost 1¢ this morning and slipped to $2.4225/lb. This is the first loss since February 11 and the first trade of block at the CME since February 20. The 1st carload sold at yesterday’s price, the 2nd at $2.4225/lb. The 500lb. Cheddar barrels were down 3¢, following yesterday’s 1.75¢ decline, and that after setting a record high Monday at $2.3775/lb. The barrels are now at $2.33/lb., 9.25¢ below the blocks, compared to the normal 3-5¢. A bid at $2.05/lb. got no takers but  an uncovered offer at $2.33/lb. took the closing price down.
   Class III futures saw further declines.
    FC Stone dairy economist Bill Brooks wrote in this morning’s Insider Opening Bell that "People are taking profits ahead of a possible decline. International prices are moving lower, and U.S. markets are taking their cue from that."
   He adds that, “With spring flush already apparent in the West and record high prices making their way to dairy farms around the world, the question is how much excess milk will be available over the next few months. Demand is still good, and producers are focusing on trying to get their balance sheets strengthened and retiring debt," says Brooks. "Feed quality in some areas is not the best, so I'm not expecting an onslaught of milk over the next two months."
   Butter, jumped 2¢, following the 0.5¢ uptick yesterday, and 2.5¢ on Monday, and may be on its way to $2/lb. One car was sold at $1.96/lb., a bid at $1.97/lb. went unfilled, but an offer at $1.99/lb. went uncovered.
   Cash Grade A nonfat dry milk reversed two days of losses and picked up 2.25¢ on an unfilled bid, and is now at $2.0225/lb.  

Today’s Market Closing Prices:
Butter: Up 2¢, to $1.97/lb.
Cheddar blocks: Down 1¢, to $2.4225/lb.
Cheddar barrels: Down 3¢, to $2.33/lb.
Grade A nonfat dry milk: Up 2.25¢, to $2.0225/lb.
Class III milk: Mar. $23.29, +1¢; Apr. $23.51, -32¢; May $21.45, -42¢; & Jun. $20.32, -27¢. Based on today’s CME settlements, the Second Quarter 2014 average now stands at $21.76, -34¢ from Tuesday. The 2nd half average is now at $19.40, -8¢ from Tuesday.
Looking ahead:
   The monthly Ag Prices report is issued Friday and will include the latest milk feed price ratio. Looking to next week, USDA issues its Prospective Plantings report on Monday. The California Department of Food and Agriculture announces the state’s March 4a and 4b milk prices. Comparable Federal order prices are announced by USDA on Wednesday and the monthly Dairy Products report is out on Thursday.
Thursday on DairyLine:
   National Milk’s Chris Galen gives us some background on the documentary film
     “Farmland, ” which is set for a theatrical run.
   The “Silage Man” Keith Bolson checks in with his monthly report.


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