DairyBusiness Update: June 17, 2014

Global Dairy Trade Average Up 0.9%, First Gain Since February
   Today’s Global Dairy Trade (GDT) auction saw the weighted average for all products reverse direction and inch up 0.9%, following the 4.2% decline in the last session, 1.8% drop in the May 20 event, and a 1.1% decline in the May 6 event. The price index has seen declines since reaching its high on February 4.
   The turnaround today was led by a 17% jump in butter milk powder, which was down 1.9% in the last event. Cheddar cheese was up 2.4% after gaining 8% in the last session. Whole milk powder was also up 2.4%, following an 8.5% decline on June 3. GDT butter was up 1.8%, unchanged in the last event, and rennet casein was up 4.6%, down 10.2% in the last event.
   The only products showing declines were anhydrous milkfat, down 3.8%, down 5% in the last event, and skim milk power, which was off 0.2% today, following a 2.1% increase in the June 3 event.
   FC Stone reports the average GDT butter price equated to about $1.6780/lb. U.S., up from $1.6485/lb. in the June 3 event ($1.6370/lb. on 80% butterfat, up from $1.6083/lb.). CME butter closed today at $2.1950/lb. The GDT Cheddar cheese average was $1.9873/lb. U.S., up from $1.9213/lb. The U.S. block Cheddar CME price today is at $2.05/lb. GDT skim milk powder, at $1.7486/lb. U.S., is down from $1.7524/lb., and the whole milk powder average at $1.6594/lb. U.S., is up from $1.6303/lb. in the last event. The CME Grade A nonfat dry milk price today stands at $1.8250/lb.
                                                                                        Source: GDT & INTL FCStone     

CWT Keeps U.S. Dairy Exports Flowing
Cooperatives Working Together (CWT) accepted 11 requests for export assistance today from Dairy Farmers of America, Maryland & Virginia Milk Producers Association, Northwest Dairy Association (Darigold), Upstate-Niagara/O-AT-KA and Tillamook County Creamery Association to sell 669,764 pounds of Cheddar and Gouda cheese and 1.199 million pounds of butter (82% butterfat) to customers in Asia, Europe, the Middle East and North Africa. The product will be delivered through November 2014.
   Year-to-date, CWT has assisted member cooperatives in selling 57.073 million pounds of cheese, 47.924 million pounds of butter and 12.022 million pounds of whole milk powder to 40 countries on six continents. These sales are the equivalent of 1.693 billion pounds of milk on a milkfat basis, according to CWT.

Dairy Margins Continue to Advance
   Dairy margins continued to advance over the first half of June, supported by a combination of higher milk prices and lower corn and meal costs according to the latest Margin Watch from Chicago-based Commodity & Ingredient Hedging LLC.
  Forward margins remain extremely favorable from a historical perspective, at or well above the 90thpercentile of the previous 10 years. Class III Milk futures have made new highs over the past two weeks as cash cheese trade has firmed slightly since the end of May. There continues to be uncertainty surrounding the price outlook for the market going forward however. Fonterra announced their 2014-15 initial farmgate milk price forecast, which adjusting for exchange rates would translate to an average U.S. all-milk price equivalent of $18.40/cwt. for the July 2014 to June 2015 period. This compares to the average futures price on the CME for the same period of around $19.30/cwt. This discrepancy may become more of an issue moving forward as U.S. dairy product exports face increased global competition from other sources. USDA released their June WASDE report which was considered largely neutral for the corn and soybean markets.
   Corn ending stocks were left unchanged in both the old and new-crop years, with no changes made in either balance sheet.
   Old-crop soybean ending stocks declined 5 million bushels due to a stronger crush forecast, and this filtered through to the new-crop balance sheet. Weather remains very conducive to early season crop development, and above-average yields are possible should conditions stay favorable though the summer.
   Our clients have been scaling into margin protection in deferred periods with flexible strategies that will allow for continued margin improvement over time. In addition, our consultants have been focused on opportunities to make strategic adjustments on existing positions. Strengthening corn hedges looks particularly attractive right now following the recent price weakness. Visit www.cihmarginwatch.com to subscribe to the CIH Margin Watch report.

Corn and Soybean Yield May be Average  
   That’s the view of Dr. Darrel Good, of the Department of Agricultural and Consumer Economics at the University of Illinois. He writes in his latest Farmdoc posting: The U.S. average corn yield was record large in 1985, 1986, and 1987 and established new highs five times in the succeeding 26 years. Similarly, the U.S. average soybean yield was record large in 1985 and established new highs eight times in the succeeding 26 years. The most recent record yield was in 2009 for both crops. Average yields were below trend value in each of the past four years.
   Expectations for the U.S. average corn and soybean yields this year have increased in recent weeks. Corn planting got off to a slow start, much like last year. Even though progress accelerated in May, more than the average percentage of the crop was planted after the third week of May. Based on the USDA's weekly Crop Progress report, an estimated 23 percent of the corn acreage in the 18 major corn producing states was planted after May 20, compared to the 1986 through 2013 average of 15 percent. More than the average portion of the corn acreage was planted late in five of the past seven years.
   Most of the late planting this year occurred in northern and far eastern corn producing states. Yield potential is reduced for corn planted after the second or third weeks of May, all other conditions equal. However, weather conditions over the past month have been generally favorable for corn emergence and development, resulting in high yield expectations in spite of more than the usual amount of late planting. 
   The USDA acknowledged these conditions in the June 11 WASDE report as the reason for keeping the 2014 yield projection at a record 165.3 bushels per acre.
   The USDA's weekly ratings of corn conditions have also supported high yield expectations.  As of June 8 (23rd week of the year), 75 percent of the crop in the 18 major corn producing states was rated in either good or excellent condition. In the previous 28 years (excluding 1995 when ratings were not yet available due to extremely late planting) an average of 66 percent of the crop was rated in good or excellent condition at the end of the 23rd week. The portion of the crop rated in good or excellent condition was higher than this year in only five previous years. 
   Crop condition ratings tend to decline as the growing season progresses and early season ratings are not a good indicator of either final ratings or the U.S. average yield.  Still, the current high ratings along with a mostly favorable weather outlook are keeping yield expectations high. The major concerns in the near term center on deteriorating conditions in areas that have received excessive rainfall in recent weeks. The effect of flooding and ponding may begin to be revealed in the crop condition ratings to be released today. Those concerns are legitimate, but are likely outweighed by the beneficial impact of favorable weather in most areas.
   Soybean planting also started slowly this year, but a larger than average portion of the crop was planted before the end of May. For the week ended June 8, 74 percent of the crop in the 18 major soybean producing states was rated in either good or excellent condition.  Soybean condition ratings were reported for the 23rd week of the year in 17 of the 28 years from 1986 through 2013. On average, only 62 percent of the crop was rated in good or excellent condition for that week. The previous record high rating was 73 percent in 2010. Soybean crop condition ratings tend to decline even more than for corn as the growing season progresses and early season ratings are not always a good indicator of the final U.S. average yield.  Recent and upcoming heavy rainfall in some areas will likely begin to be reflected in deteriorating ratings, but yield expectations remain high. The critical part of the growing season for corn and soybeans is still to come.
   Read more at http://farmdocdaily.illinois.edu/2014/06/potential-for-us-average-corn-and-soybean-yields.html.

California Dairies Petitions for Class 4a Hearing
   California Dairies Inc. (CDI) has submitted a petition for a public hearing to consider changes to the state’s Class 4a pricing formula. They state that “The manufacturing cost allowances for butter and powder and the butter f.o.b. price adjuster were last changed September 1, 2011. However, all of the manufacturing cost data collected and published by CDFA since then indicates that the trend is toward higher costs, and further adjustments to the butter and powder manufacturing cost allowances are both warranted and justified.”
   The CDFA states that CDI’s proposal amends the Class 4a pricing formula by increasing the butter and nonfat dry milk manufacturing cost allowances to the weighted average cost for both commodities, as published in the November 2013 cost Manufacturing Cost Exhibit, which represent the most recent data to which we have access. The Department’s data verifies that the cost to manufacture butter is $0.1688 per pound, an increase of 53 cents per pound over the current manufacturing cost allowance for butter. Similarly, the cost exhibit verifies that the cost to produce nonfat dry milk is $0.1999 per pound, an increase of 2.36 cents per pound over the current manufacturing cost allowance for nonfat dry milk.
   Complete details are posted on CDFA’s website at: http://cdfa.ca.gov/dairy/uploader/docs/Petition_Received_from_CDI_6.17.14.pdf.

Hong Kong Market Reopens for U.S. Beef
   Agriculture Secretary Tom Vilsack today announced that the United States and Hong Kong have agreed on new terms and conditions that pave the way for expanded exports of U.S. beef and beef products to Hong Kong. 
    “This is great news for American ranchers and beef companies,” said Vilsack. “Hong Kong is already the fourth largest market for U.S. beef and beef product exports, with sales there reaching a historic high of $823 million in 2013. We look forward to expanded opportunities there for the U.S. beef industry now that all trade restrictions are lifted,” Vilsack said.
   Under the new terms, Hong Kong will permit the import of the full range of U.S. beef and beef products, consistent with access prior to December 2003. The new terms become effective today, June17, 2014. Previously, only deboned beef from all cattle and certain bone-in beef from cattle less than 30 months of age could be shipped from the United States to Hong Kong. Earlier this year, Mexico, Uruguay, Ecuador and Sri Lanka also lifted their longstanding restrictions to provide full access for U.S. beef and beef products. 
   “Last year, the World Organization for Animal Health (OIE) granted the United States negligible risk status for BSE, further affirming the safety of U.S. beef and beef products,” said Vilsack. “We welcome this move by Hong Kong and will continue our efforts to break down barriers and expand access for high-quality, safe and wholesome U.S. food and agricultural products in Hong Kong and around the world.”
   In December 2003, Hong Kong banned U.S. beef and beef products following the detection of a bovine spongiform encephalopathy (BSE)-positive animal in the United States (one of only four cases ever discovered in America). In December 2005, Hong Kong partially reopened its market to allow imports of deboned U.S. beef from cattle aged 30 months or younger produced under a special program for Hong Kong and expanded access to include certain bone-in cuts from cattle less than 30 months of age in February 2013.
   Experts in the United States and countries around the world have confirmed that U.S.  beef is safe, with extremely low risk of BSE. There has never been a recorded case of BSE transmission to a human through American beef.
   While Hong Kong is officially part of China, it serves as its own customs and quarantine administration zone and so maintains its own rules and regulations. 

11th Annual Dairy Outlook Conference is This Week
   FC Stone’s annual Dairy Outlook Conference takes place tomorrow and Thursday in Chicago. One of the highlights of the conference will be a Farm Bill Panel.
   One of the purposes of the conference is to “help investors, producers, processors and end users of food commodities understand global supply and demand issues so they can take steps to prepare for and protect against probable risks of price fluctuation, according to an Outlook press release.
   Conference speakers will address dairy, grains, energy, currencies, the global economy and the outlook for global food demand in the developed and developing worlds. The Conference also presents a networking opportunity for producers, managers and executives across the food-production supply chain.
   The Conference will take place at 230 South LaSalle Street, 3rd Floor, in Chicago. For complete details, log on to: http://online.wsj.com/article/PR-CO-20140616-905933.html.

IDFA Names New VP of Legislative Affairs
   The International Dairy Foods Association (IDFA) has named J. David Carlin to the position of senior vice president of legislative affairs. In this role, Carlin will be responsible for managing all of the association's legislative, political and economic policy activities. He replaces Jerry Slominski, who left IDFA earlier this year.
   Carlin, who was a partner with Akin Gump Strauss Hauer & Feld LLP until joining IDFA, has extensive experience in food and agriculture policy. He has represented numerous food and agricultural companies, cooperatives and trade associations before the House and Senate Agriculture Committees and at the U.S. Department of Agriculture (USDA).

Council on Dairy Breeding Hires New CEO
   The Council on Dairy Cattle Breeding (CDCB) has hired João Walter Dürr of Uppsala, Sweden, as its chief executive officer. Dürr, who will be relocating to the Beltsville, Md. area, brings a wealth of managerial experience in milk recording, database development and genetic evaluation to CDCB. Since 2008, he has served as the Interbull Centre executive director.
   In 1991, Dürr earned a bachelor’s degree in agriculture from Universidade Federal do Rio Grande do Sul, Porto Alegre, Brazil; followed by master’s and doctorate degrees from McGill University, Montreal, in animal science, breeding and genetics. From 1997 to 2008, he held various positions with Universidade de Passo Fundo, Rio Grande do Sul, Brazil, including Veterinary School professor, Dairy Herds Analysis Service general manager, Food Science Research Centre director and associate vice principal for research. In addition, he served as president of the Brazilian Milk Quality Council, a national, non-profit organization with a mission of promoting milk quality and mastitis prevention in Brazil, from 2004 to 2007.
   As the Interbull executive director, Dürr helped coordinate the organization’s transition from academics to a business-oriented operation, incorporating new services into the portfolio. He also skillfully guided Interbull through the genomic revolution and provided a network for scientific and dairy industry communities to develop the framework of applied cattle genomics. Additionally, Dürr created a dynamic web site to improve communication with service users and the general public, implemented a quality assurance infrastructure to comply with international standards, and helped streamline genetic evaluation operations to handle multi-country pedigrees and estimated breeding values.
   CDCB conducts genetic evaluations for economically important traits of dairy cattle. The CDCB allied partners cooperator database is the largest in the world, which is devoted to dairy animals, with more than 120 million female phenotypic records and more than 480,000 males receiving genetic evaluations or genomic predictions.

Mielke Market Daily 
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   A lot of eyes were on today’s turnaround at the Global Dairy Trade auction (see story above) which may have been the spark in today’s cash cheese trade. The 40lb. block Cheddar jumped 3¢ this morning, following yesterday’s 1¢ decline, and is now trading at $2.05/lb. Three cars traded hands, the first at $2.03/lb. the second at $2.04/lb., and the last at $2.05/lb., with a bid at $2.04/lb. going unfilled. The 500lb. Cheddar barrels, after losing 0.75¢ yesterday, were up 2.75¢ today, to $1.9875/lb., on 4 cars sold, the 1st at $1.96/lb., and the price kept creeping higher from there, with a bid at $1.98/lb. going unfilled.  
   Class III futures responded with double-digit gains in most months. July +75¢; Aug. +70¢; Sept. +45¢.
   In heavy trading today, cash butter was up 1¢, after holding steady for 3 consecutive sessions, and hit $2.1950/lb. Twelve cars were sold. The first 4 were at $2.16/lb., 7 at $2.1650/lb. and the price kept moving up to a high of $2.20/lb., with the final 3 sales at $2.1750/lb. An unfilled bid took it to today’s close.
   Demand for ice cream is pulling milk out of butter churns, adding to tightness in the domestic cream supply, reports FC Stone’s Insider Opening Bell this morning. Butter exports are also strong.
   Cash Grade A nonfat dry milk held at $1.8250/lb., with no activity again today.

Today’s Market Closing Prices
Butter: Up 1¢, to $2.1950/lb.
Cheddar blocks: Up 3¢, to $2.05/lb.
Cheddar barrels: Up 2.75¢, to $1.9875/lb.
Grade A nonfat dry milk: Unchanged, at $1.8250/lb.
Class III milk: June $21.33/cwt., +3¢; July $21.79, +75¢; Aug. $21.48, +70¢; & Sept. $21.15, +45¢. Based on today’s CME settlements, the Third Quarter 2014 average now stands at $21.47, +63¢ from Monday. The Fourth Quarter average is now at $20.06, +28¢ from Monday. The First Quarter 2015 average is now at $18.58, +12¢ from Monday.
   Trading activity came to a near halt Monday night, according to the Insider Opening Bell, “as market participants continue to weigh fundamentals against technicals.” "Overnight we saw only a handful of trades, which is a function of indecision," says Chris Hildebrand, risk management consultant, INTL FCStone, Chicago.  "Fundamentally the market should be moving lower, while technically it should in on the upswing. There's a lot of confusion in this market." Market-changing news could propel the Class III market one way or the other. "Everyone will be awaiting today's GDT results," he adds.
Looking ahead:
   The Agriculture Department issues its monthly Livestock, Dairy, and Poultry Outlook tomorrow morning, along with the preliminary May Milk Production report in the afternoon, and the July Federal order Class I base milk price is announced tomorrow afternoon by USDA. The monthly Livestock Slaughter report is issued Thursday.

Wednesday on DairyLine:
   Jodi Hoynoski, Holstein Foundation Programs Manager, previews the upcoming   
           Holstein National Convention.
   Dan Basse, from AgResource, give us his global dairy outlook.