DairyBusiness Update: June 19, 2014

High Milk Prices Keeping Dairy Cows in the Herd
Commercial red meat production for the United States totaled 3.95 billion pounds in May, down 5 percent from the 4.15 billion pounds produced in May 2013, according to USDA’s latest Livestock Slaughter report issued this afternoon.
   Beef production, at 2.07 billion pounds, was 7 percent below the previous year. Cattle slaughter totaled 2.63 million head, down 8 percent from May 2013. The average live weight was up 10 pounds from the previous year, at 1,299 pounds.
   Veal production totaled 7.8 million pounds, 14 percent below May a year ago. Calf slaughter totaled 46,700 head, down 20 percent from May 2013. The average live weight was up 19 pounds from last year, at 284 pounds.
   An estimated 209,000 dairy cows were “retired” from the dairy business in May, down 21,000 head from April and 39,000 head less than May 2013.
   An estimated 1.192 million culled dairy cattle were slaughtered under Federal inspection in the January to May period, 155,000 less than the same period a year ago.

Warning: The Milk is Coming
   That's the word from HighGround Dairy’s Eric Meyer. He points out that U.S. milk production in May continued to build at an average pace but still behind expectations of where growth should have been given above average on-farm margins across the country since last year’s grain harvest. And as a result of that shortfall, milk and dairy commodity prices remain very high.
   But while raw data from the May report shows average growth, the gains seen in month-over-month cow numbers and revisions made to the April production report lead us to believe that momentum is building for strong progress during the second half of the year.
   Though the knee jerk reaction from the Class III milk futures market overnight has been bullish, we disagree with that assessment and view Wednesday’s report as slightly bearish versus the current forward curve. Reports of burdensome milk supplies across much of the country over the past couple of weeks help support our view that supply-side conditions are continuing to improve in the US.
   Read more by contacting Meyer at ericm@highgroundtrading.com.

Support the Butter Price, Buy an Ice Cream Cone
   Cream supplies are tight in the Northeast and said to be "getting tighter by the week," according to USDA’s Dairy Market News. There is general concurrence that the tightness will likely increase into coming weeks. Cream multiples are firming and that is causing varied outcomes. Many potential cream customers could not get delivery of full orders last week, spilling the unfilled orders into this week and adding to this week's demand. This pattern will continue into next week, further increasing calls for cream.    
   Recent unfilled demand overflow from one week into the next week, is leading a number of sellers of cream to ration deliveries among buyers, attempting to minimize the aggregate impact but get some cream to most customers. Butter manufacturers are mixed in how they are responding to the current excess of cream demand over supplies. Some butter manufacturers are building print inventories while others, typically benefitting from contracted supplies, are selling cream rather than churning. 
   Ice cream manufacturers are actively buying cream. The arrival of hot summer weather in much of the east this week is expected to be a factor continuing ice cream manufacturing demand for cream. A broker observed that ice cream buyers can almost always afford to pay more for spot cream than butter manufacturers, and that is how sales are flowing. Cream cheese manufacturer’s demand for cream is also strong. 
   Some butter manufacturers in the Central region continue to sell high priced cream supplies. Production rates are steady to mostly lower. The market tone is firm behind unseasonal, good domestic sales. Export orders are sluggish.  However, international prices are shifting higher. Inventories are adequate for immediate needs, but with some expectations of increased tightness in the coming months.
   Western butter production is steady to lower. Higher cream prices are allowing butter manufacturers to rationalize selling cream versus churning butter. Demand from ice cream and cream cheese accounts is very good. Domestic demand for butter has slowed into retail accounts. Bulk butter demand is good with some end users looking to build inventories. Butter stocks are well below typical levels for this time of year and may be responsible for increased bulk demand. Export demand has slowed as U.S. prices are above international levels, according to DMN.

Cheese Output Strong but Manufacturers Have Concerns
   A number of cheese plants in the Northeast were closed last Sunday, Father's Day, closed for employee morale rather than production reasons. These plants were back in full production Monday. Some manufacturers of cheddar in the Northeast continue to operate full out, 7 days a week. Other cheddar plants have cut back to 6 days a week schedules. Plants accounting for a significant amount of Northeast mozzarella and provolone production, plants now operating 7 days a week, will be closing every other Sunday beginning next Sunday. Some current cheese production is going to build inventories, with cheese manufacturers looking ahead toward lower milk availability as summer seasonality has its way with milk production levels. Overall, there is a level of comfort with current milk supplies, production, sales and inventory levels. Northeast milk supplies have been more than adequate for cheese making, but some manufacturers are expecting a change in that situation.
   Boston hit 90 degrees plus Tuesday, and it was hot and humid moving further south along the Atlantic coast. The summer hot weather is expected to remain in the area, and begin to spread inland. Cheese manufacturers further inland are eyeing this, and expect hot summer weather to soon begin to reduce milk production and hence milk availability to cheese plants.    
   However, in northern New England for now, summer heat and humidity remain at bay.  Cheese plant managers in that area observe that temperatures remain in the 70's as daily highs, and there is what is described as a "bumper hay crop". The milk is flowing and reductions in milk output and availability to cheese makers is expected to lag developments closer to coastal areas and further south.
   Midwest milk production remains strong. Partly this is a result of overall favorable milk production conditions, along with recent additions to dairy herds by some larger producers. Many cheese manufacturers are building inventory, using current milk supplies in addition to enhancing vats with condensed skim at favorable prices. This is particularly true for cheddar. A manager noted that beginning in August, milk supplies are expected to be down, leading to more cheese orders than available milk can fill. Thus, building current inventories is a goal of some manufacturers. 
   Cheese production in the West continues at heavy levels. Milk supplies are lower in some parts of the southwest, while steady to stronger in the northwest. Increased milk volumes are available as Class I sales have slowed for the summer break. Domestic demand for cheese is good with retail sales clearing at expected levels. Commercial cheese sales to process cheese buyers are reported to be strong as buyers look to secure stocks. Export sales have slowed, but continue to be shipped from previously negotiated sales, with some new export sales being made with price incentives from the CWT. Current cheese stocks are mostly adequate for demand.

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   The barrels are on top of the blocks and, as precarious as that image may be in your mind, both are sitting precariously at $2/lb. Cash block cheese gave up another 3¢ this morning, after losing 2¢ yesterday, and dropped to $2.00/lb., the lowest level since June 3rd.  Another 3 cars traded hands today. The 1st was at $2.02/lb., the 2nd at $2.01/lb., and the last at today’s close. The barrels, after gaining 1.5¢ yesterday, 2.75¢ on Tuesday, and losing 0.75¢ on Monday, inched up 0.25¢ this morning on a trade, to $2.0050/lb. but, as I said, the $2 level is pretty precarious at this point.
    After butter’s big 5.75¢ jump yesterday, the spot market gave back 1.75¢ this morning, and is now trading at $2.2350/lb. Two cars traded hands, the 1st at $2.22/lb. and the 2nd at $2.2350/lb., but an offer at that price was left on the board.
   "Cream is tight, and ice cream demand is very strong,"  says FC Stone dairy broker Dave Kurzawski in this morning’s Insider Opening Bell.
   Cash Grade A nonfat dry was unchanged for the 4th session in a row, holding at $1.8250/lb., again with no activity today.

Today’s Market Closing Prices
Butter: Down 1.75¢, to $2.2350/lb.
Cheddar blocks: Down 3¢, to $2.00/lb.
Cheddar barrels: Up 0.25¢, to $2.0050/lb.
Grade A nonfat dry milk: Unchanged, at $1.8250/lb.
Class III milk (prelim.): June $21.34/cwt., -1¢; July $21.61, -10¢; Aug. $21.31, -3¢; & Sept. $21.26, +5¢. Based on today’s CME settlements, the Third Quarter 2014 average now stands at $21.39, -3¢ from Wednesday. The Fourth Quarter average is now at $20.22, +6¢ from Wednesday. The First Quarter 2015 average is now at $18.53, -6¢ from Wednesday.
Looking ahead:
   There are no more reports this week from USDA that we regularly monitor. Next week is very lean, with only two scheduled. The first is USDA’s preliminary May Cold Storage data on Monday afternoon and the Ag Prices report is out Friday afternoon, which will include the latest milk feed price ratio.

Friday on DairyLine:
   DairyBusiness Update associate editor, Lee Mielke, reports on this week’s dairy news highlights
   Dr. Mike Hutjens has his weekly “Feed Facts” program.  


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