DairyBusiness Update: July 2, 2014

June FO Benchmark Milk Price Drops $1.21
   The Agriculture Department announced the June Federal order Class III benchmark milk price this afternoon at $21.36 per hundredweight, down $1.21 from May but $3.34 above June 2013, $2.29 above California’s comparable 4b cheese milk price, and equates to about $1.84 per gallon. The half-year Class III average now stands at $22.68, up from $17.74 at this time a year ago and $15.90 in 2012.
   The June Class IV price is $23.13, up 48 cents from May and $4.25 above a year ago. Its 2014 average now stands at $23.09, up from $18.17 a year ago and $14.90 in 2012.

   The four-week, NDPSR-surveyed cheese price used in calculating this month’s prices was $2.0358 per pound, down 13.5 cents from May. Butter averaged $2.1874, up 14 cents. Nonfat dry milk averaged $1.8633, down 1.4 cents, and dry whey averaged 67.89 cents per pound, up fractionally from May.

June Dairy Margins Sharply Higher
   Dairy margins moved sharply higher to finish the month 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 90th percentile of the previous 10 years deep into 2015. Milk futures have been supported by a strong butter market, with spot values at the CME now at $2.50/lb.    
   USDA’s Cold Storage report showed May 31 butter stocks at 192.5 million pounds which was up 10.6% from April but down 40.2% from last year. U.S. May milk production was reported at 18.055 billion pounds which was up 0.3% from April and 1.4% higher than last year. The report also reflected a larger milking herd, with 10,000 cows added in May to a 2-year high of 9.252 million head. The milking herd has grown by 54,000 head since
   November, and milk production may expand more quickly with improved weather and new hay supplies improving forages – particularly in the Upper Midwest. USDA released their June acreage and quarterly stocks reports which were decidedly bearish for corn and soybeans in particular. June 1 corn stocks of 3.854 billion bushels were 130 million above the average trade guess, and implied much lower feed usage in the March-May period than the market was expecting.
   Soybean acreage meanwhile was revised up 3.3 million from the March Planting Intentions to 84.839 million, well above the average trade estimate as well as outside of the range of estimates. Both the corn and soybean meal markets were sharply lower in response to the data.
   Our clients continue scaling into margin protection in deferred periods with flexible strategies, while evaluating opportunities to make strategic adjustments on existing positions. Strengthening feed hedges looks particularly attractive right now following the USDA report. For additional details log on to www.cihmarginwatch.com.

GDT Fed the Bears
   That’s how HighGround Dairy’s Eric Meyer sees it. “Two weeks ago, there was some encouragement that the four month slide on the GDT Price Index had ended and prices would stabilize heading into the third quarter, Meyer writes, “But after yesterday’s auction result, positive attitudes were deflated as prices have reached fresh 15-17 month lows across many of the commodities on offer.”
   He reports that “Buyers shrugged aside Fonterra’s announcement that 40,000MT of whole milk powder would be removed from their forecast over the next four months and looked more at the seasonal volume increase. Rumors that Chinese buyers stockpiled earlier this year and are now comfortable with their inventories appears to hold more truth with this latest auction result.
Fat products offered by Fonterra also took a beating this week with all four butter delivery contracts either settling at or near the self-imposed minimum price of 15% below the previous auction.”
He adds that “This was clearly a bearish auction versus industry expectations, though we hesitate to make the claim that the long-term bull trend has been broken.” Read more of his analysis by writing him at: dairy@highgroundtrading.com.

Lagging NDPSR Prices:  Butter Up 3.5 Cents
   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 $2.0388/lb., up 0.7¢ from the week before, while the barrels averaged $2.0165, up 0.3¢. Butter jumped 3.5¢, to $2.2095/lb. Nonfat dry milk averaged $1.8796/lb., up 0.6¢, and dry whey averaged 68.31¢/lb., up 0.4¢. These prices are used in determining Federal order Class milk prices.

California Powder Price Slips Again 
   The California Department of Food and Agriculture announced its latest surveyed nonfat dry milk prices at $1.8202/lb. for the week ending June 27, on sales of 11.63 million lbs. The price was down slightly from $1.8256/lb. the week before, on sales of 10.24 million lbs.

Pizza in a Cup
   The July 1 Daily Dairy Report (DDR) says more than 25 million Americans tuned in last week to watch the U.S. soccer team take on Portugal in the increasingly popular World Cup. When fans sat down for the 11 a.m., CDT, match, many were eating pizza loaded with cheese. USA Today reported that Pizza Hut experienced a 50% increase in lunch sales compared to a typical Thursday. In Washington, D.C., some pizza stores actually ran out of product during last week’s game, according to Pizza Today.
   Pizza consumption and sports viewing go hand-in-hand in the United States. This year Americans consumed an estimated four million pizzas while watching the Super Bowl, according to the DDR.

Mielke Market Daily 
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   The Cheddar blocks gave up 1.5¢ this morning after losing 1.25¢ yesterday and 2¢ on Monday as the high price magnet attracts product to the CME. Six carloads were traded, the first at $1.9875/lb., and the price kept sliding from there, ending the day at $1.9725/lb. An offer at $1.9750/lb. was left on the board. The Cheddar barrels, just to be different, inched up 0.25¢ on a sale, to $1.9850/lb., 1.25¢ above the blocks. A bid at $1.9825/lb. went unfilled.
   Class III futures saw double digit losses, August-July 2015.
   Cash butter dropped another 5¢, after losing 5¢ yesterday, and is now trading at $2.40/lb. Two cars traded hands at that price and an offer at $2.40/lb. went nowhere.
   Grade A nonfat dry milk was unchanged, following 2 previous sessions of loss, and held at $1.77/lb., with a bid at that price not being filled.  
   The markets trade tomorrow and then are closed Friday for the 4th of July holiday.

Today’s Market Closing Prices 
Butter: Down 5¢, to $2.40/lb.
Cheddar blocks: Down 1.5¢, to $1.9725/lb.
Cheddar barrels: Up 0.25¢, to $1.9850/lb.
Grade A nonfat dry milk: Unchanged, at $1.77/lb.
Class III milk (prelim.): July $21.25/cwt., +2¢; Aug. $20.38, -31¢; & Sept. $20.23, -37¢. Based on today’s CME settlements, the Third Quarter 2014 average now stands at $20.62, -22¢ from Tuesday. The Fourth Quarter average is now at $19.83, -26¢ from Tuesday. The First Quarter 2015 average is now at $18.36, -22¢ from Tuesday.

Looking ahead:
   The Agriculture Department releases its monthly Dairy Products report for May tomorrow afternoon. The markets are Closed Friday for the 4th of July holiday and resume on Monday. Next week, Thursday, the California Department of Food and Agriculture announces the state’s August Class I milk prices. It’s is a pretty lean week as far as USDA reports that we monitor, with only two scheduled and both on Friday. They are the Crop Production report and the monthly World Agricultural Supply and Demand Estimates report, which will include the Department’s updated projections for 2014 and 2015 milk production and milk price averages.

Thursday on DairyLine:
    Congressional gridlock is forcing President Obama to take immigration reform into his
          own hands. National Milk’s Chris Galen has details.
   The first BBQ index has been released, just in time for the 4th of July - Don Close,
          Rabobank's VP with Food and Agribusiness Research tells us more.


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