Lee Mielke Market Update December 1

Lee Mielke

Lee MielkeLee Mielke is a veteran dairy journalist and broadcaster, currently carried in a dozen Ag newspapers nationally. This column is prepared especially for the readers of DairyBusiness. Based in Lynden, Wash., he can be reached by email at [email protected] or by phone 360.201.4033.

The U.S. Agriculture Department announced the November Federal order Class III benchmark milk price Wednesday at $16.88 per hundredweight, up 19 cents from October, 12 cents above November 2016, and equates to $1.45 per gallon. It ties the February price for the highest Class III in 2017 and puts the 11 month Class III average at $16.24, up from $14.64 at this time a year ago and $15.92 in 2015.

Prices will slide from here however. Late Friday morning Class III futures portended a December price of $15.32, which would result in a 2017 average of $16.16, up from $14.87 in 2016 and $15.80 in 2015. The January 2018 contract was trading at $14.52; February, $14.60; and March was at $14.70, with the peak at just $15.90 in October.

The November Class IV price is $13.99, down 86 cents from October but 23 cents above a year ago and the lowest Class IV since November 2016. Its 11 month average stands at $15.31, up from $13.66 a year ago and $14.24 in 2015.

Comparable November California 4a and 4b prices were announced after our deadline.

A higher All Milk price and lower soybean prices kept the October milk feed price ratio unchanged. October’s 2.45 is the same as September but compares to 2.38 in October 2016, according to the Agriculture Department’s latest Ag Prices report. The index is based on the current milk price in relationship to feed prices for a dairy ration consisting of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. In other words, one pound of milk today purchases 2.45 pounds of dairy feed containing that blend.

The U.S. average All-Milk price was $17.90 per hundredweight (cwt.), up a dime from September and $1.20 above October 2016. Michigan showed the lowest, at $16.30, followed by New Mexico at $16.70, and California at $16.78, which was up 33 cents from September and $1.35 above a year ago. Wisconsin averaged $18.50, up 20 cents from September, $1.50 above a year ago, and $1.72 above California.

October corn averaged $3.26 per bushel, down a penny from September and 3 cents below October 2016. Soybeans averaged $9.18 per bushel, down 17 cents from September and 12 cents per bushel below a year ago. Alfalfa hay averaged $152 per ton, up $3 per ton from September and $17 per ton above a year ago.

Looking at the cow side of the ledger; the report shows the October cull price for beef and dairy combined averaged $65.40 per cwt., down $4.50 from September, after dropping $6.40 the previous month, dead even with October 2016, and $6.20 below the 2011 base average of $71.60.

The quarterly price received for milk cows averaged $1,610.00 per head in October, down $10 from July and $80.00 below October 2016. Wisconsin averaged $1610.00 per head, down $40 from July and $150 below October 2016. California averaged $1600 per head, unchanged from July but $100 below October 2016.

Meanwhile, the Crop Progress report shows 95 percent of U.S. corn has been harvested as of the week ending November 26, up from 90 percent the previous week but 3 percent behind a year ago and 3 percent behind the five year average. Cotton is 79 percent harvested, up from 74 percent the previous week, 3 percent ahead of a year ago, and 1 percent behind the five year average.

Chicago Mercantile Exchange dairy product prices were mostly lower the last week of November. The 40-pound Cheddar block cheese fell to $1.55 per pound the first day of trading following the Thanksgiving break, lowest spot price since September 1, 2017, but closed Friday December 1, at $1.5625, down 4 3/4-cents on the week and 24 3/4-cents below a year ago. The 500-pound Cheddar barrels fell to $1.51 Wednesday but finished Friday at $1.5350, down 14 cents on the week and 8 cents below a year ago. Twenty two cars of block traded hands on the week and a whopping 62 of barrel.

Milk headed to Class III plants remained accessible following Thanksgiving weekend, reports Dairy Market News (DMN), and spot prices ranged from flat market to $4 under Class. It adds that “Production schedules have increased to meet the current influx of milk. Mozzarella and provolone orders have slowed in the wake of the holiday, but are expected to return strongly through the rest of the year. Cheddar and traditional cheese makers report healthy demand, as end-of-year holiday orders are underway,” however cheese prices are confounding Midwestern contacts because Thanksgiving Week and the following week saw barrel prices hovering above the blocks, something contacts typically view as “an indication of market instability.”

Cheese output in the West is also strong due to higher milk availability. Barrels and block supplies are abundant and inventories continue to increase. “Domestic cheese sales for 40 pound blocks are solid.” “Retail demand for cheese is doing well as some stores are packing for the end of the year holiday needs. However, a number of end users have their needs met and are not looking to purchase additional cheese soon. On the other hand, some reports suggest that spot prices for cheese are dropping, resulting in more interest from the international market.

Cheese sales and prices in the coming weeks will depend on how much stocks processors can afford to hold going into the New Year and how much buyers want or need to pay,” says DMN.

 

Cash butter saw a Friday close at $2.2150 per pound, down three-quarter-cents on the week but 3 cents above a year ago when it jumped almost 14 cents. Fifteen cars exchanged hands on the week at the CME.

DMN says butter production is fully active. Bulk butter has seen a little more interest of late but prices remained at 3 cents under to 7 cents over the CME average. The butter market tone is somewhat bearish, says DMN, and “some contacts suggest that market prices may continue to ebb slowly, but they are doubtful regarding a market destabilizing descent.”

Western butter makers report plenty of cream available to meet the remaining butter needs for 2017. Demand has been relatively steady, says DMN, but a few processors note that interest seems to be waning for the remainder of the year. Some buyers have met their needs for December and are focusing their attention to quoted prices for 2018.

Cash Grade A nonfat dry milk closed Friday at 72 cents per pound, up three-quarters but 28 3/4-cents below a year ago when it jumped 10 1/4-cents to $1.0075 per pound. Fifteen cars were sold on the week.

DMN reported that there were no new European Commission dairy policies finalized yet. “However, ongoing background discussions between the European Commission and various EU dairy involved parties continue to circle past the notion that some supply side action may be needed to address weaker dairy product prices because they are expected to result in lower farm milk pay prices.”

 

The EU continues efforts to maintain and expand dairy trade agreements with many other countries and talks between the EU and Chile began this week, focusing on updating 2003 dairy trade provisions.

The Consortium for Common Food Names (CCFN) called on Argentina, Brazil, Uruguay and Paraguay this week to “protect the interests of their local food producers and respect current international standards by rebuffing EU efforts to confiscate common food and beverage names.”

The CCFN is “sounding the alarm to governments from China and Japan to Mexico, and now South America,” about what it calls “the EU's recent, systematic attempts to abuse geographical indications (GIs) protections.”

CCFN highlighted a number of common names that the Mercosur nations risk giving away to the EU as part of its current trade negotiations: asiago, black forest ham, bologna, brie, camembert, chorizo, edam, emmental, feta, fontina, gorgonzola, gouda, grana, gruyere, manchego, mozzarella, mortadella, parmesan, pecorino, prosciutto, provolone, romano, pancetta and salami, as well as common wine terms such as sherry, chablis and port.

"We oppose any new restrictions, including GI registrations, on the use of [these] commonly used terms of importance to Mercosur's trading partners and domestic food industry," the CCFN stated, describing the "colonial-like dominance the EU is attempting to exert in pushing for these economic restrictions that short-change local producers and consumers.” CCFN also notes that “the EU is denying New World countries access to the EU market for foods that carry internationally recognized generic names, such as parmesan and feta.”

In another global development; China will unilaterally lower its cheese tariffs from 12 percent to 8 percent, effective December 1, 2017. The U.S. Dairy Export Council (USDEC) says “The move will immediately boost U.S. export competitiveness in China and help U.S. suppliers take a larger role in meeting the nation's booming cheese demand.”

USDEC president and CEO, Tom Vilsack, says "We are very pleased with China's decision because it will help U.S. cheese exporters and manufacturers chip away the tariff disadvantage with other competitors. We are even more pleased that the process that yielded the decision helped to further cultivate trust and build critical relationships between the U.S. dairy industry and Chinese official institutions, the nation's dairy industry and customers."

Speaking of China, the Daily Dairy Report (DDR) says Chinese imports continued to outpace those of a year ago. Milk powder outpaced 2016 levels by double-digits once again, according to the DDR, and October saw imports of 43.7 million pounds of whole milk powder (WMP), nearly double the volumes from last year but 16 percent less than in September on a daily average basis.

Skim milk powder (SMP) also posted another strong performance with imports beating the prior year by 75 percent, according to the DDR, and “In total, China imported 35.1 million pounds, of SMP in October, with Year-to-date SMP imports up 35 percent from the same period a year ago.” Butterfat imports also “performed well,” according to the DDR.

But the export market is not likely to come to our rescue. The dark clouds on dairy’s horizon aren’t allowing much light ahead, according to a generally optimistic Jerry Dryer, analyst/editor of the Dairy and Food Market Analyst.

Speaking in the December 4 Dairy Radio Now interview, Dryer blamed over production of milk and under consumption of dairy products for the clouds. He pointed to issues of plant capacity being overwhelmed in this country and dumping of milk occasionally but said consumption is also "dragging its feet.”

Retail cheese sales in the first nine months of 2017 were trailing those of a year ago, he said, and while exports are strong, “they can and should be stronger.” He also warned that the U.S. is losing share in the world market.

When asked what bright spots he sees ahead he replied, “I don’t. There has to be some adjustment. Right now there’s a heavy cloud hanging over prospects for international trade and for growth,” referring to the renegotiation of the NAFTA, and he warned; “If that doesn’t all come together we’ll have a real mess in terms of product backing up into the U.S., so I’m having trouble finding a bright spot.”

In politics; U.S. Agriculture Secretary Sonny Perdue received accolades this week from the National Milk Producers Federation and the International Dairy Foods Association for allowing school districts to offer low-fat (1 percent) flavored milk as part of the National School Lunch and School Breakfast programs.

An interim final rule implementing the regulatory changes needed to reinstate low-fat flavored milk in schools was announced November 29 on the Federal Register sites and goes into effect for the 2018-2019 school year, according to a joint press release.

“The regulation implements changes that Secretary Purdue proposed earlier this year to streamline the process by which schools can serve low-fat flavored milk without first obtaining a special exemption. In 2012, the U.S. Department of Agriculture eliminated low-fat flavored milk as an option in the school meal and a la carte programs, which resulted in a large drop in milk consumption in schools. Students consumed 288 million fewer half-pints of milk from 2012-2015, even though public school enrollment was growing,” the two groups said.

"We appreciate the Secretary’s understanding that the regulatory process needed to move quickly so schools may include low-fat favored milk in their menu planning and procurement,” said Michael Dykes, D.V.M., president and CEO of the International Dairy Foods Association (IDFA). “Today’s action will help reverse declining milk consumption by allowing schools to provide kids with access to a variety of milk options, including the flavored milks they enjoy.”

“Secretary Perdue’s willingness to provide greater flexibility to schools recognizes that a variety of milks and other healthy dairy foods is critically important to improving the nutritional contributions of child nutrition programs in schools,” said Jim Mulhern, president and CEO of the National Milk Producers Federation (NMPF). “The math here is quite simple: More milk consumption equals better nutrition for America’s kids.”

Earlier this year, Congress passed the FY 2017 omnibus appropriations bill that included provisions to allow schools to offer low-fat flavored milk. In addition, Reps. Glenn Thompson (R-PA) and Joe Courtney (D-CT) have introduced legislation, the School Milk Nutrition Act, to expand the ability of schools to offer various milk options. Their ongoing efforts in Congress have led to a greater awareness of the milk shortfall challenge in schools that today’s USDA action begins to address.