Lee Mielke Market Update December 29

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.

Happy New Year. But, will it be a happy new year?

FC Stone dairy broker Dave Kurzawski answered the question with a “Yes” in the January 1, 2018 Dairy Radio Now broadcast. While Class III futures show nothing approaching $16 per hundredweight for the foreseeable future, Kurzawski remains optimistic.

He admitted that 2017 global dairy demand may have been over-estimated, but he believes 2018 will be better, stating; “General economics, both at home and abroad are strong and improving.” He cited the recently passed tax bill, which he believes will benefit consumers, and U.S. economic annual growth was up 3.5 percent in 2017, first time since 2006 it’s been above 3 percent.

 

The global GDP is also expected to top 3 percent in 2018, he said, “So I think improving economics across the board are going to help dairy product demand.” “When you have a booming economic situation, which says nothing of the accelerating pace of technology and historically low unemployment, when you have a booming economy, generally speaking you’re going to have booming on-farm prices as well,” he argued.

When asked if domestic demand or exports will turn things around in 2018, Kurzwawski said he thinks we will see a “stable to better export situation in 2018,” as the “black cloud” of NAFTA is lifted. Speculation over dismantling NAFTA was the 2017 story, he said. “The 2018 story is that this has already been priced into our markets. If nothing changes on NAFTA, I think we are going to see a warm embrace on the export market for dairy products in particular.”

One thing is sure in the global market and that is the influence by China. The world’s largest dairy importer made 2017 one of the biggest volume years on record, according to the December 28 Daily Dairy Report (DDR).

“China imported 72 million pounds of whole milk powder (WMP) in November, 2 percent more than the prior year and 60 percent higher than October on a daily average basis,” the DDR states. “Seasonally, China’s milk powder imports begin to increase in late fall due to the zero-tariff powder allotment that opens in November and in preparation for the Chinese New Year.”

“China also took in 40 million pounds of skim milk powder (SMP) in November, up 53 percent versus last year and the highest November volume since 2013,” the DDR said, and “Year to date, China imported 36 percent more SMP than the comparable period in 2016.”

 

Incidentally, the U.S. was the second largest SMP trading partner in November, according to the DDR, accounting for nearly 15 percent of the total share and 187 percent more than the prior year.”

Meanwhile, New Zealand-based Fonterra Co-operative has revised the forecast for its New Zealand milk collections for the current 2017/2018 season to 1,480 million kilograms of milk solids (kgMS), down from its forecast in November 2017 of 1,525 million kgMS.

HighGround Dairy (HGD) points out that Fonterra’s revised forecast of 1,480 million kgMS is down around 4 per cent on the 2016/2017 season which itself was negatively impacted by weather conditions.

“Wet conditions experienced by farmers at the beginning of spring improved from late October and into November,” says HGD, “but recent dry weather is continuing to impact soil moisture and pasture quality right across the country.”

“Dry conditions are expected to continue, and even if the rain forecast for early in 2018 eventuates, it will not be enough to bring production back to previously anticipated levels,” according to HGD.

“Fonterra has begun to take volumes of whole milk powder off the Global Dairy Trade platform in response to lower milk supply, and has a program in place to carefully manage sales both on and off GDT for the rest of the season as a result of the current weather conditions,” HGD concludes. The next GDT is January 2.

In other global news, the Consortium for Common Food Names (CCFN) praised the Japanese government’s decision to “assure the continued general use for many generic food terms as part of its trade agreement with the European Union (EU), especially highly contested terms such as ‘parmesan’ and ‘romano’, even as CCFN seeks further assurances on several common terms still at risk.”

A CCFN press release stated “Japan has assured continued common use for the generic cheese names brie, camembert, cheddar, edam, emmental, gouda, grana, mozzarella, parmesan, pecorino, provolone and romano; for the meats bologna, bratwurst and mortadella; and for varietal terms such as ‘kalamata’ for olives and ‘valencia’ for oranges.”

“Japan took the right steps in preserving the vast majority of terms that were of concern to CCFN members worldwide, and in doing so helped maintain the choices and fair competition that will benefit Japanese consumers,” said CCFN Executive Director Jaime Castaneda. “Now we are urging continued consistency and fairness as they establish the finer points of the agreement, so that names that are clearly generic in the marketplace will remain accessible to everyone.”

The last week of 2017 was lite on fodder for the dairy markets. The Agriculture Department’s last Cold Storage report of 2017, issued December 22 provided some crumbs however.

It pegged November 30 butter stocks at a slightly bullish 158.8 million pounds, down 59.1 million pounds or 27 percent from October and 2.4 million pounds or 1 percent below November 2016.

American type cheese, at 733.2 million pounds, was down 7.2 million or 1 percent from October but 20 million or 3 percent above a year ago. The other cheese category totaled 500.3 million pounds, down 1 percent from October but 13 percent higher than a year ago. The total cheese inventory was down 9.3 million pounds or 1 percent from October but 76 million or 6 percent above 2016.

October butter stocks were revised 1.9 million pounds lower, American cheese was revised up 1.1 million, and the other cheese stocks were lowered 958,000 pounds.

FC Stone says the large jump in the other cheese category “may indicate that we are producing quite a bit more mozzarella and that may have had something to do with the wide barrel/block inversion.” HGD called the report “mostly neutral.”

A higher All Milk price and lower corn and hay prices nudged the November milk feed price ratio higher. November’s 2.54 is up from 2.45 in October but compares to 2.59 in November 2016, according to the Agriculture Department’s latest Ag Prices report issued December 28.

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 2.54 pounds of dairy feed containing that blend.

The U.S. average All-Milk price was $18.10 per hundredweight (cwt.), up 20 cents from October and 30 cents above November 2016. Michigan again scored the lowest, at $16.60, followed by Arizona at $16.70, and California at $16.95, which was up 17 cents from October but 12 cents below a year ago. Wisconsin’s $19.00 is up 50 cents from October, 30 cents above a year ago, and $2.05 above California.

Florida typically shows the highest, which averaged $21.50 for November, followed by Oregon at $20.90, and Virginia at $19.70 per cwt.

November corn averaged $3.15 per bushel, down 11 cents from October and 9 cents below November 2016. Soybeans averaged $9.22 per bushel, up 4 cents from October but 25 cents per bushel below a year ago. Alfalfa hay averaged $148 per ton, down $4 per ton from October but $18 per ton above a year ago.

Looking at the cow side of the ledger; the report shows the November cull price for beef and dairy combined averaged $63.40 per cwt., down $2.00 from October, after dropping $4.50 the previous month, but is $1.50 above November 2016, and $8.20 below the 2011 base average of $71.60.

Checking the final Chicago Mercantile Exchange prices of 2017; the 40-pound Cheddar blocks closed Friday December 29 at $1.54 per pound, up 4 3/4-cents on the shortened Christmas holiday week but 12 cents below a year ago, with 13 cars sold. The 500-pound barrels finished the week and the year at $1.4425 per pound, up 3 1/4-cents on the week, 15 3/4-cents below a year ago, and at a larger than normal 9 3/4-discount to the blocks. 23 cars of barrel traded hands on the week at the CME.

The blocks peaked for the year at $1.76 per pound on October 6 and compares to the 2016 peak at $1.9425 on November 9. They saw a 2017 low of $1.36 per pound on March 15 and that compares to a low of $1.27 on May 12, 2016.

The barrels ranged from a high of $1.76 on August 21, 2017 to a low of $1.3375 on June 20, 2017. They got as high as $1.88 on August 5, 2016 and sunk to $1.27 per pound on May 12, 2016.

Milk into Midwestern cheese vats remains plentiful, according to Dairy Market News. Cheesemakers continue to report spot milk prices ranging $4 to $8 under Class III, and a majority were between $4 and $5 under Class. Cheese production schedules vary by plant, but a majority of plant managers plan on either six or seven day workweeks for the near term as milk storage space is tightening. Some suggest the heavy CME sales volumes of process cheese were an alleviation of the ample cheese stocks, while others relay that cheese supplies remain plentiful and will continue to grow with heavy milk supplies.

Western cheese inventories are reportedly heavy. Cheese demand has been stable but not enough to stay ahead of the abundant milk supplies and vigorous cheese production. A few contacts suggest that cheese sales have not met expectations for the year. Demand for blocks and barrels slowed greatly between the winter holidays and market observers say higher than normal stocks of cheese and other dairy products going into the new year “should provide a hortative yelp for slowing the supply of milk moving into cheese vats. Cheese manufacturers know an early launch into the cheese pizza and grilling seasons may be critical to set a positive tone for cheese in 2018” DMN concludes.

Cash butter saw a Friday close at $2.2075 per pound, up 2 3/4-cents on the week but 6 cents below a year ago, with only 3 cars exchanging hands on the week.

Butter had many thinking it would top $3 per pound in 2017 but $2.7375 was as high as it got on August 3, 2017. It fell to a low of $2.0625 on April 18, 2017 but its 2016 low was $1.7550 on October 19 and it only got as high as $2.3675 on June 17, 2016.

Central butter makers report that holiday cream supplies are plenteous and will remain so until early January. Retail sales reports vary from butter makers across the region. Some butter producers report that retail demand has been meeting expectations, while others suggest 2017 holiday retail figures were below previous years. The market tone is softening a bit and contacts are anxious that once 2018 budgeting and futures contracting is complete, the markets will see further declines.

Western butter makers report that they are being flooded with cream, butter production is active, and a few manufacturers are adding extra shifts or running additional churns to keep up. But, retailers are starting to reorder and fill vacated stock shelves, according to DMN.

“Industry contacts say the latest inventory reports suggest that butter stocks have been pulled down to seasonal levels. A number of contacts are viewing milk fat as the strongest sector of the dairy industry right now and wonder if this will continue into 2018,” DMN says.

CME Grade A nonfat dry milk closed the week and the year at 67 3/4-cents per pound, up 1 1/4-cents on the week but 34 1/4-cents below a year ago, with 13 cars finding new homes on the week at the CME.

 The powder set a record low of 64 3/4-cents per pound on December 19, 2017. The high for the year was $1.0375 on January 18. The 2016 low was at 69 cents per pound on April 6, with the peak at $1.05 on December 22, 2016.

Milk is available for all processing needs around the country, according to the USDA’s weekly production update. Southeast milk production is up and Midwest contacts are concerned regarding the ample supply of milk. Upper Midwestern contacts were also anxious regarding some impending inclement winter weather and how it would affect hauling and transportation. Bottling requests are down as schools are on break for the Christmas and New Year’s holidays.