Lee Mielke’s Market Report April 6

Lee Mielke

Lee 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.

Global trading’s “tit for tat” got lots of attention this week as the skirmish got closer to agriculture. President Trump’s recently announced tariffs on a list of Chinese imports received a response from his counterpart in the form of retaliatory tariffs on U.S. products, including soybeans. Trump responded, threatening additional tariffs. The war of words has brought lots of uncertainty to the global markets, even as the U.S. racks up near record trade deficits. More on that ahead.

 

The March Federal order Class III benchmark milk price started climbing out of its hole as the U.S. Agriculture Department announced the price at $14.22 per hundredweight (cwt.), up 82 cents from February but $1.59 below March 2017. It is 26 cents above California’s comparable 4b cheese milk price and equates to $1.22 per gallon, up from $1.15 in February and compares to $1.36 a year ago. The First Quarter Class III average is at $13.87, down from $16.49 at this time a year ago and compares to $13.75 in 2016.

Class III futures late Friday morning portended an April price of $14.45; May, $14.74; and June at $15.08, with a peak at $16.16 in October.

The March Class IV milk price is $13.04, up 17 cents from February but $1.28 below a year ago. Its First Quarter average stands at $13.01, down from $15.37 a year ago and compares to $13.75 in 2016.

California’s comparable March 4b cheese milk price is $13.96, up 58 cents from February, 20 cents above a year ago and the highest 4b since November 2017. The 4b average for First Quarter 2018 stands at $13.57, down from $15.19 a year ago and compares to $13.12 in 2016.

The 4a butter-powder milk price is $13.01, up 29 cents from February, 95 cents below a year ago, but the highest 4a since December 2017. The three month average, at $12.89, compares to $15.01 a year ago and $12.98 in 2016.

Speaking of the Number 1 milk producer; the Agriculture Department published its long awaited final decision to establish a Federal Milk Marketing Order (FMMO) for California. The proposed FMMO would incorporate the entire state. The final decision is based on the evidentiary record of a public hearing held in Clovis from September to November 2015.

 

USDA will conduct a referendum from April 2 through May 5, 2018 and will mail ballot materials to all known eligible dairy producers supplying milk to the proposed marketing area. The FMMO would become effective if approved by two-thirds of the voting producers, or by producers of two-thirds of the milk represented in the voting process. Cooperatives can vote as a block. USDA allows a stand-alone California quota program but it will be administered by the California Department of Food and Agriculture.

HighGround Dairy (HGD) is skeptical, stating that it “does not view the creation of a California FMMO as a ‘game changer’ in terms of saving farmers during an industry supply/demand imbalance as the market is enduring today.”

“Perhaps it puts them on a more fair playing field with respect to their farm colleagues around the country,” HGD says, “but California has its own complexities when it comes to selling manufactured products for either domestic use back East (freight) or for export.”

“In addition, nothing is changing in terms of business, environmental, or labor challenges that exist within California to shift the direction of the state’s dairy industry. In fact, HighGround could argue that processors within the state have less incentive to expand as a result of the higher raw milk costs that will impact them as a result of the FMMO versus the state order.”

By the way; the USDA is also proposing a temporary increase in the Class I milk price in the Florida order to help offset damages from last fall’s hurricane.

Meanwhile; anhydrous milkfat led the declines while butter jumped in the April 3 Global Dairy Trade (GDT) auction. The weighted average of products offered inched 0.6 percent lower, following a 1.2 percent drop March 20 and a 0.6 percent slide on March 6.

Anhydrous milkfat was down a bearish 7.0 percent but unchanged in the last event. Skim milk powder was down 1.8 percent after plunging 8.6 percent.

Gains were led by rennet casein, up 12.1 percent, after slipping 2.9 percent March 20. Butter was up 4.1 percent, after holding steady last time. Cheddar was up 2.2 percent, following a drop of 3.9 percent, and whole milk powder was up 1.6 percent, after inching 0.1 percent higher last time. Lactose was up 1.1 percent and buttermilk powder was up 1.0 percent.

FC Stone equates the GDT 80 percent butterfat butter to $2.4313 per pound U.S. CME butter closed Friday at $2.2875. GDT Cheddar cheese equated to $1.6688 per pound U.S. and compares to Friday’s CME block Cheddar at $1.6025. GDT skim milk powder averaged 83.85 cents and whole milk powder averaged $1.4869. CME Grade A nonfat dry milk closed Friday at 72 3/4-cents per pound.

USDA’s latest Dairy Products report pegged February U.S. cheese output at 981.6 million pounds, down 10.5 percent from January but 4.2 percent above February 2017. That put the two-month total at 2.08 billion pounds, up 4.6 percent from a year ago.

California produced 198.8 million pounds of that cheese, down 8.3 percent from January but 3.5 percent above a year ago. Wisconsin, at 262.9 million pounds, was down 9.5 percent from January and also 3.5 percent above a year ago. Idaho contributed 72.1 million pounds, down 15.6 percent from January but 5.5 percent above a year ago and Minnesota, at 56.9 million pounds, was down 8.0 percent from January but 10.6 percent above a year ago. New Mexico produced 64.8 million, down 5.2 percent from January and 9.0 percent above a year ago.

Italian cheese totaled 423.9 million pounds, down 10.6 percent from January but 4.3 percent above a year ago. Year to date (YTD) Italian cheese sits at 898.3 million pounds, up 4.4 percent from a year ago. Mozzarella, at 325.9 million pounds, was up 3.5 percent, with YTD at 692.9 million pounds, up 3.9 percent.

American type cheese production totaled 396.6 million pounds, down 8.5 percent from January but 6.1 percent above a year ago, with YTD at 830.3 million pounds, up 4.9 percent. Cheddar output, the cheese traded at the CME, totaled 291.8 million pounds, down 8.3 percent from January but 5.7 percent above a year ago, with YTD Cheddar hitting 610.0 million pounds, up 3.8 percent.

Churns produced 168.6 million pounds of butter, down 7.4 percent from January but 4.7 percent above a year ago. YTD output is at 350.7 million, up 3.5 percent.

California butter totaled 51.8 million pounds, down 3.9 percent from January but 6.5 percent above a year ago. Pennsylvania was down 15.3 percent from January and 11.8 percent below a year ago.

Yogurt output amounted to 367.8 million pounds, up 1.3 percent from a year ago, with YTD hitting 733.2 million pounds, down 0.6 percent.

Dry whey totaled 89.4 million pounds, up 14.6 percent, with YTD output at 179.7 million pounds, up 12.1 percent. Stocks totaled 88.6 million pounds, down 1.8 percent from January but 24.8 percent above those a year ago.

Nonfat dry milk totaled 158.5 million pounds, down 1.1 percent from January but 12.1 percent above a year ago. YTD output stands at 318.8 million pounds, up 8.2 percent. Stocks climbed to 323.99 million pounds, up 17 million pounds or 5.5 percent from January and 61.9 million pounds or 23.6 percent above a year ago. January stocks were revised sharply lower to the tune of 33.2 million pounds.

Skim milk powder production totaled 36.5 million pounds, down 20.3 percent from January and 8.9 percent below a year ago.

Dairy product prices at the Chicago Mercantile Exchange were mostly higher the first week of April. Cheddar block cheese closed Friday at $1.6025 per pound, up 7 1/4-cents on the week and 14 1/4-cents above a year ago. The barrels finished at $1.45, up a penny on the week, 1 1/2-cents above a year ago, but an unsustainable 15 1/4-cents below the blocks. Six cars of block were traded on the week at the CME and 32 of barrel.

Cheese demand is a mixed bag, says Dairy Market News. Reversing a trend from previous weeks, Italian style cheesemakers report steady to increased sales. While traditional style cheesemakers, who have recently provided generally positive demand reports, are relaying decreasing sales in some cases.

More cheesemakers are taking discounted spot milk, with prices ranging $2.50 to $5 under Class and milk offers are prevalent. Market tones are somewhat mixed. Some contacts expect prices to steadily increase near term, while others point to recent slips and question the market’s direction.

Western cheese is active as milk continues to be readily available. Manufacturers expect production to remain solid in the coming weeks as they reach the upsurge of the spring flush. With current abundant inventories, prices are fairly steady. “Some contacts report that prices are not reflecting the current condition of the market. Cheese inventories/production are more than demand; therefore, according to contacts, prices are supposed to be lower than they are.

Cash butter shot up 9 1/2-cents Wednesday to $2.3350 per pound, despite a lot of product finding its way to Chicago, but it closed Friday at $2.2875, up 7 1/4-cents on the week and 19 cents above a year ago, with 51 cars sold this week.

Cream headed for the churns is not where some butter producers were expecting following the holiday, says DMN. Butter demand is not slowing and 82 percent butterfat loads are sought after on the world market, whereas 80 percent butterfat loads have been moving fairly regularly in the domestic arena. Contacts continue to relay the increased cold storage data has not affected overall market positivity.

Western butter makers report spring holiday retail sales were good but orders have slowed somewhat. Cream is readily available, butter production is vigorous, and butter inventories are generally heavy and growing.

Cash Grade A nonfat dry milk closed Friday at 72 3/4-cents per pound, up 3 3/4-cents on the week but 8 1/4-cents below a year ago, with 11 cars trading hands.

Spot dry whey price finished at 32 cents per pound, up 3 1/2-cents on the week.

U.S. farmers for the first time in 35 years are expected to plant more soybeans in 2018 than corn. The Agriculture Department’s March 29 Prospective Plantings report estimates corn acreage at 88.0 million acres, down 2 percent or 2.14 million acres from last year. Planted acreage is expected to be down or unchanged in 33 of the 48 estimating States from a year ago.

Soybean planted area is estimated at 89.0 million acres, down 1 percent from last year. Planted acreage intentions are down or unchanged in 20 of the 31 estimating States and cotton planted area was estimated at 13.5 million acres, up 7 percent from a year ago.

Corn and soybean meal spiked sharply in response to the report, with acreage estimated well below trade expectations, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.

The MW stated that “Dairy margins deteriorated over the second half of March as a result of higher projected feed costs, with milk prices holding mostly steady.” “Margins remain negative and well below average in spot Second Quarter and only exist near breakeven beyond that through early 2019.”

The Agriculture Department is calling on dairy farmers to sign up in the “new improved” Margin Protection program (MPP).

Agriculture Sonny Perdue says the MPP will “provide better protections for dairy producers from shifting milk and feed prices. We recognize the financial hardships many of our nation’s dairy producers are experiencing right now. Folks are losing their contracts and they are getting anxious about getting their bills paid while they watch their milk check come in lower and lower each month. The Bipartisan Budget Act provided some much-needed incentives for producers to make cost-effective decisions to strengthen their farms, mitigate risk, and conserve their natural resources.” The enrollment period will run from April 9 to June 1, 2018.

The National Milk Producers Federation (NMPF) praised Secretary Perdue for his agency’s “prompt implementation of changes in the MPP” and urged dairy producers to review the new coverage options available.

Just as President Trump appears to have set off an overall trade war, NMPF and the U.S. Dairy Export Council (USDEC) praised the Administration for its “swift and effective negotiation with South Korea regarding the terms and implementation of the U.S.-Korea free trade Agreement (KORUS).”

In a letter to U.S. Trade Representative Robert Lighthizer, the two groups expressed appreciation that trade officials were able to “secure a result with South Korea that addressed certain dairy industry concerns while preserving the overall agreement.”

“South Korea is the fourth-largest U.S. dairy export market,” a joint press release stated. “Last year, it accounted for over $230 million in U.S. dairy sales. It is also the second-largest cheese market in the world.”

“Preserving free trade agreements (FTAs) like this one is essential to strengthening our economy and expanding opportunities for America’s dairy producers and processors,” said Tom Vilsack, president and CEO of USDEC.

“With KORUS, the U.S. dairy industry will remain a competitive dairy exporter to South Korea in a world in which most other major dairy exporters have access to the South Korean market through a trade agreement. This puts U.S. companies, shipping products, manufacturers and American-made milk on the same footing with dairy competitors from other countries.”