Lee Mielke’s Market Report February 23

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.

You'll recall that the Agriculture Department's last World Agricultural Supply and Demand Estimates report projected that U.S. milk output will hit 218.7 billion pounds in 2018. The preliminary January estimate shows output was off to a good start to achieve that. Production hit 17.3 billion pounds in the top 23 states, up a bearish 1.8 percent from January 2017 and is the 49th consecutive month that milk output exceeded the year before. The 50-state total, at 18.45 billion pounds, was also up 1.8 percent. Revisions raised the original December 23-state estimate by 4 million pounds to 16.98 billion, up 1.1 percent from a year ago.

 

January milk cow numbers totaled 8.74 million head in the 23 states, up 4,000 from December and 49,000 more than a year ago. The 50-state total, at 9.4 million head, was up 5,000 from December and 46,000 above a year ago. Output per cow averaged 1,979 pounds in the 23 states, up 24 pounds from 2017.

The report also pegged the official 2017 milk output total at 215 billion pounds, up 1.4 percent from 2016. USDA also reports that output has increased 13.4 percent from 2008. Output per cow averaged 22,941 pounds in 2017, up 163 pounds from 2016, and the average annual rate has increased 12.5 percent from 2008. Cow numbers averaged 9.39 million in 2017, up 0.7 percent from 2016, and increased 0.8 percent from 2008.

California milk output roared in January and topped its year ago output for the first time in 13 months, up an impressive 2.2 percent from 2017, thanks to a 60-pound increase per cow more than offsetting a drop of 16,000 cows. Wisconsin was up just 0.4 percent, on a 15 pound gain per cow offsetting 5,000 fewer cows.

Idaho was up 2.1 percent, thanks to a 35 pound increase per cow and 2,000 more cows. New York was down 3.3 percent on an 80-pound drop per cow, though cow numbers were up 4,000 head. Pennsylvania was up 1.4 percent on a 25 pound gain per cow. Cow numbers were unchanged. Minnesota was up 0.8 percent, on a 35 pound gain per cow offsetting a 5,000 cow loss.

Michigan was up 1.2 percent on a 10 pound gain per cow and 3,000 more cows. New Mexico was up 5.0 percent thanks to 9,000 more cows and a 45 pound gain per cow. Texas was up 5.8 percent, on 21,000 more cows and 30 pounds more per cow. Washington State was up 2.0 percent on a 40 pound gain per cow with cows numbers unchanged from a year ago.

FC Stone dairy broker Dave Kurzawski, speaking in the February 26 Dairy Radio Now broadcast, called the Milk Production report a “weather report.” “The weather has been pretty darn good out there, particularly in the West,” he explained, “Which showed positive gains versus a year ago.” “Weather is the key component there.”

Sadly, the report showed that the number of licensed U.S. dairies fell to 40,219 in 2017, down 1600 from 2016. Wisconsin lost 430 farms; New York 160; Minnesota 140, and 30 producers called it quits in California. Idaho lost 10, Michigan lost 60, Pennsylvania 80, and Washington State saw 30 shudder their operations.

Dairy’s weakening bottom line resulted in sharply higher dairy cow culling. The Agriculture Department’s latest Livestock Slaughter report shows an estimated 289,800 head were slaughtered under federal inspection in January, up 42,500 head from December and 20,800 head or 7.7 percent above a year ago.

Red ink returned to the February 20 Global Dairy Trade (GDT) auction, Event number 206. The weighted average of all products offered inched back 0.5 percent, following the 5.9 percent upshot on February 6 and 4.9 percent January 16. The quantity sold slipped to 44.7 million pounds, down from 48.9 million in the last event.

The losses were led by skim milk powder, down 3.0 percent, following a 7.2 percent increase on February 6. Anhydrous milkfat was down 1.9 percent, after inching up 0.5 percent last time, and GDT Cheddar was down 1.3 percent after posting a 7.2 percent gain.

Butter was up 1.1 percent following a hefty 7.9 percent increase last time and rennet casein inched up 0.7 percent, after it jumped 5 percent in the last event.

FC Stone equates the GDT 80 percent butterfat butter price to $2.3606 per pound U.S. CME butter closed Friday at $2.1725. GDT Cheddar cheese equated to $1.6721 per pound U.S. and compares to Friday’s CME block Cheddar at $1.4950. GDT skim milk powder averaged 83.10 cents per pound, U.S. and whole milk powder averaged $1.4724. CME Grade A nonfat dry milk price closed Friday at 67 1/4-cents per pound.

Kurzawski called the GDT slippage “a breather” and “a nonevent,” as New Zealand milk output is struggling, down about 7 percent on a milk solids basis.

Meanwhile; the Agriculture Department’s latest Cold Storage report shows January 31 butter stocks grew to 223.9 million pounds, up 55.1 million pounds or 32.6 percent from December and 2.3 million or 1 percent above January 2017.

American type cheese stocks hit 738.2 million pounds, down 8.6 million pounds or 1.2 percent from December but 15.8 million or 2.2 percent above a year ago. The other cheese category totaled 508.5 million pounds, virtually unchanged from December but 14 percent above a year ago.

The total cheese inventory stood at 1.275 billion pounds, down 5.3 million pounds or virtually unchanged from December but 83 million pounds or 6.7 percent above a year ago.

The cash cheese market lost ground in the President’s Day-holiday shortened week, reversing three weeks of gains. Cheddar block cheese inched up to $1.55 per pound Wednesday, only to shrink back and close Friday at $1.4950, down 4 1/2-cents on the week and 8 cents below a year ago. The Cheddar barrels finished at $1.46, down 2 cents on the week, 5 3/4-cents below a year ago, and a more normal 3 1/2-cents below the blocks. Only three cars of block were sold on the week at the CME and 31 of barrel.

Dairy Market News reports that milk continues to flow into Midwest cheese vats and at a discount, ranging $1 to $3 under Class III. Cheese sales are steady to higher, and some mozzarella producers have reported upticks in demand. Some cheese producers relay that CME prices “have been on the right track recently, as barrel prices increase to meet blocks. All market participants are not so bullish though, as they suggest buyers are aware of the tumultuous markets in recent months and are more hesitant to purchase when prices are on the rise.”

Western cheese output is in line with current milk volumes. Nonetheless, some plants are reviewing schedules to avoid further accumulation of cheese in storage. Overall, stocks are ample, says DMN, and “The U.S. cheese market seems to be competitive compared to the rest of the world.” Domestic sales are flat but some contacts report interest from the international market has increased some, due to higher cheese prices in the European Union and Oceania.

In another week of heavy trading, cash butter climbed to $2.19 per pound Wednesday, then slipped to $2.16 Thursday, but closed Friday at $2.1725, up 7 1/4-cents on the week and 4 1/4-cents above a year ago. An impressive 44 cars were sold on the week, down from 72 the week before.

Cream supplies are tightening for butter production in the Central region, according to DMN. “Upper Midwest butter makers suggest increased Class II production is beginning to cut into the recent accessibility of cream. Butter churning ahead of spring remains fairly active. Some contacts have noted the annual March 1st deadline to sell loads of butter onto the CME produced prior to December 1st, 2017. In recent years, notable market price increases have occurred in the waning days of February or on the earliest trading days in March. Contacts are unsure as to where the markets will trend in the next two weeks, but some are expecting an uptrend relative to years past.”

Western butter makers report that higher prices in some international markets “may offer more export opportunities for U.S. butter, or at least, hinder large volumes of imports from entering the U.S.” Domestic retail orders for the spring holidays are reported to be strong and building. However, with abundant supplies of cream available, butter production is equally strong, DMN warns. Inventories are heavy and still growing. “Manufacturers would feel more sanguine about the near term butter market if butter stocks could be drawn down in the next few weeks. Market participants seem eager to move spot loads of butter prior to the March 1 deadline for older stock sales on the CME. A few contacts suggest there are a number of bulk butter loads moving at discounted prices to brokers across the West.”

Grade A nonfat dry milk saw a Friday close at 67 1/4-cents per pound, down 3 1/4-cents on the week and 15 cents below a year ago, with 11 sales reported on the week at the CME.

The European Commission sold 9.6 million pounds of skim milk powder from its Intervention program this week. While it is the largest sale of stocks to date, it’s a small portion of what it has in storage and it went at a bargain price.

The Agriculture Department announced the March Federal order Class I base milk price at $13.36 per hundredweight (cwt.), down 89 cents from February, $3.54 below March 2017, and the lowest Class I since June 2016. The price equates to $1.15 per gallon, down from $1.23 in February and $1.45 a year ago. The three month average stands at $14.35 per cwt., down from $17.03 at this time a year ago and compares to $14.49 in 2016.

Chicago-based Commodity and Ingredient Hedging LLC’s latest Margin Watch (MW) reports that “Dairy margins were flat to slightly higher over the first half of February as a recovery in milk prices helped to offset the impact of higher feed costs with advancing corn and soybean meal prices. Margins still remain negative through the first half of 2018 and well below average from a historical perspective, while projected positive but only just above breakeven through the second half of the year.”

“Milk prices have started to firm,” the MW states, “As the National Dairy Product Sales Reports have come in higher than expected over the past month while world butter prices are firming and CME cash butter has recovered after testing a low from mid-November recently. While global dairy stocks remain high and there are concerns moving into the Northern Hemisphere’s spring flush season, it would appear that much of the negative bias in dairy market fundamentals may have already been fully digested for now.”

“On a negative note, feed costs have started to advance recently on weather concerns in Argentina. Soybean meal prices in particular have appreciated sharply since the beginning of February as drought conditions intensify, with Argentina supplying nearly half of world meal exports. In their most recent monthly WASDE report, USDA cut Argentina’s soybean crop forecast by 2 million tons, although their projection for soybean meal exports remained unchanged from January. USDA also cut Argentina’s corn crop by 3 million tons from the previous estimate, with further reductions likely given an unfavorable forecast over the near to medium-term,” according to the MW.

Cooperatives Working Together (CWT) accepted 11 requests for export assistance the week of February 19 from member cooperatives that had contracts to sell 2.895 million pounds of Cheddar, Gouda and Monterey Jack cheese to customers in Asia, Europe, the Middle East and North Africa.

The product was contracted for delivery through June and raised CWT’s 2018 exports to 16.795 million pounds of American-type cheeses and 1.59 million pounds of butter (82 percent milkfat) to 12 countries on four continents.

In other global news, milk production in Australia was up 3.0 percent in the July to December period from 2016, according to DMN. New Zealand milk this season is down and below previous expectations. That said, it seems a bit greener in New Zealand this week because some areas have had rain and some pastures are improving. Experienced New Zealand hands note that any recovery at this point in the waning part of the season will likely be limited in a seasonal context.”