Lee Mielke’s Market Report March 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.

The “Trade War” has begun and perhaps another war with Congress. President Trump fired the first trade salvo this week, announcing $50 billion worth of tariffs on China. China responded with tariffs on 128 U.S. products. And, while dairy is not directly involved, it will be impacted in the coming weeks and months as this issue unfolds.

The President was making no friends with lawmakers in Congress Friday after he hinted of a veto of the Omnibus appropriations package. Details ahead.

 

Meanwhile; a mild February in most of the U.S enabled milk output to top that of a year ago for the 50th consecutive month, hitting hit a bearish 15.9 billion pounds in the top 23 states. That’s up 1.8 percent from February 2017, according to preliminary data in the USDA’s latest Milk Production report. February’s 50-state total, at 17 billion pounds, was also up 1.8 percent. Revisions added 9 million pounds to the January total, now put at 17.3 billion, up 1.8 percent.

February milk cow numbers totaled 8.75 million head in the 23 states, up 1,000 from January and 49,000 more than a year ago. The 50-state total, at 9.4 million head, was up 1,000 from January and 45,000 above a year ago. Output per cow averaged 1,822 pounds in the 23 states, up 23 pounds from a year ago.

California saw its second month with output above a year ago, up 3.5 percent, despite 17,000 fewer cows but output per cow was up 80 pounds. Wisconsin was up just 0.1 percent on a 10 pound gain per cow offsetting 5,000 fewer cows.

 

The Northeast was the exception on the mild weather. Case in point, New York output was down 2.3 percent on a 55 pound loss per cow, though cow numbers were up 4,000. Idaho was up 4.8 percent, thanks to a 60 pound increase per cow and 9,000 more cows. Pennsylvania was up 0.3 percent on a 5 pound gain per cow. Cow numbers were unchanged. Minnesota was down 0.5 percent, on 5,000 fewer cows but output per cow was up 10 pounds.

Michigan was up 0.9 percent on a 5 pound gain per cow and 3,000 more cows. New Mexico eased back 0.5 percent on a loss of 5,000 cows, although output per cow was up 10 pounds. Texas was up 5.5 percent, thanks to 16,000 more cows and 40 pounds more per cow. Washington State inched up 0.1 percent on a 10 pound gain per cow. Cow numbers were down 5,000 head.

FC Stone’s Dave Kurzawski cautioned in the March 26 Dairy Radio Now broadcast that “The behavior of the market is what you really want to watch, so it’s less about how the market reacts in that kneejerk moment but more about how the market trades the day after and where it goes from there.” He added the caveat; “If the market doesn’t go down on bearish news, you have to question how bearish the market really is.” He admitted that the report showed solid gains in milk output but said “it’s nothing to really hold the market down at this moment as we shift into what appears to be decent demand here in March.”

Dairy cow culling dropped sharply in February but was still above February 2017. The latest Livestock Slaughter report shows an estimated 260,700 head were slaughtered under federal inspection, down 29,100 from January but 7,500 above a year ago. A total of 550,400 head have been “retired” from the business in the first two months of 2018, up 28,100 head or 5.4 percent from 2017.

Tuesday’s Global Dairy Trade (GDT) auction saw its weighted average of all products offered drop 1.2 percent, following the March 6 decline of 0.6 percent.

Skim milk powder led the losses, plunging 8.6 percent, and reversing a 5.5 percent advance last time. Cheddar cheese was down 3.9 percent, after gaining 1.7 percent. Anhydrous milkfat and butter were unchanged but FC Stone explains; “We’ve had a pretty flat GDT forward curve for the past few auctions, so really just a continuation of that. Butter is slightly down in the front end of the curve and a little up on the back end of the curve, flattening out the curve further and leaving the butter index unchanged overall.”

Whole milk powder was the only product in positive territory but was only up 0.1 percent, after slipping 0.8 percent last time.

FC Stone equates the GDT 80 percent butterfat butter price to $2.3370 per pound U.S. CME butter closed Friday at $2.19. GDT Cheddar cheese equated to $1.6369 per pound U.S. and compares to Friday’s CME block Cheddar at $1.5450. GDT skim milk powder averaged 85.57 cents per pound, U.S. and whole milk powder averaged $1.4632. CME Grade A nonfat dry milk price closed Friday at 69 1/4-cents per pound.

Dairy product inventories saw large gains in February, particularly on butter. The Agriculture Department’s latest Cold Storage report shows February 28 butter stocks swelled to a just under 277 million pounds, up 50.2 million pounds or 22.1 percent from January and 7 million or 2.6 percent above February 2017. Revisions added 2.8 million pounds to January’s total.

American type cheese grew to 762.7 million pounds, up 20.9 million pounds or 2.8 percent from January and 18.1 million or 2.4 percent above a year ago. Revisions added 3.6 million pounds to the January inventory.

The other cheese category totaled 523.5 million pounds, up 15.4 million pounds or 3.0 percent from January and 68.7 million or 15.1 percent above a year ago. That nudged the total cheese inventory to 1.3 billion pounds, up 35.5 million or 2.8 percent from January and 87.7 million or 7.2 percent above a year ago.

 After weighing the Milk Production and Cold Storage reports, plus Tuesday’s GDT, traders took the Cheddar blocks to a Friday close of $1.5450 per pound, down 4 cents on the week and 3 cents below a year ago. The barrels finished at $1.51, down a nickel on the week and three-quarter cents below a year ago when they plunged 10 1/4-cents. Four cars of block were sold and 12 of barrel.

Dairy Market News reports that demand for cheese is trending up. “Manufacturers of most varieties and styles are reporting bullish ordering ahead of the spring holidays. On the other hand, for some Midwestern producers, Northeastern weather continues to hinder sales as the fourth norśeaster in three weeks struck the densely populated customer base.”

Spot milk prices are in a tight and discounted $3 to $4 under Class, with no shortage of milk offers. Cheese inventories are generally long, but vary from manufacturer to manufacturer. Some barrel producers are suggesting their stocks are lighter than expected, and that unpredictable buying practices of late have deterred them from adding to production.

Although milk availability is ample, some Western cheese processors are not running at full capacity but are planning to increase output in the coming weeks as the spring flush gets near. Overall, cheese supplies are “copious,” says DMN. “Some cheese outputs are being stocked for future usage as current demand, although strong, seems to still be below total production levels. Export market activities are flat and are expected to remain the same unless domestic or international cheese prices change.”

The Daily Dairy Report’s (DDR) Sarina Sharp warned in the March 16 Milk Producers Council newsletter that improved export demand has helped cheese prices, “but domestic demand accounts for about 95 percent of cheese consumption. It’s going to be hard to make a dent in the massive cheese stockpile without a hearty domestic hunger for cheese.”

Cash butter finished the week at $2.19 per pound, down 2 cents on the week but 6 cents above a year ago, with 39 carloads exchanging hands on the week.

Butter producers report that demand is at or near expectations, according to DMN. “Undoubtedly, spring holiday orders have been fulfilled and production is generally quieter. A number of Central butter makers are buying from the Western region where cream supplies, along with discounted spot loads, are abundant. Additionally, some butter producers foresee the possibility of cream price declines next week ahead of the holiday weekend.”

Western butter makers are “seeing the window of spring holiday demand starting to close,” says DMN. Manufacturers have made and shipped much of the print butter needed for the holidays. Export demand has been slow to develop. “Manufacturers are not overly concerned, however with plenteous amounts of cream and active butter production, many expect butter inventories to grow.”

Spot Grade A nonfat dry milk closed Friday at 69 1/4-cents per pound, up three quarter-cents on the week but 13 cents below a year ago, with 3 sales for the week at the CME.

Cash dry whey closed its second week of existence at 28 3/4-cents per pound, down a half-cent on the week, with no sales reported. The latest Ag Market Service surveyed dry whey price dropped 1.4 cents to 24.06 cents per pound.

While Class III futures prices have improved the past month, they still have a long way to go to cover production expenses. The DDR’s Sarina Sharp says “Much depends on European milk production. Preliminary data from the Eurozone, assuming steady trends Greece, Spain, and Sweden, which have yet to report, shows January milk at 28.5 billion pounds. That is up 4 percent from a year ago and 2 percent greater than the formerly record-breaking output of January 2016. All of the top-ten major dairy nations reported year-over-year increases, although improvements in Spain are assumed rather than official.”

“Growth is likely to slow going forward,” she says. “Harsh weather in late February and March hampered milk production per cow. Also, since June, year-over-year growth percentages have been misleading, as they are building on milk volumes in 2016 and early 2017 that were lower than the prior year. Beginning this month, if Europe can achieve continued growth in milk production, it will be building on last year’s expansion, a surplus that the market may find difficult to absorb,” Sharp concludes.

U.S. dairy margins improved slightly the first half of March due primarily to falling feed prices as milk values were steady to a little higher, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.

The MW says “Margins remain below average and negative in the spot period while only projected slightly above breakeven in the second half of the year. Although the milk market remains oversupplied and production has increased at a faster rate than handlers’ ability to process into dairy products, low prices may be stimulating demand and helping to move excess supplies.”

“Corn and soybean meal have retreated following rainfall in Argentina that has brought some relief to drought conditions in the country; however, corn remains supported by a larger than expected cut to U.S. projected ending stocks in the March WASDE. USDA raised the corn export forecast 175 million bushels due to U.S. price competitiveness, record-high outstanding sales, and reduced exports from Argentina, while ethanol usage was raised 50 million bushels from February.

The April Federal order Class I base milk price was announced by the USDA at $14.10 per cwt., up 74 cents from March but $1.95 below April 2017. That equates to $1.21 per gallon, up from $1.15 in March and compares to $1.45 a year ago. The four month average is at $14.29, down from $16.78 a year ago and $14.30 in 2016.

Cooperatives Working Together (CWT) accepted 17 requests for export assistance the week of March 19 from member cooperatives to sell 2.36 million pounds of Cheddar and Monterey Jack cheese, and 220,462 pounds of butter to customers in Africa, Asia, the Middle East and North Africa. The product has been contracted for delivery through June and raised CWT’s 2018 exports to 25.23 million pounds of American-type cheeses and 4.9 million pounds of butter.

As mentioned earlier, while the President threatened a veto Friday, the International Dairy Foods Association (IDFA) commended Congress for approving the 2,223 page omnibus appropriations bill that includes 12 major appropriations bills for FY2018 ending September 30.

It also amends Section 199A of the Tax Cuts and Jobs Act to, as IDFA put it, “resolve the unintended consequences that threatened to distort the dairy marketplace. The amended language levels the playing field for IDFA’s cooperative and non-cooperative members that produce milk and dairy products.”

The National Milk Producers Federation praised the bill’s provision that directs the U.S. Food and Drug Administration (FDA) to “take action against mislabeled imitation dairy foods, representing a major victory for farmers and consumers.”

“The massive omnibus spending bill to fund the government for the remainder of Fiscal Year 2018 includes report language instructing FDA to enforce labeling standards affecting dairy imitators. NMPF said the omnibus language builds on the DAIRY PRIDE Act (DPA), a bipartisan bill introduced last year in both chambers of Congress to compel FDA to act against misbranded imitations.”

“It’s high time that we end the blatant disregard for federal labeling standards by marketers of nutritionally inferior imitation dairy products,” said NMPF CEO Jim Mulhern. “The language in the congressional budget bill will help ensure action on the matter by FDA after years and years of inaction. This measure is clear and unequivocal that honest labeling matters to Congress and consumers, and that FDA can no longer turn a blind eye toward fake foods that deliberately flout federal standards of identity.”