Lee Mielke’s Market Report March 29

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 lkmielke@juno.com or by phone 360.201.4033.

It was a short week for dairy traders, due to the Good Friday holiday and there wasn’t a lot for the dairy markets to feed on.

Another sizable drop in the U.S. All Milk price average, plus higher corn, soybean, and hay prices, pulled the February milk feed price ratio lower again. The Agriculture Department’s latest Ag Prices report shows the February ratio at 2.03, down from 2.19 in January and 2.62 in February 2017.

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 2.03 pounds of dairy feed containing that blend.

The U.S. All-Milk price averaged $15.30 per hundredweight (cwt.), down 80 cents from January and a depressing $3.20 below February 2017. Michigan again scored the lowest at $13.80, with California at $14.75, and Wisconsin at $15.60.

February corn averaged $3.38 per bushel, up 9 cents from January, following a 6 cent rise from December, but is still 6 cents per bushel below February 2017. Soybeans averaged $9.49 per bushel, up 19 cents per bushel from January but 37 cents per bushel below a year ago. Alfalfa hay averaged $155 per ton, up $3 from January, and $28 per ton above a year ago.

Looking at the cow side of the ledger; the February cull price for beef and dairy combined averaged $65.60 per cwt., up $2.30 from January and 70 cents above February 2017, but is $6 per cwt. below the 2011 base average of $71.60.

A point of explanation concerning the All-Milk price was stated in the March 16 Western United Dairymen’s (WUD) newsletter. This is the price USDA uses in the Margin Protection Program’s (MPP) formula to calculate the milk price part.

“It is not a number that can be compared to the California overbase price,” WUD states. “The All-Milk price is calculated by using total dollars paid to producers at average fat test, including any premiums or discounts (prior to deductions for hauling, promotions, or dues) divided by total pounds of milk. Total dollars paid would not include any dividends paid by coops or hauling subsidies. The data comes from various sources. In some states, USDA calculates a price using data collected on surveys of plants that purchase milk from farmers.

In some states, USDA uses data obtained from Coops or Federal Milk Marketing Orders. In California, USDA uses data provided by the California Department of Food and Agriculture. To calculate a U.S. price, USDA weighs the top 23 states’ price estimates by the states’ monthly milk production estimates.”

Speaking of milk prices; Penn State’s March Dairy Outlook candidly warns; “With cow numbers steady, increasing domestic milk production, robust inventory of dairy products, and other factors, there are no market signals to indicate strength for future milk prices.”

The Outlook says “Markets continue to move sideways with little prospect for substantial improvement. The predicted mailbox prices for September- November 2018 are averaging $17.56 per cwt, which is $2.00 per cwt higher than the 2nd quarter of 2018 average mailbox price. If these predicted prices do occur this autumn, it will provide a few months of relief from the punishing low prices currently experienced by dairy producers. This temporary relief is still below the 3 year average breakeven for most Pennsylvania farms.”

“Dairy producers that have a small land base and need to purchase corn on a regular basis should watch price trends closely. The markets are expecting corn prices to rise by autumn and through the winter of 18-19. Dairy producers in the Northeast are already at a disadvantage in purchasing corn due to the transportation basis that adds 15-20 percent to the Chicago market price. So, watch corn closely,” the Outlook advises.

“The short rally in the price of soybeans was due to the dry weather in Argentina. However, soybean export sales from the United States have been less than expected, so futures prices have had a clear upper limit.”

Cash dairy prices at the Chicago Mercantile Exchange were mixed in the Good Friday holiday shortened week, with only butter advancing. The Cheddar blocks closed Thursday at $1.53 per pound, down 1 1/2-cents on the week, unchanged on the month, but a penny above a year ago. The barrels came under pressure as product found its way to Chicago, and dropped to $1.44, down 7 cents on the week and the lowest since February 15, 2018, down 3 1/4-cents on the month, 3 cents below a year ago, and 9 cents below the blocks. Two cars of block traded hands on the week at the CME and 23 of barrel.

Midwestern cheesemakers tell Dairy Market News that demand is moving at steady to increasing levels. Mozzarella and provolone makers say sales are meeting expectations, while some traditional/cheddar style producers are pointing to increases in orders. Milk intakes continue to be heavily discounted: $2 to $5 under Class III. “Cheese inventories vary quite a bit per producer, however there is some anxiety regarding the NASS Cold Storage numbers moving mostly in the northerly direction. As demand has been decent, milk intakes are only increasing, and are unlikely to slow until the summer. That said, some see the market in a fairly comfortable place, at least temporarily,” DMN says.

Western cheese makers report that demand has been solid, according to DMN, but the relatively strong orders and ample milk supplies have pressed manufacturers to keep up.


“Industry contacts are pleased cheese is moving well and prices have been fairly stable. However, some suggest that cheese demand due to spring holiday orders has eased. The changing seasons leave processors with the knowledge they will soon face the vanward waves of spring flush.”

“Manufacturers expect heavier milk supplies, increased cheese production and higher stocks may limit the upside potential of cheese markets in the near term. Contacts hope the grilling season will start early and Americans desire for cheeseburgers will add a bullish bravado to an otherwise bearish dairy market.”

Somebody wanted to buy butter Wednesday and got it, as 40 loads exchanged hands, with another 20 on Thursday. The price closed the day and the month at $2.2150, up 2 1/2-cents on the week, up 3 1/2-cents on the month, and 10 3/4-cents above a year ago. A total of 62 cars found new homes on the week.

FC Stone pointed out in its March 27 Early Morning Update that “Historically we’ve seen downside following the big demand of Easter, but we’ll have to see how pipelines get refilled to make that call this year. In addition, European butter continues to find remarkable support at prices trading north of $2.80 per pound.”

“Central region butter makers report that spot cream is widely available but is uncertain moving ahead. Some expect, as ice cream makers begin to compete more heavily, that prices will level off and resurge to where they have been in recent weeks. Butter demand continues to meet expectations, although food service orders have slowed due to holiday and spring breaks at the school level.”

Butter stocks vary, but some suppliers report their stores are generally balanced. “The Cold Storage report’s monthly and annual storage upticks have some in the industry concerned,” says DMN, “but others suggest they have been disabused of the notion that butter is easily provoked by otherwise bearish news. As the public view on butter has changed, they feel the butter markets are less frangible than other commodities, at least for the near term.”

Butter churning is ongoing in the West given that higher milk loads are available and have to be cleared. Export sales are unchanged from last week, and market players do not expect any big change in the near future. Current butter stocks are more than sufficient to meet end users’ needs, according to DMN.

Cash Grade A nonfat dry milk saw a Thursday close at 69 cents per pound,    down a quarter-cent and 11 cents below a year ago, with 23 cars sold this week.

The March 29 Daily Dairy Report says the EU sold 4,127 MT of skim milk powder SMP from its Intervention stocks at the minimum price of the equivalent of 58.5 cents per pound (U.S.), the lowest minimum price fixed for the past 18 tenders.

“Based on 2017’s ending Intervention stocks, the European Union has only sold 2.7 percent of its stocks so far this year,” according to the DDR. “At its current pace, Europe would deplete Intervention stocks in just over 85 tenders. China’s lower SMP imports in February, especially from European countries, has many wondering where EU SMP will move to eventually.”

CME dry whey closed Thursday at 28 1/2-cents per pound, down a quarter-cent on the week, with two sales reported. The lagging USDA surveyed whey price was up 2.2 cents, to 26.14 cents per pound.

The Daily Dairy report’s Sarina Sharp warned in the March 23 Milk Producer Council newsletter that “If China continues to slap U.S. agriculture with retaliatory tariffs, the whey market would be the most vulnerable part of the dairy complex. The fact that whey prices held their own this week suggests that the trade expects the status quo to prevail.”

McDonalds is trying to get back into the good graces of the dairy industry after it recently removed dairy from its Happy Meals. Dairy checkoff scientists who work onsite at McDonald’s headquarters have helped the chain launch three items that “continue its commitment to elevate dairy and provide customers with great-tasting menu choices,” according to a Dairy Management Incorporated (DMI) press release.

DMI scientists worked with McDonald’s to create the new menu additions which include McDonald’s Signature Crafted Recipes sandwiches and the Egg White Delight McMuffin, which will feature sharp white Cheddar cheese slices that are more than 30 percent larger than the pasteurized process version previously used. The cheese will be available in all 14,000 restaurants by April 2. A new Signature Crafted Recipe, Garlic White Cheddar, will also be added to the Signature Crafted Recipes lineup.

McDonald’s launched a limited-time-offer McCafe Turtle Coffee Beverages with advertising starting April 2. Consumers can choose Turtle Macchiato Iced, Turtle Macchiato Hot and Turtle Iced Coffee. These beverages join a McCafé lineup that offers dairy in 90 percent of its items, according to DMI.

And, McDonald’s in partnership with Coca-Cola recently launched a line of ready-to-drink McCafé Frappes at grocery stores nationwide. Three flavors, caramel, vanilla and mocha, are available, and McDonald’s plans to expand its line-up later this year.

In politics, the massive Congressional spending bill signed into law by President Trump contains several important achievements for America’s dairy farmers, according to the National Milk Producers Federation (NMPF), including relief from potential regulation under the CERCLA law.

An NMPF press release stated; “The omnibus bill contains a provision strongly supported by NMPF that would relieve dairy and other livestock producers from having to report manure-related air emissions under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).”

NMPF says it helped organize a coalition of farm groups to urge Congress to clarify that the measure, aimed at monitoring emissions from hazardous waste sites, was never intended to generate reports on low levels of emissions of ammonia and hydrogen sulfide from farms.

“Because of recent court decisions, the CERCLA law was poised to require farms to generate meaningless reports that regulatory agencies do not want and will not use,” said Jim Mulhern, president and CEO of NMPF.

“The congressional spending measure also includes a provision to recreate the Section 199 Domestic Production Activities Deduction (DPAD) tax provision that was repealed by last year’s tax reform bill. The measure largely refashions the DPAD to help preserve the competitive position of farmer-owned cooperatives in the marketplace. NMPF worked with other agricultural organizations to address the competitive implications created by last year’s tax law, emphasizing the need to maintain the prevailing tax treatment of dairy cooperatives and their farmer members in this area.”

NMPF adds that “The omnibus bill also addresses Congressional concerns that many plant-based foods and beverages are not properly labeled, building on language from the DAIRY PRIDE Act (DPA), a bipartisan bill introduced last year in both chambers of Congress to compel FDA to act against misbranded imitations.”

“Given the existing definition of milk as a product of a dairy animal, NMPF said that Congress’ instructions to FDA in the omnibus bill should restrict the ability of beverages made from plant foods from using the term “milk” on their labels. This will also affect products misusing other dairy food names such as ‘cheese’ and ‘yogurt’ that are defined in the Code of Federal Regulations and cited in the congressional bill.”

Mulhern also stated that “It’s shaping up to be a difficult year economically for many dairy farmers, and the passage of these provisions is a bright spot for our members. We will continue to work with the House and Senate on other priorities, such as additional improvements to the dairy safety net, and changes to our immigration policies that address the labor needs of our farmers.”