Lee Mielke’s Market Report March 9

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.

Glocal Dairy Trade saw another slip. Tuesday’s Global Dairy Trade (GDT) auction saw its weighted average of products offered ease down another 0.6 percent, albeit after a record 22 rounds, versus the normal 12 or so. The slippage followed a 0.5 percent setback on February 20 and a 5.9 percent upshot on February 6.

Buttermilk powder led the declines, down 4.3 percent. Anhydrous milkfat was down 3.2 percent, following a 1.9 percent drop last time. Butter was down 1.0 percent, after gaining 1.1 percent, and whole milk powder was off 0.8 percent, following a 0.3 percent rise in the last event.

Gains were led by skim milk powder, up 5.5 percent, after it dropped 3.0 percent last time. Cheddar cheese was up 1.7 percent, after dropping 1.3 percent in the last event.

FC Stone equated the GDT 80 percent butterfat butter price to $2.3366 per pound U.S. CME butter closed Friday at $2.2050. GDT Cheddar cheese equated to $1.7051 per pound U.S. and compares to Friday’s CME block Cheddar at $1.57. GDT skim milk powder averaged 93.04 cents per pound, U.S. and whole milk powder averaged $1.4659. CME Grade A nonfat dry milk price closed Friday at 68 1/2-cents per pound.

Back on the home front; the U.S. Agriculture Department raised its 2018 milk production forecast in its latest World Agricultural Supply and Demand Estimates report (WASDE), based on what it call “more rapid growth in milk per cow in the first half of the year.”

2018 production and marketings were projected at 219.0 and 218.0 billion pounds respectively, up 300 million pounds from last month. If realized, 2018 production would be up 3.5 billion pounds or 1.6 percent from 2017.

The 2018 imports on a fat and skim-solids basis were reduced on slower sales of a number of processed dairy products. Exports on a fat basis were raised on increased cheese sales and exports on a skim-solids basis were raised on stronger sales of both cheese and whey products.

Annual product price forecasts for cheese and butter were raised from the previous month as recent prices have increased. However, continued large supplies of nonfat dry milk (NDM) are expected to pressure NDM prices, and the forecast was reduced. No change was made to the annual whey price forecast.

The Class III milk price was raised on the cheese price projection, while the Class IV price is down, as the lower NDM price more than offset a higher butter price forecast.

The 2018 Class III milk price forecast is projected to range $14.30-$14.90 per hundredweight (cwt.), up a dime on the low end from last month’s estimate. The Class III averaged $16.17 in 2017 and $14.87 in 2016.

The 2018 Class IV price is expected to range $13.25-$13.95 per cwt., down a dime on the low end and 20 cents lower on the high end, and compares to $15.16 in 2017 and $13.77 in 2016.

Checking the crop side of the report; the 2017/18 U.S. corn outlook is for larger exports and increased corn used to produce ethanol. Corn ethanol was raised 50 million bushels to 5.575 billion based on the most recent data. Exports were raised 175 million bushels to 2.225 billion, reflecting U.S. price competitiveness, record-high outstanding sales, and reduced exports for Argentina. With no other use changes, ending stocks were lowered 225 million bushels to 2.127 billion, and if realized would be down from the prior marketing year. The projected range for the season-average corn price received by producers was narrowed 10 cents on the low end to $3.15 to $3.55 per bushel, with the midpoint up 5 cents to $3.35 per bushel.

U.S. soybean supply and use changes include higher crush, lower exports, and increased ending stocks compared with last month’s report. Soybean crush was raised 10 million bushels to 1.96 billion with increased soybean meal exports. Soybean exports were reduced 35 million bushels to 2.065 billion with increased production and exports for Brazil. Soybean stocks were projected at 555 million bushels, up 25 million from last month. With increased crush, soybean oil production was raised. An increase in food use was more than offset by lower biodiesel use, leaving domestic disappearance lower this month. With increased production and lower use, soybean oil stocks were forecast higher by USDA.

 

The season-average soybean price range forecast of $9.00 to $9.60 per bushel was unchanged at the midpoint. Soybean oil prices were forecast at 30 to 33 cents per pound, down a penny at the midpoint. Soybean meal prices were projected at $325 to $355 per short ton, up $20.00 at the midpoint. Higher soybean meal prices reflect the impact of sharply lower soybean production in Argentina, according to the report.

This month’s 2017/18 U.S. cotton forecasts show lower production, higher exports, and lower ending stocks relative to last month. Production was reduced 233,000 bales to 21.0 million, based on the March 8 Cotton Ginnings report. The final estimates for this season’s U.S. area, yield, and production will be published in the May 2018 Crop Production report. Domestic mill use was unchanged from last month.

Exports were raised 300,000 bales to 14.8 million, based on stronger world demand and expectations of above-average shipments in the second half of the marketing year. Ending stocks were lowered 500,000 bales to 5.5 million. The projected range for the marketing year average price received by producers of 68.0 to 70.0 cents per pound is narrowed by 1 cent at each end from last month.

Meanwhile; cash dairy product prices at the Chicago Mercantile Exchange saw some ups and downs the week of March 5 as traders absorbed Tuesday’s GDT. The 40-pound Cheddar blocks climbed to $1.6025 per pound Monday, highest price since November 28, 2017, but closed Friday at $1.57, up a penny on the week and 18 1/2-cents above a year ago when it bottomed out for the year at $1.3850.

The 500-pound Cheddar barrels climbed to $1.5150 Tuesday, highest since December 18, 2017, but finished at $1.4975, up 2 1/4-cents on the week, 9 3/4s above a year ago, but a larger than normal 7 1/4-cents below the blocks. Eight cars of block sold on the week at the CME and 25 of barrel.

Dairy Market News reports that spot milk into Midwestern cheese plants is ranging $2 to $3 under Class, with some as low as $5 under. It adds that “Hauling woes, whether systemic or weather related, continue to plague a number of cheese producers in the region and veritably across the nation.”

“Milk shipments were delayed early in the week, while mozzarella and provolone producers, currently reporting steady demand, are concerned about multiple winter storms affecting orders made by Eastern region customers. Hard Italian orders are trending up, while barrel producers report demand as middling. The cheese markets are exhibiting bullish traits. Nevertheless, cheese contacts have seen positive, short term signs in the recent past, only to be beguiled by the somewhat delusive cheese markets.”

 

Western cheese production is active as more milk is going to the vats, says DMN, and “the cheese market undertone seems unsettled.” “Although some reports suggest solid domestic demand and lively export opportunities, supplies are still more substantial compared to sales. Intense competition with the European Union in the international market is also not helping the US. Sellers are looking for possible ways to clear cheese out of storage. With most processing plants currently working at full capacity, manufacturers are worried about how they will manage milk supplies and cheese inventories during the spring flush.”

Cash butter climbed to $2.2325 on Tuesday, highest level since January 5, 2018, but then reversed gears and saw a Friday close at $2.2050, up a half-cent on the week and 4 1/4-cents above a year ago. Twenty three loads were sold on the week, down from 80 the previous week, representing over 3 million pounds.

“Butter markets are making their mark on the entire dairy industry, as widespread analyses and reports promulgate the vitality of butter, particularly in relation to other dawdling dairy commodities,” says DMN. Contacts point to the CME new crop butter requirement as a “spur in the current uptrend in trades and prices.” Some Central analysts suggest that butter markets will cool shortly but a number expect butter to “maintain fairly steady price points between $2.00 and $2.25, pointing to bullish futures and increasing demand.”

Western butter makers report cream is ample and butter output is active. “Print butter demand is strong, as would be expected ahead of the spring holidays,” DMN says, but some processors suggest bulk butter demand is “somewhat lackluster for this time of year.” “Some buyers are cautious, feeling that there will be enough butter available when the need arises, and possibly at more favorable prices. End users are working hard to manage stocks closely, trying to get the butter needed for the short term into the warehouse, but being careful about longer term butter needs but contacts suggest there are good volumes on hand.

Spot Grade A nonfat dry milk fell to the record low 64 3/4-cents per pound set in December 2017 on Tuesday but rallied and closed Friday at 68 1/2-cents, 2 1/4-cents higher on the week but 12 1/2-cents below a year ago, on 10 sales.

Dairy margins were mixed over the second half of February, but generally weaker following a continued advance in corn and soybean meal prices while the milk market held relatively steady, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.

“Margins still remain negative through the first half of 2018 and well below average from a historical perspective,” the MW states, “while projected positive but only just above breakeven through the second half of the year. Milk prices have held steady over the past couple weeks but remain depressed due to heavy milk production and stocks.”

“USDA reported January milk production at 18.45 billion pounds, up 1.8 percent from last year when the market was only expecting about a 1.0 percent increase in line with year-over-year gains from the preceding four months. USDA also reported an increase to the dairy herd of 46,000 cows to 9.405 million compared to January, 2017.”

“Cold Storage data was likewise neutral to bearish with total cheese stocks on January 31 at 1.275 billion pounds, down 5.3 million pounds or 0.4 percent from December but up 83.0 million pounds or 7.0 percent from last year. Butter stocks totaled 223.9 million pounds at the end of January, up 55.1 million or 32.6 percent from December and 2.3 million or 1.1 percent higher than last year.”

“Feed costs continue to increase with both corn and soybean meal moving higher due to ongoing drought concerns in Argentina. Following recent USDA adjustments, the Buenos Aires Grains Exchange reduced their corn crop estimate by 2 million tons to 37 million while the soybean production estimate was lowered 6 million tons over the past two weeks to 44 million,” the MW concludes.

Like it or not, the U.S. dairy market remains globally driven and one of the key players is China. Jerry Dryer, analyst and editor of the Dairy and Food Market Analyst newsletter (DFMA), reported on China’s January dairy appetite in the March 5 Dairy Radio Now interview.

Dryer called it “pretty phenomenal,” as China imported record volumes of almost everything. He said China set a new monthly record on skim milk powder imports and whole milk powder, cheese, and infant formula. Whey protein was the only exception, according to Dryer, but it still saw the second highest import level ever, “So the hungry giant appears to have awoken again.”

Part of the reason is that China’s domestic milk production is lagging from a year ago, according to Dryer, who said that December nonfat dry milk output was down about 20 percent.

The U.S. is down the list of China’s suppliers but “we are making headway,” he said, and the U.S. has always been a significant supplier of whey powder to China. January was a good example. China imported 50,000 metric tons of it and 18,000 of that came from the U.S., or about two fifths, according to Dryer.

He admitted that U.S. exports of nonfat dry milk to China has fallen some. The U.S. exported about 72 million pounds of powder in 2017, or about a 14 percent share. But, the last time China had this “raging appetite,” the U.S. had a 26 percent market share, he said.

“If this appetite continues to build, it’s positive news for us, because New Zealand, China’s steadfast supplier, is having some production problems so they may need to turn to us again for more skim milk powder.”

Interestingly, the DFMA also reports that Russia will temporarily ban imports of some dairy products from Belarus. “The agency claims food safety problems, but the reality is the government is protecting its less competitive domestic industry and is also targeting dairy products that are being trans-shipped through Belarus from other suppliers, including the European Union,” according to the DFMA.

U.S. dairy exports started 2018 with a strong showing. FC Stone dairy broker Dave Kurzawski reported details in the March 12 Dairy Radio Now broadcast and I’ll share highlights next week.

Cooperatives Working Together (CWT) accepted 35 requests for export assistance the week of March 5 from members who had contracts to sell 4.35 million pounds of cheese, and 1.984 million pounds of butter to customers in Asia, Central America, Europe, the Middle East and North Africa.

The product has been contracted for delivery through June and put CWT’s 2018 exports at 22.873 million pounds of American-type cheeses, and 5.337 million pounds of butter (82 percent milkfat) to 17 countries on four continents. These sales are the equivalent of 331.209 million pounds of milk on a milkfat basis, accordin to the CWT.

In other trade news; Glanbia, Dairy Farmers of America (DFA) and Select Milk Producers (Select) have finalized a Joint Venture partnership to build, supply and operate the planned new large-scale cheese and whey production facility in Michigan, which is now expected to be commissioned in the second half of 2020, according to a joint press release.

Glanbia, DFA and Select are the existing Joint Venture partners in the Southwest Cheese (SWC) facility in Clovis, New Mexico. Glanbia will hold 50 percent of the equity of the new Michigan Joint Venture with DFA and Select holding the balance of equity.

On completion in 2020, the new facility will process 8 million pounds of milk per day into a range of cheese and whey products for U.S. and international markets. The new facility will be a “strategic outlet for the large scale, growing milk pool in the state of Michigan,” according to the press announcement.