Mielke Market Update June 23 – Lee Mielke

Lee Mielke

Lee MielkeLee 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 Agriculture Department's preliminary milk production data shows May output in the U.S at 18.9 billion pounds, up 1.8 percent from May 2016. Revisions added 36 million pounds to the original April total, now put at 18.3 billion pounds, up 2.2 percent from a year ago.

May cow numbers totaled 9.39 million head, up 2,000 from April and 71,000 more than a year ago. Output per cow averaged 2,016 pounds, up 63 pounds from April and 19 above a year ago.

California trailed year ago output for the fifth consecutive month, down 1.1 percent, on 11,000 fewer cows and 10 pounds less per cow. Even Wisconsin was below a year ago, showing a deficit for the first time in three years, down 0.7 percent from 2016, on a 15 pound loss per cow but cow numbers were unchanged.

Texas continue dto lead the nation in growing its milk output, up a whopping 14.7 percent, thanks to 43,000 more cows and 100 pounds more per cow. New Mexico, was up 6.9 percent, on 18,000 more cows and a 20 pound gain per cow. Michigan was up 4 percent, on a 40 pound gain per cow and 9,000 more cows.

New York was up 2.3 percent, on a 35 pound gain per cow and 4,000 more cows. Idaho was down 0.2 percent on a 20 pound loss per cow not offsetting 4,000 more cows. Pennsylvania was up 2.1 percent, on a 55 pound gain per cow, but cow numbers were down 5,000. Minnesota was up 2.6 percent, thanks to a 55 pound gain per cow, but cow numbers were down 2,000. Washington State was down 1.4 percent, with 3,000 fewer cows and 5 pounds less per cow. Analysts see the report as neutral to slightly bullish.

Meanwhile; HighGround Dairy reports that April EU milk production was up just 0.4 percent from a year ago. Ireland was up 12 percent but the EU's three largest milk producers, Germany, France, and the UK showed declines.

More and more dairy cows being retired from the business. USDA's latest Livestock Slaughter report shows May culling was up from April and 2016. An estimated 237,200 head were slaughtered under Federal inspection, up 9,100 head from April and 22,600 head above May 2016. Culling in the first five months of 2017 totaled 1.26 million head, up 33,000 from a year ago or 2.7 percent.

Checking the markets; the June 20 Global Dairy Trade (GDT) auction ended six consecutive sessions of gain as the weighted average for all products offered inched 0.8 percent lower, following a 0.6 percent move to the upside on June 6.

Lactose led the declines, down 11.1 percent, followed by rennet casein. Cheddar was down 3.8 percent, after leading the gains with a 14.5 percent jump June 6. Whole milk powder was down 3.3 percent, following a 2.9 percent descent.

Anhydrous milkfat led the gains, up 4.4 percent, following a 1.2 percent decline last time. Butter was next, up 2.9 percent, following a 3.3 percent rise, and skim milk powder was up 1.4 percent, following a 7.9 percent advance.

FC Stone equated the average 80 percent butterfat GDT butter price to $2.5527 per pound U.S. CME butter closed Friday at $2.59 per pound. GDT Cheddar cheese equated to $1.8693 per pound U.S. and compares to Friday's CME block Cheddar at $1.54. GDT skim milk powder averaged $1.0062 per pound and whole milk powder averaged $1.3710 per pound U.S. CME Grade A nonfat dry milk price closed Friday at 84 3/4-cents per pound.

Cash cheese prices slipped the week of June 19 but the spread narrowed a little. The blocks closed Friday at $1.54 per pound, down 7 1/2-cents on the week, lowest since May 4, 2017 and the fourth week in a row of decline, but is still 2 3/4-cents above a year ago.

The barrels rolled to $1.3375 Tuesday, lowest price since May 16, 2016, but rallied and finished Friday at $1.37, down just a penny on the week, 16 1/2-cents below a year ago, but still at a too-high 17 cents below the blocks. Thirteen cars of block traded hands on the week at the CME and a whopping 63 of barrel.

The cheese leaves the CME's open outcry and joins butter and powder on the electronic platform on Monday, June 26.

In milk news, milk will be shifting to the cheese vat from the carton as more schools close for the summer but temperatures may, pardon the pun, temper milk per cow. Milk continues to be available for cheese producers in the Midwest, according to Dairy Market News (DMN). "However, cheesemakers report the flush milk availability of previous weeks has noticeably decreased."

In other dairy news, cheese production has edged back. Some producers are trying to manage heavy inventories and "some contacts suggest export sales, which are scheduled for future shipment dates, have not been accounted for, thus cheese inventories are not as heavy as widely believed." Central cheese producers report varied sales activity. Some are seeing slower domestic retail sales, along seasonal lines. The large block to barrel price variance "is at loggerheads with a stable market, according to Central cheese contacts," says DMN.

Western cheese makers report continued strong production as milk supplies are readily available. Dairy news contacts describe demand as good, but not great. Export inquiries seem to vacillate along with the variance between current U.S. market prices and international prices. Inventories are long.

Cash butter continued to roller coaster but closed 3 cents higher on the week, at $2.59 per pound, 24 1/2-cents above a year ago, with 17 cars sold on the week.

"Butter's performance, in retail and food service, is outperforming previous years," says DMN, "and continues to keep production facilities busy." Butter makers are reportedly "attempting to focus production on late summer/early fall expectations, whenever not fulfilling current orders," but cream supplies are tightening. The butter market tone is healthy, and some contacts are bullish for the near term. Contacts suggest that "global milkfat demand continues to bolster domestic butter prices," according to DMN.

"Demand for butterfat continues to be a primary driving force within the dairy industry and Western butter output is also strong and focused mostly on putting away bulk butter for needs later in the year. Inventories are "fairly heavy," but contacts suggest that stocks are "either committed or manufacturers are willing to hold butter supplies until peak butter demand season in the fall and early winter."

Cash Grade A nonfat dry milk finished Friday at 84 3/4-cents per pound, down 6 1/4-cents on the week and 5 1/4-cents below a year ago, on 11 cars sold at the CME.

FC Stone reports that the EU Commission sold 100 tons of skim milk powder out of Intervention in their latest tender. That, plus slower exports to Mexico and expected increases in global milk output likely contributed to the weaker CME price.

The nation's coolers are busting at the seams, at least on cheese. May butter stocks hit 313.6 million pounds, up 21.3 million pounds or 7.3 percent from April but were 11.4 million pounds or 3.5 percent below those a year ago.

American cheese, at 847 million pounds, was up 13.5 million pounds or 1.6 percent from April and 89.5 million pounds or 11.8 percent above a year ago.

The total cheese inventory stood at a record 1.34 billion pounds, up 7.6 million pounds or 0.6 percent from April and 91 million or 7 percent above a year ago.

April fluid milk consumption took a hit. DMN reported packaged fluid sales totaled 3.8 billion pounds, down 6.1 percent from April 2016. Conventional product sales totaled 3.84 billion pounds, down 6.1 percent from a year ago; organic products, at 201 million pounds, were down 5.6 percent. Organic represented about 5.2 percent of total sales for the month.

Whole milk sales totaled 1.16 billion pounds, down 0.6 percent from a year ago and made up 30.1 percent of total fluid sales in the month, up from 29.7 percent in March. April skim milk sales dropped 15.7 percent from a year ago.

Total packaged fluid milk sales for first four months of 2017 hit 16.1 billion pounds, down 3.1 percent from the same period a year ago. Year-to-date sales of conventional products, at 15.3 billion pounds, were down 3.3 percent; organic products, at 863 million pounds, were up just 0.6 percent. Organic represented about 5.4 percent of total fluid milk sales so far in 2017.

The figures represent consumption of products in Federal milk order marketing areas and California, which account for about 92 percent of total U.S. fluid sales.

Speaking of fluid milk news, the July Federal order Class I base price is $16.59 per hundredweight, up $1.28 from June, $2.89 above July 2016. It equates to $1.43 per gallon, up from $1.32 in May and $1.18 a year ago. It is also the highest Class I base since March 2017 and the highest July Class I since 2014.

The 2017 average now stands at $16.32, up from $13.96 at this time a year ago and compares to $16.34 in 2015.

The two-week USDA-surveyed butter price used to calculate the Class I value averaged $2.4186 per pound, up 30.7 cents from June. Nonfat dry milk averaged 92.08 cents per pound, up 5.9 cents. Cheese averaged $1.6412 per pound, up 12.9 cents, and dry whey averaged 49.62 cents per pound, down 1.6 cents.

"Dairy margins have been mixed since the end of May, deteriorating in the nearby spot Third Quarter while holding steady in deferred slots," according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.

"Margins remain strong, at levels at or above the 80th percentile of the previous 10 years through First Quarter 2018," the MW stated. "Milk prices continue drawing support from strength in dairy product values, particularly cheese and butter."

The MW warned that "feed prices have been creeping higher due to weather concerns in the Corn Belt. Recent hot weather has reduced topsoil moisture, particularly in the Western Midwest, and rainfall has been below normal."

Corn rated in good to excellent condition for the week ending June 18 totaled 67 percent, on par with last week when the market was expecting a 1-3 point improvement. That figure is below the 75 percent reading for this week last year, as well as the 10-year average of 69 percent for this point in the season. Although it is still early, concerns will grow if hot weather and below-normal rainfall continues into July during pollination," according to the MW.

USDA's latest Crop Progress report also shows that 89 percent of the soybeans are emerged, as of the week ending June 18, up from 77 percent the previous week and 1 percent ahead of a year ago. Fifty seven percent are rated in good condition, unchanged from the previous week and 4 percent behind a year ago. Ninety four percent of the cotton is planted, up from 92 percent the week before, with 51 percent rated "good."

In dairy news politics, plant-based dairy alternatives are being told to stop milking the dairy industry. The National Milk Producers Federation (NMPF) stated in a June 23 press release that last week's European Court of Justice ruling upholding European Union regulations that prevent plant-based dairy alternatives from using terms like milk,' 'cheese' and 'yogurt' "is a victory for the same battle occurring in the United States."

"During a visit Friday with French dairy cooperative Sodiaal and the French Dairy Interbranch Organization, NMPF's board officers applauded the European court's ruling that upholds the standards of identity and labeling for milk products."

"The European Court of Justice did just what we're asking the U.S. Food and Drug Administration (FDA) to do: Uphold and enforce current standards of labeling for milk and milk products," said Jim Mulhern, NMPF president. NMPF is leading efforts on Capitol Hill to pass the DAIRY PRIDE Act, which would require FDA to develop a timetable for enforcing standards of identity for dairy foods."

"It's encouraging and appropriate that the court soundly rejected the argument that consumers understand the inherent composition and nutritional differences between real dairy products and plant-based imitators," Mulhern said. "None of the fake milk products provides the same high-quality nutrition package as real milk. It is past time that manufacturers of these products, which are concoctions of powdered plant ingredients and water, abide by existing standards, whether in Europe or the United States."

In other news, the International Dairy Foods Association (IDFA) praised the nomination of Gregg Doud as the Office of the U.S. Trade Representative's chief agricultural negotiator.

Michael Dykes, D.V.M., IDFA president and CEO, stated in a press release; "We are so pleased to support the nomination of Gregg Doud as the Office of the U.S. Trade Representative's (USTR) chief agriculture negotiator. I have worked with Gregg on the Ag Roundtable, when he served as a senior staffer for Sen. Thad Cochran (R-MS) and as a staffer with the Senate Agriculture Committee under chairman Pat Roberts (R-KS), and know that he will work both with us and for us.

"Ambassador Lighthizer has pledged that agriculture 'will be front and center' in any trade deal the U.S. negotiates, including the North American Free Trade Agreement (NAFTA). I can't think of a better person than Gregg Doud to be on those front lines. He has the experience and expertise to represent America's agricultural interests."