Mielke Market Update June 30 – 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 lkmielke@juno.com or by phone 360.201.4033.

The June Dairy Month Federal order Class III benchmark milk price was announced by USDA at $16.44 per hundredweight (cwt.), up 87 cents from May and $3.22 above June 2016. It is the highest Class III since February 2017 and equates to about $1.41 per gallon, up from $1.34 in May and $1.14 a year ago.

The half-year Class III average stands at $16.12, up from $13.48 at this time a year ago and $15.99 in 2015.

Late Friday morning Class III futures portend a July price at $15.74; August, $16.52; September, $16.65; October, $16.89; with a peak at $16.92 in November before heading back down.

The June Class IV milk price is $15.89, up $1.40 from May and $2.12 above a year ago. The mid-year average is $15.08, up from $13.18 a year ago and $13.70 in 2015.

The USDA-surveyed cheese price used in calculating the month’s Class values averaged $1.6293 per pound, up 9 cents from May. Butter averaged $2.4065, up 24.2 cents. Nonfat dry milk averaged 91.37 cents per pound, up 4.3 cents, and dry averaged 49.17 cents per pound, down 1.8 cents from May.

As to what lies ahead, worldwide milk production is past its peak and won’t see another uptick until Oceania starts its season in a few months on a volume basis, according to FC Stone’s June 26 Early Morning Update (EMU). “Looking at year over year figures, global milk production was in contraction during the second half of 2016, so it is expected that in the coming months, we will be seeing positive year over year increases,” the Update states.

“Heat is a concern, especially out west which has caused over 18 wildfires already this summer. In the Midwest however, temperatures have been rather optimal for milk production at the moment. The problem nationally is getting milk production into the right dairy commodity,” according to the EMU.

Cash block Cheddar cheese fell to $1.51 per pound Wednesday but closed Friday and June Dairy Month at $1.5250, down 1 1/2-cents on the week and the fifth consecutive week of loss, 10 cents below a year ago, and 21 1/4-cents lower than on June 1. The Cheddar barrels dropped to $1.35 Thursday but closed Friday at $1.3525, down 1 3/4-cents on the week, 31 3/4-cents below a year ago, 18 cents lower on the month, and a still too-high 17 1/4-cents below the blocks. Twenty three cars of block traded hands the last week of June at the CME and
36 of barrel.

Extra loads of milk may not be as prevalent as they were the last few weeks, but some Midwest cheese makers report distressed milk is still available at $1 to $3 below Class, according to Dairy Market News (DMN). Manufacturers also report running full schedules, but intakes have eased back a load or two. There is an expectation of more available loads over the Fourth of July holiday and cheese makers will have to weigh the pros and cons of taking additional milk, says DMN.

Demand is mixed. Some contacts say curds and readily consumed product orders are strong, others say demand from food manufacturers and food service businesses is steady and cheese continues to move well. Other contacts think cheese orders are “lackluster.” Inventories are heavy for both blocks and barrels and “some contacts suggest the all-time high for total natural cheese stocks may represent efforts by cheese makers to find homes for heavy milk intakes through various cheese aging programs for hard Italian cheeses, aged Cheddar, and other hard cheeses.” Storage capacity concern is pressuring cheese prices.

Western cheese inventories also continue to be long and loads with a little more age are proving harder to move, says DMN. Domestic demand is fair. Food service requests are perhaps slightly lower, but retail demand is steady. Cheese seems to be moving well through regular contracts, but end users are not asking for a lot of extra loads. Contacts hope the price differences between U.S. and international markets can spur additional sales, but large volumes have yet to materialize. Production is active and is pushed on by plentiful milk supplies.

Butter ended the week at $2.6425 per pound, up 5 1/4-cents, 29 1/4-cents above a year ago, and up 23 1/4-cents on the month. Ten cars traded hands this week.

Butter at $3 a pound may be on the horizon. The EU price was reportedly averaging about $3.14, according to FC Stone. DMN says the status quo for butter production, in general, remains mostly active with moderate clearance, as the balance of output moves into storage. Salted butter supplies are adequate but unsalted volumes are considered tight in some channels. Manufacturers expect increased butter production as some cream plants close for the July 4 holiday. However, the market is preparing for lower trending milk production and butterfat declines to deter available cream. Hence, in the next few weeks, producers expect that cream will be readily absorbed into Class II ice cream, prompting reductions in churning rates, which is typical for this time of year. Some buyers note this as a cause of the premium butter price.

DMN says Western butter makers report cream is available for butter but seasonal demand is making cream supplies tighter. Some butter processors are choosing to slow their churns and sell cream to ice cream and other Class II manufacturers because of the strong milkfat prices. Butter inventory is seasonally high and manufacturers are managing stocks closely to assure they have product to meet expected high Third and Fourth Quarter demand. End users are very much aware of year-end butter needs and some suggest that end users are even seeking quotes for available butter into 2018, reports DMN.

Fat in the EU remains tight, according to FC Stone’s EMU, which suspects that Oceania milk is being put into Cheese. “The US has the fat,” the EMU says, “but you can’t buy it. The US has the upper hand in this poker game, and physical traders know it. It has been a game of chicken between price and demand, with demand faltering as of late, especially in the EU,” the EMU states.

The EMU warns that “There is a certain price level where consumption will slow down. In the US we are somewhat acclimated to $2.00 plus butter. Internationally that is not the case as there has already been outrage because of increases in croissant prices. So at what price level does consumption subside significantly? It’s hard to say, but it probably starts with a 3,” the EMU concludes.

As to cheese, the EMU says “The US looks like a nice bargain on cheese today. With shipping costs down, maybe half of what they were five years ago, we’re scratching our heads on why the export bid in not more pronounced.”

Cash Grade A nonfat dry milk closed Friday at 84 1/2-cents per pound, down a quarter-cent on the week but a penny above a year ago, with 10 cars sold on the week at the CME.

FC Stones points out that Mexico has been “noticeably absent from the market as of late, leaving a void in US exports. Seasonally Mexico is coming into a low demand period, as schools are being let out and excess milk is making its way to the driers. However, with the US competitive cost of production advantage, Mexican buyers might see value in owning fresh product in the low 80 cent level, which should act as a major level of support for front month futures.”

Rising hay and corn prices countered a higher All-Milk price to pull the latest milk feed price ratio slightly lower, fifth consecutive month of decline. The May ratio is 2.21, down from 2.23 in April, but is up from 1.89 in May 2016, according to the Agriculture Department’s latest Ag Prices report.

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 2.21 pounds of dairy feed containing that blend.

The May U.S. average All-Milk price climbed to $16.70 per hundredweight (cwt.), up 20 cents from April and $2.20 above May 2016. Prices ranged from $15.00 in New Mexico to $20.10 in Florida.

California’s $15.86 was up 41 cents from April and $2.95 above a year ago and $1.54 below Wisconsin’s $17.40, which was up 30 cents from April and $2.60 above a year ago.

May corn averaged $3.45 per bushel, up 2 cents from April but 23 cents per bushel below May 2016. Soybeans averaged $9.26 per bushel, down 6 cents from April, after dropping 37 cents in April, and is 50 cents per bushel below May 2016. Alfalfa hay averaged $155 per ton, up $7 per ton from April, which followed a $13 jump the previous month, and is $8 per ton above May 2016.

Looking at the cow side of the ledger; the report shows the May cull price for beef and dairy combined averaged $73.30 per cwt., up $1.10 from April, but $6.30 per cwt. below May 2016, and $1.70 above the 2011 base average of $71.60.

Speaking of feed, USDA’s latest Crop Progress report shows that 55 percent of the nation’s corn crop, as of the week ending June 25, was rated in good condition, 12 percent excellent, unchanged from the previous week. Ninety four percent of the soybeans are emerged, up from 89 percent the previous week. Fifty six percent are rated in good condition, down 1 percent from the previous week and 3 percent behind a year ago. Forty six percent of the cotton is rated “good,” down 5 percent from the previous week and even with a year ago.

As June Dairy Month appears in our rear view mirror, the dairy industry is taking another step to safeguard the milk it produces. USA regulators begin testing milk for another type of antibiotic starting July 1.

The June 23 Dairy and Food Market Analyst reports that this 18-month-long pilot program will “look for residues of tetracyclines including oxytetracycline and tetracycline. Currently, milk tanks are tested for beta-lactam drugs such as penicillin and amoxicillin. Just like the beta-lactam testing, any milk found with tetracycline residues (of 300 or more parts per billion) will be dumped.”

Cooperatives Working Together (CWT) accepted 10 requests for export assistance this week from its members to sell 1.695 million pounds of Cheddar cheese to customers in Asia, Central America, the Middle East and Oceania.

The product has been contracted for delivery through September and raises CWT’s 2017 exports to 39.953 million pounds of American-type cheeses, and 3.013 million pounds of butter (82 percent milkfat) to 17 countries.

In other trade news; an international coalition of 10 dairy industry organizations, including three U.S. dairy groups, is “asking their governments’ trade ministers to intercede in the increasingly acrimonious dispute over Canada’s harmful dairy policies that is having global repercussions,” according to a joint press release.

The groups co-signed a joint letter requesting that their respective trade ministries “pursue all avenues available to challenge these measures, including WTO dispute settlement and bilateral trade agreement relationships.”

The U.S. dairy sector, represented by the International Dairy Foods Association (IDFA), the National Milk Producers Federation (NMPF) and the U.S. Dairy Export Council (USDEC), together with seven dairy groups from Argentina, Australia, the European Union, Mexico and New Zealand, is insisting that “Canada remove the recently implemented policies that are facilitating the dumping of Canadian dairy products in the international market, while making already prohibitive Canadian restrictions on dairy imports even more onerous.”

“IDFA will use every opportunity to urge administration officials and legislators who are working to modernize the North American Free Trade Agreement to tackle these unfair, illegitimate and protectionist policies,” said Michael Dykes, D.V.M., IDFA president and CEO.

NMPF president Jim Mulhern said that “Canada’s revised dairy policy amounts to a ‘beggar-thy-neighbor’ approach, damaging not just its neighbor to the south, but also causing harm to other major dairy exporting countries around the world. This policy must stop now, before any more damage is done to American farmers and those from other nations seeking to compete on a level global playing field.”

Tom Vilsack, president and CEO of the U.S. Dairy Export Council, charged that “Canada has been adopting policies that run counter to our longstanding agreements and upending what has until recently been a mutually beneficial trade relationship. Our trade agreements must be honored and not ignored, or worse, by our closest neighbor.”

Canada implemented a special milk Class 7 pricing policy in February that “artificially lowers milk ingredient prices for Canadian processors and is designed to incentivize the substitution of domestic Canadian dairy ingredients for imported ingredients, while also pushing Canadian proteins out onto world markets at below-market prices,” the press release states.

Meanwhile a report published by the Workers Center of Central New York and the Workers Justice Center of New York called “Milked” is raising eyebrows.

Bob Gray, editor of the Northeast Dairy Farmers Cooperative Newsletter, says “The report is highly critical of the treatment of Hispanic farm workers on dairy operations in New York State. It points out that the average dairy farmworker works as much as 12 hours a day, six days a week. And it claims that most farm works earn about the federal minimum wage ($7.25 per hour). It goes on to say many workers have not received adequate training and often feel isolated on the farm. Obviously, this is a very biased report which does not truly reflect working conditions on most dairy operations in the Empire State,” writes Gray.