Mielke Market Update – May 19
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.
Market bulls received more fodder in the May16 Global Dairy Trade (GDT) auction. The weighted average for all products offered shot up for the fifth consecutive event, up 3.2 percent, following gains of 3.6 percent on May 2, 3.1 percent jump April 18, 1.6 percent April 4, and 1.7 percent on March 14. Rennet casein was the only negative, down 3.7 percent, after it jumped 10.4 percent on May 2.
Butter was the unquestioned leader, up an attention-grabbing 11.2 percent, following a 1.1 percent increase last time. Anhydrous milkfat was up 8.2 percent, after a 4.7 percent advance. Buttermilk powder was up 7 percent, after leading the gains last time with a 21.8 percent charge. Lactose was up 2 percent, whole milk powder was up 1.3 percent, after a 5.2 percent boost, and skim milk powder was up 1 percent, after it inched 0.9 percent lower last time. The smallest gain was in GDT Cheddar, up 0.6 percent, after it advanced 4.6 percent last time.
FC Stone equated the average 80 percent butterfat GDT butter price to $2.4247 per pound U.S. CME butter closed Friday at $2.3750 per pound. GDT Cheddar cheese equated to $1.6902 per pound U.S. and compares to Friday’s CME block Cheddar at $1.67. GDT skim milk powder was 90.64 cents per pound and whole milk powder averaged $1.5025 per pound U.S. CME Grade A nonfat dry milk price closed Friday at 91.50 cents per pound.
Most mid-May dairy prices at the Chicago Mercantile Exchange also climbed higher as traders absorbed the GDT, awaited Friday afternoon’s April Milk Production report and Monday’s April Cold Storage report.
Buoyed in part by the GDT, CME butter shot up to $2.43 per pound Tuesday, highest price since December 9, 2015, only to ease back Wednesday, regain some ground Thursday, and then slip Friday. It finished at $2.3750, up 11 1/4-cents on the week after jumping 15 1/2-cents the previous week, and is 30 1/2-cents above a year ago. A hefty 26 cars exchanged hands on the week.
Butter production is active in the Central region, reports Dairy Market News (DMN). Some manufacturers plan to build late summer/fall inventories and readily available cream continues to flow to churns. Some Central butter makers report receiving discounted cream from the Southwest. Retail butter demand varies. Some are seeing better-than-expected sales, while others report a seasonal slowdown. “Global tightness on milk fat has some buyers purchasing butter ahead of an increasing export demand,” says DMN.
Western butter output is generally steady. However, larger pulls of cream from ice cream manufacturers are allowing butter makers to ease back. Contacts report there is plenty of cream available. DMN says “U.S. market butter prices have been prodded higher by tight supplies and subsequent higher prices abroad. However, U.S. butter inventories remain long. The recent price increases have prompted a rush of domestic buying activity. Other end users are taking regular shipments and are willing to take a wait and see approach to prices.
The 40-pound Cheddar blocks hit $1.67 per pound Tuesday, then slipped back, recovered, and closed the third Friday of May at $1.67, up 3 1/2-cents on the week, 35 1/2-cents above a year ago, and the highest price since February 6, 2017. The barrels finished at $1.47, down 6 cents on the week, 11 1/2-cents above a year ago, but a way-too-high 20 cents below the blocks. Ten cars of block traded hands on the week at the CME and 39 of barrel.
DMN continues to report there is no shortage of milk for cheesemakers in the Midwest. Some continue to take spot milk, at prices $3.00 to $6.00 under Class. Cheese output continues to keep in line with milk supplies. Block supplies vary, barrels are long, and producers are pushing to clear some aged product. Process cheese producers report slight increases in sales, whereas traditional and pizza cheese demand has increased noticeably. There is concern regarding the price gap, as block price gains have outpaced the barrels,” DMN warned, and “Some suggest a stable market depends on a narrow block to barrel variance.”
Western cheese production remains at or near full capacity. Some cheese plants are running into production issues. Others have scheduled downtime to complete needed repairs or maintenance but, either way, cheese makers are facing challenges in processing the plentiful milk. Cheese supplies are long, especially for barrels. Inventories for blocks are a little better balanced but contacts report some offers at heavily discounted prices. The grilling season has begun and domestic retail demand is steady. However, some market participants feel the recent price increases could choke off available export opportunities.
Cash Grade A nonfat dry milk ended the week at 91 1/2-cents per pound, 5 1/4-cents higher than the previous week, 10 cents above a year ago, and the highest spot price since February 10, 2017. Thirty four cars were sold on the week.
FC Stone’s Dave Kurzawski wrote in his May 15 Early Morning Update that “adverse weather conditions in Europe so far this flush is adding a bullish tone to the market. A month ago it seemed like there would be another big round of intervention buying in Europe which still cannot be discounted. Last week the EU bought almost 2,000mt with Dutch and British product in the mix.” He also pointed out that the U.S. dollar is trading at its lowest point since the November election, which increases U.S. competitiveness in NFDM. He said “There was reports of a lot of export business for NFDM into Mexico last week, as well as production concerns coming out of the southwest with a plant potentially being down. This should strengthen the NFDM market for the time being but with the recent rally in butter and schools letting out for summer in a couple weeks, this market looks to soften come June,” he warned.
The latest Crop Progress report shows 71 percent of the U.S. corn crop is planted, as of the week of May 14, up from 47 percent the previous week, down from 73 percent a year ago, but 1 percent ahead of the five-year average. Thirty one percent of the corn is emerged, up from 15 percent the previous week, 10 percent behind a year ago, and 5 percent behind the five-year average.
Thirty two percent of soybeans are in the ground, up from 14 percent the previous week, 2 percent behind of a year ago and dead even with the five-year average. Thirty three percent of the cotton is planted, up from 21 percent the week before, 5 percent behind a year ago and 4 percent behind the average.
The May 16 Livestock, Dairy, and Poultry Outlook reported that feed prices for 2016/17 are still expected to be relatively low, with price forecasts for corn and soybean meal of $3.25-$3.55 per bushel and $320 per short ton, respectively.
Feed prices for 2017/18 are expected to remain relatively low, with price forecasts for corn and soybean meal at $3.00-$3.80 per bushel and $295-$335 per short ton, respectively.
Dairy margins continued to strengthen over the first half of May; rising milk prices provided most of the improvement against feed costs that held mostly steady, according to Chicago-based Commodity & Ingredient Hedging LLC.
Their latest Margin Watch (MW) says “Margins remain historically strong, at or above the 80th percentile of the previous 10 years through Q1 of 2018. Milk prices have been supported by strength in both cheese and particularly butter.”
Corn and soybean meal did not register much movement from USDA’s highly anticipated May World Agricultural Supply and Demand Estimates report, according to the MW. “New crop corn and soybean balance sheets were largely within market expectations, and attention has been focused primarily on weather developments in the U.S. Midwest. Despite heavy spring rainfall with below-normal temperatures, the latest planting progress report shows both corn and soybean seeding on pace with long-term averages.”
“This should mitigate concerns over the potential for farmers to elect prevented-planting provisions in insurance contracts or make significant acreage shifts from corn to soybeans,” according to the MW.
March fluid milk consumption gained some ground. DMN reported packaged fluid sales totaled 4.2 billion pounds, up 0.5 percent from March 2016. Conventional product sales totaled 3.99 billion pounds, up 0.1 percent from a year ago. Organic products, at 231 million pounds, were up 8 percent and represented about 5.5 percent of total sales for the month.
Whole milk sales totaled 1.26 billion pounds, up 4.9 percent from a year ago and made up 29.7 percent of total fluid sales in the month. March skim milk sales were down 10.8 percent from a year ago.
Total packaged fluid sales for first three months of 2017 totaled 12.3 billion pounds, down 2.1 percent from 2016. Year-to-date sales of conventional products, at 11.6 billion pounds, were down 2.4 percent; organic products, at 662 million pounds, were up 2.7 percent. Organic represented about 5.4 percent of total fluid milk sales so far in 2017.
Speaking of fluid milk; the June Federal order Class I base milk price is $15.31 per hundredweight (cwt.), up 11 cents from May, $2.17 above June 2016, and equates to $1.32 per gallon. The six month average stands at $16.27, up from $14.01 at this time a year ago and compares to $16.31 in 2015.
Cooperatives Working Together (CWT) accepted eight requests for export assistance this week from member cooperatives to sell 930,351 pounds of cheese and 220,462 pounds of butter to customers in Asia, the Middle East, and North Africa. The product has been contracted for delivery through August and raised 2017 exports to 31.6 million pounds of American-type cheeses, and 2.1 million pounds of 82 percent milkfat butter to 15 countries on four continents.
In politics, National Milk reported that State milk regulators have requested that the U.S. Food and Drug Administration (FDA) work with them to enforce the proper use of milk and milk product labeling terms, especially those meant to distinguish between real dairy products and plant-based imitators. NMPF’s Beth Briczinski said “It’s time for FDA to work with state agencies in defending standards of identity for dairy products.”
The U.S. dairy industry commended Robert Lighthizer, the newly confirmed U.S. Trade Representative, for taking swift action under the Bipartisan Congressional Trade Priorities and Accountability Act (TPA) to begin the process for modernizing the North American Free Trade Agreement (NAFTA).
Lighthizer outlined in a letter to Congress areas of the agreement that are either outdated or missing, several of which are important to the U.S. dairy industry. He reaffirmed commitment to pursuing the trade priorities outlined by TPA, including goals related to market access and curbing the abuse of geographical indications.
He also emphasized the importance of effectively implementing and aggressively enforcing the commitments made by Canada and Mexico.
The International Dairy Foods Association (IDFA), NMPF, and the U.S. Dairy Export Council (USDEC) have repeatedly urged administration officials and legislators to focus on maintaining what has worked well, such as trade with Mexico, the top market for U.S. dairy exports. The dairy groups continued to call for improving market access to Canada and tackling that country’s expanding list of protectionist policies and other barriers to U.S. dairy exports.
Dairy trade with Canada is in fact a focus of dairy interests in Europe, reports DMN. “European officials believe the Canadian Senate could be finished with their third reading of the EU-Canada Comprehensive Economic and Trade Agreement (CETA) agreement text by the end of May, meaning that CETA could enter into provisional application in July 2017. The biggest gain for EU dairy is the additional access granted to cheese in the form of a duty free quota (18,500 MT from year 6 of the agreement). 16,800 MT of this quota will be set aside for high value consumer or ‘fine’ cheese and the remaining 1,700 MT will apply to industrial cheese, according to DMN.
Meanwhile; the public comment period for the California Federal Milk Marketing Order (CA FMMO) Recommended Decision closed May 15. The California Department of Food and Agriculture (CDFA) says it has reviewed USDA’s Recommended Decision and State Agriculture Secretary Karen Ross stated that “The recommended decision found that the quota program should remain entirely within the jurisdiction of CDFA, operate as a stand-alone program and that its proper recognition under the proposed CA FMMO would be through an authorized deduction from payments due to producers.”
“In response to the USDA’s recommendation and input from California milk producers, CDFA is ready and willing to establish a stand-alone, producer funded quota program. However, to ensure a stand-alone quota program is not disrupted, it is necessary to remove any statutory ambiguity that may exist in California’s statutes. Therefore, it is the CDFA’s intention to sponsor legislation to ensure the proper authority lies with the department, convene the Producer Review Board (Board), develop the necessary details for a stand-alone quota program, and hold a producer referendum on the Board’s recommendations.”
The letter said it is CDFA’s goal that “all of this should happen prior to the CA FMMO producer referendum,” and recommended that USDA use CDFA’s “in-house expertise” if a CA FMMO is approved by producers.
Lastly, dairy checkoff dollars are funding a new campaign entitled “Undeniably Dairy.” The campaign is designed to “rekindle consumers’ love for our products,” according to the Innovation Center for U.S. Dairy’s website, “and help reshape the way people think about dairy and all that we do.”
Mielke Market Update – May 19