The Mielke Market Update August 25 – Lee Mielke

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.

No need to worry over spilled milk, or worry about a shortage in the U.S.. Preliminary Agriculture Department data shows July milk output in the top 23 producing states at 17.2 billion pounds, up a bearish 1.9 percent from June 2016. Revisions added 5 million pounds to the original June estimate, now put at 16.9 billion pounds, up 1.7 percent. The 50-state July total is 18.2 billion pounds, up 1.8 percent. Milk cow numbers averaged 9.4 million head, up 74,000 from 2016.

July milk cow numbers in the 23 states totaled 8.73 million, down 1,000 head from June but 72,000 more than a year ago. Output per cow averaged 1,969 pounds, up 21 pounds from a year ago.

California's July milk output, while still below a year ago for the sixth consecutive month, strengthened some. The nation's Number 1 milk producer was down just 0.2 percent, due to 13,000 fewer cows but output per cow was up 10 pounds. Wisconsin was up 0.7 percent, on a 15 pound gain per cow, while cow numbers were unchanged.

The biggest increase was again in Texas which continued to put more than enough milk in the tank, up a whopping 14.8 percent, driven by 35,000 more cows and a 130 pound gain per cow. New Mexico, was up 8.4 percent, on 19,000 more cows and a 45 pound gain per cow from a year ago.

Idaho slipped 0.2 percent, on a 10 pound loss per cow, though cow numbers were up 2,000 head. New York was down 0.1 percent, on a 15 pound loss per cow, but milked 4,000 more cows than a year ago. Michigan was up 2.9 percent on 7,000 more cows and a 25 pound gain per cow. Minnesota was up 3.1 percent, thanks to 70 pounds more per cow offsetting a loss of 4,000 cows. Pennsylvania was off 0.4 percent, on a loss of 5,000 cows, but output per cow was up 10 pounds. Heat took a toll on Washington State, down 1.2 percent on a 30 pound loss per cow and 2,000 fewer cows.

USDA's latest Livestock Slaughter report shows July culling was down from June but above a year ago. An estimated 225,800 head were slaughtered under Federal inspection, down 10,900 head from June but 12,500 head above July 2016. Culling in the first seven month of 2017 totaled 1.72 million head, up 58,600 head from a year ago or 3.5 percent.

The latest milk production data for the EU 28 nations is for June and was up 1.7 percent from a year ago, according to HighGround Dairy's Eric Myer, speaking in the August 21 Dairy Radio Now broadcast. That's the strongest it has been in over a year there, he said, as milk output there had been lagging.

The other big story, according to Meyer, is the high butterfat market, which is at record highs. The last reported price was equivalent to $3.50 per pound, he said, as butter and milkfat and butterfat is tight around the world.

Milk production in Oceania is on the rise, according to Meyer. June output, which is very early in their winter season, was up almost 20 percent and, while that therefore doesn't have a lot of relevance, Meyer said, this season is going to be highly anticipated once they start ramping up milk production.

Calving season is underway and producers were told by Fonterra they can expect a $6.80 per kilogram milk solids price, highest in four years. Meyer expects increases in milk output approaching 3 to 4 percent for the season.

Meyer also expects $3 per pound butter in the U.S., as there is a pretty wide spread between U.S. and European prices. The last Global Dairy Trade auction's butter price was disappointing, he said, but while the price may be "choppy" for a while, he believes we will see that $3 print before the end of the year.

As to milk prices, Meyer says we have seasonal gains coming and a $1.80 per pound cheese price is possible for a little while, but he voiced concern regarding our large cheese stocks, once Third and Fourth Quarter cheese buying ends.

Growing milk output in the U.S. has been focused in the cheese producing regions, he said, so he's not as bullish on the first half of next year on cheese. He looks for prices in the $1.50s, "not too profitable for dairy farmers around the country but I expect those prices to normalize as the weight of the stocks during a higher production and lower demand period sets in."

There's still plenty of product in the cooler, though butter stocks are down. The USDA's latest Cold Storage report shows July 31 butter holdings at 307.7 million pounds, down a somewhat bullish 2.4 million pounds or 1 percent from June and 25.1 million pounds or 8 percent below July 2016.

American cheese stocks, at 837.6 million pounds, are up a bearish 27.4 million pounds or 3 percent from June and 67.9 million or 9 percent above a year ago. The total cheese inventory stood at a record 1.38 billion pounds, up 58.4 million pounds or 4 percent from June and 99.6 million or 8 percent above a year ago.

Traders must not have liked what they saw in the July Cold Storage report and cash dairy prices suffered the consequences. The Cheddar blocks closed Friday at $1.65 per pound, down 10 1/2-cents on the week and 9 cents below a year ago when they dropped 12 1/2-cents to $1.74.

The barrels started the week moving atop the blocks, first inversion since March 15, 2017, and hit $1.76, highest barrel price since November 2016. But, they rolled to a Friday close of $1.5575, down 19 1/4-cents on the week, 12 1/4-cents below a year ago when they plunged 18 1/2-cents to $1.68, and are 9 1/4-cents below the blocks. Eleven cars of block and 37 of barrel sold on the week at the CME, 23 on Tuesday alone.

FC Stone's Dave Kurzawski wrote in his August 24 Early Morning Update; "It makes sense that the market would have responded negatively to the (Cold Storage) report. But prices had also just pushed to a six month high for blocks and established a new 2017 high for barrel cheese, which can stir a good deal of selling interest anyway (and did so ahead of the report this week). Also, we've said that for mid-late August, we thought that cheese prices could hang in around the $1.70 level with barrels a little lower, so the $1.75 level of Monday seemed a bit rich. Ultimately our guess is that the shot higher over the past week inspired sellers to step back in a more meaningful way, and not necessarily the inventory report from July."

The important takeaway, he concludes, is that the $1.70 price level "seems to be reasonable heading into holiday buying this year. We shall see."

Meanwhile; Dairy Market News (DMN) reports that discounted milk for cheese production remains available in some Central areas. Spot milk prices ranged from $1 under to $1 over Class III. With schools opening, some of the previously available spot milk is being diverted to states outside the region.

"Curd producers are experiencing a record setting season in demand," says DMN. "Both curd and pizza cheese producers have started to limit orders, as production capabilities cannot keep up."