The Mielke Market Update August 4 – 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.

The Agriculture Department announced the July Federal order Class III milk price at $15.45 per hundredweight (cwt.), down 99 cents from June but 21 cents above July 2016 as lower cheese, dry whey, and nonfat dry milk prices pulled the benchmark lower. It equates to $1.33 per gallon, down from $1.41 in June and compares to $1.31 a year ago. It also topped California’s comparable Class 4b cheese milk price by 16 cents, lowest differential since November, 2016 when the 4b topped the Class III by 69 cents.

The seven month Class III average stands at $16.02 per cwt., up from $13.73 at this time a year ago and compares to $16.04 in 2015.

Late Friday morning Class III futures portended an August price of $16.38; September, $16.73; October, $16.96; November, $17.00; and December at $16.86 per cwt.

The July Class IV milk price is $16.60, up 71 cents from June, $1.76 above a year ago, and the highest Class IV since November, 2015. The seven month Class IV average is $15.30, up from $13.42 a year ago and $13.62 in 2015.

The California Department of Food and Agriculture announced its comparable July 4b cheese milk price at $15.29 per cwt., down 31 cents from June, but 62 cents above a year ago. The 4b seven month average stands at $15.14, up from $13.02 a year ago and $14.41 in 2015.

The July 4a butter-powder milk price is $16.41 per cwt., up 50 cents from June, $2.18 above a year ago, and the highest since November 2015. Its average now stands at $15.07, up from $13.11 a year ago and $13.42 in 2015.

The August 1 Global Dairy Trade (GDT) auction switched gears again, heading back down as a hefty 72.2 million pounds of product made its way to event number 193, up 13.4 million pounds from the previous auction, and the largest quantity in a single auction since October 2016, according to Dairy Farmers of America.

The weighted average for all products offered at the GDT was down a surprising 1.6 percent, following a 0.2 percent uptick July 18, which reversed a 0.4 percent slip July 4.

Butter and anhydrous milkfat (AMF) led the declines, both down 4.9 percent, following a 3.4 percent gain last time on butter and a 0.2 percent loss on AMF. GDT Cheddar cheese was down 4.8 percent, after a 1.6 percent gain and skim milk powder was down 3 percent, after falling 3.2 percent last time.

Whole milk powder was up 1.3 percent, after it inched 0.3 percent higher July 18.

FC Stone equated the GDT 80 percent butterfat butter price to $2.5431 per pound U.S. CME butter closed Friday at $2.73. GDT Cheddar cheese equated to $1.7835 per pound U.S. and compares to Friday’s CME block Cheddar at $1.6975. GDT skim milk powder averaged 89.20 cents per pound and whole milk powder averaged $1.4313 U.S. CME Grade A nonfat dry milk price closed Friday at 86 1/4-cents per pound.

You’ll recall that preliminary data reported June’s 50-State milk production at 18 billion pounds, up 1.6 percent from June 2016. USDA’s latest Dairy Products report shows where that milk went.

June cheese output totaled 1.0 billion pounds, down 2.5 percent from May but 3.2 percent above June 2016. Year to date (YTD) output stands at 6.18 billion pounds, up 2.7 percent from a year ago.

California produced 207.2 million pounds of that cheese, down 5.7 percent from May and 0.2 percent below a year ago. Wisconsin, at 270.9 million pounds, was down 1.5 percent from May but 1.3 percent above a year ago. Idaho output hit 82.9 million pounds, up 4.9 percent from May and 2.1 percent above a year ago. Minnesota was down 4.1 percent from May but 10.9 percent above a year ago. New York was off 3.1 percent from May but 3.3 percent above a year ago.

Italian cheese totaled 448.9 million pounds, down 0.8 percent from May but 3.1 percent above a year ago, with YTD output at 2.7 billion pounds, up 1.3 percent.

Mozzarella, at 349.5 million pounds, was up 3.1 percent, with YTD at 2.1 billion pounds, up 0.7 percent.

Total American type cheese hit 403.8 million pounds, down 5.3 percent from May but 3.0 percent above a year ago. YTD totaled 2.5 billion pounds, up 4.1 percent.

Cheddar output, the cheese that is traded at the CME, amounted to 288.1 million pounds, down 7.7 percent from May, but up 2.8 percent from a year ago, with YTD at 1.82 billion pounds, up 6.0 percent.

U.S. churns produced 140.6 million pounds of butter, down 14.0 percent from May and 4.8 percent below a year ago. YTD butter totaled 981.6 million pounds, down 1.7 percent.

California’s butter output totaled 40.5 million pounds, down 11.6 percent from May and 12.0 percent below a year ago. New York was down 40.6 percent from May and 29.6 percent below a year ago. Pennsylvania was down 17.6 percent from May and 7.4 percent below a year ago.

Yogurt production amounted to 371.6 million pounds, down 1.8 percent from a year ago, with YTD at 2.3 billion pounds, down 0.9 percent.

Dry whey totaled 87.6 million pounds, up 9.8 percent, with YTD hitting 502.2 million pounds, up 3.5 percent.

Nonfat dry milk production totaled 163.7 million pounds, down 2.8 percent from May but 11.6 percent above a year ago, with YTD at 958.4 million pounds, up 2.4 percent.

Skim milk powder totaled 39.99 million pounds, down 21.6 percent from May and 28.4 percent below a year ago. YTD output is at 289.2 million pounds, up 2.6 percent.

June 30 nonfat dry milk stocks were reported at 297.5 million pounds, up 16.9 million pounds or 6.0 percent from May and an eye grabbing 66.7 million pounds or 28.9 percent above those a year ago.

Lower soybean and corn prices and a higher All-Milk price reversed five months of decline in the latest milk feed price ratio. The June ratio is 2.32, up from 2.21 in May and up from 1.91 in June 2016, according to the 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 2.32 pounds of dairy feed containing that blend.

The June U.S. average All-Milk price climbed to $17.30 per cwt., up 60 cents from May and $2.50 above June 2016. Prices ranged from a low of $15.70 in New Mexico to $20.80 in Florida. California’s $16.55 was up 69 cents from May and $2.72 above a year ago and $1.35 below Wisconsin’s. The Badger State averaged $17.90, up 50 cents from May and $3.00 above a year ago.

June corn averaged $3.43 per bushel, down 2 cents from May and 39 cents per bushel below June 2016. Soybeans averaged $9.10 per bushel, down 19 cents from May and $1.10 per bushel below June 2016. Alfalfa hay averaged $152 per ton, down $3 per ton from May but $10 per ton above June 2016.

Looking at the cow side of the ledger; the June cull price for beef and dairy combined averaged $76.50 per cwt., up $3.20 from May, but $4.40 per cwt. below June 2016, and $4.90 above the 2011 base average of $71.60.

Crop conditions remain on the radar as intense heat moved into the West, from Washington State to northern California, and will surely impact crops and milk output. USDA’s latest Crop Progress report shows 61 percent of the U.S. corn crop was rated good to excellent, the week ending July 30, down from 62 percent the previous week and down from 76 percent in 2016. Soybeans showed a little improvement, with 59 percent rated good to excellent, up from 57 percent the previous week but compares to 72 percent a year ago. Fifty six percent of the cotton was rated good to excellent, up from 55 percent the previous week and 50 percent a year ago.

August started with strengthening prices despite the lower GDT but relapsed. The Cheddar blocks climbed to $1.7875 per pound Tuesday, highest price since February 2, 2017, but closed Friday at $1.6975 per pound, down 5 3/4-cents on the week and 11 3/4-cents below a year ago. The barrels shot up 11 1/2-cents Tuesday, hitting $1.66, highest since February 8, 2017 and reduced the spread to 12 3/4-cents, but finished the week at $1.53, down 2 1/2-cents, 35 cents below a year ago when they peaked for the year at $1.88, and a still too high 16 3/4-cents below the blocks. Five cars of block were sold this week and 48 of barrel.

Midwest cheese producers report that milk supplies are still available but noticeably lower, according to Dairy Market News (DMN). A majority of spot milk prices range from flat market to $2 under Class III. Food service orders are growing for specialty/traditional cheesemakers. Pizza cheese producers report sales are meeting seasonal expectations. Curd producers are still experiencing a seasonal push as state fairs are underway in the Midwest.

Many Western cheese producers report there is plenty of milk available and processing facilities are at or near full capacity. Although some parts of the region are seeing a good balance between milk intakes and cheese production needs, a few in the mountain states report some milk being discarded due to disruptions at several plants, heavy milk supplies and the difficulty in moving milk to alternative sites. Domestic demand is solid and traders remain hopeful that exports can effectively soak up their heavy stocks.

HighGround Dairy’s (HGD) Monday Morning Huddle reported that China’s cheese demand was “certainly massive last month and reached record highs. Volumes from New Zealand were up 74 percent from a year ago and represented 55 percent of market share and a record high from that country.”

“China imported 1,291metric tons (MT) from the US during June, strongest volumes since April 2015; Second Quarter imports from the US were up 77 percent from the prior year to 3,372MT, representing 11 percent market share.”

FC Stone echoes the sentiment, reporting in the July 31 Early Morning Update that “The cheese export market this year has been growing at a good pace from the major exporters. Growth in Japanese imports over the past 12 months is up 4 percent, while South Korea is up 23 percent, number 1 and 3 largest importers respectively. Spot EU mozzarella prices are going for about $1.85 per pound, which has benefitted from the tailwind of a stronger Euro/weaker US Dollar. The US has been competitive in the past month with block cheddar prices well below EU prices. Also, block and mozzarella manufacturers have benefitted from the weak barrel market as that has substantially lowered the cost of their milk based off how Class III prices are calculated.”

Butter was also on a roller-coaster this week, after all it is fair season, and a lot of product made its way to the CME. The spot butter climbed to $2.7375 per pound Thursday but closed Friday at $2.73, up a penny on the week and 46 cents above a year ago, with 63 cars selling on the week.

Butter makers continue to report that weekly sales figures are improved from last year. Food service orders continue to be the focus of production for some.

Western contacts report that processors do not have any problem getting cream. Butter supplies are comfortable and domestic butter demand is good. International demand seems to be picking up due to higher foreign prices.

FC Stone points out that “The US has been a net importer of fat the past few years. To suddenly become a fat exporter the US would drastically tighten up inventories. Right now the market is attempting to ration demand between domestic end users and importers.”

Cash Grade A nonfat dry milk closed Friday at 86 1/4-cents per pound, up a quarter-cent on the week and 3 cents above a year ago, with seven cars exchanging hands on the week at the CME.

U.S. dairy margins strengthened the last half of July due to higher milk prices and lower feed costs, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging. “With the exception of the spot Third Quarter period, deferred margins are now above the 80th percentile of the previous 10 years through the first half of 2018,” the MW stated. “Milk prices have been supported recently by strong demand from China, which may continue providing a tailwind through the fall. The country’s dairy imports set a record pace for most products in June.”

“Feed prices have been under pressure due to improved forecasts and expectations for cooler temperatures and periodic rains in the U.S. Corn Belt,” according to the MW.

Cooperatives Working Together (CWT) accepted two requests for export assistance this week from members to sell 304,238 pounds of Cheddar cheese to customers in Asia. The product has been contracted for delivery through October and puts 2017 exports at 45.04 million pounds of American-type cheeses and 3.01 million pounds of butter (82 percent milkfat) to 17 countries.

In politics; the National Milk Producers Federation continues its campaign to restrict the use of dairy terms like milk. A NMPF press release charged that the Soy Foods Association’s 20-year-old petition to the U.S. Food and Drug Administration “is as inappropriate today as it was when it was filed in 1997, and the Good Foods Institute (GFI) is mistaken for trying to revive those old arguments today. Nothing has happened in the intervening time period to allow the combination of soy powder, water, emulsifiers, stabilizers, sugar, sodium and added vitamins to magically become milk. Regardless of what food technologists might try, milk still only comes from mammals,” NMPF stated.

“The efforts of GFI and other groups to alter food standards that have been in place for decades, allowing manufacturers of imitation dairy foods to append a plant name like almond, soy, hemp or quinoa in front of legally defined dairy terms such as milk, cheese, yogurt and ice cream, falsely suggests that the products are nutritionally equivalent. They are not. This is a transparent attempt to profit from milk’s good name by emulating the wording, but not the superior nutrition, of our products. It is misleading and deceptive to allow these nutritionally inferior imitators to use our hard-won reputation to their advantage.”

“What’s more, this request is not only inconsistent with U.S. food standards, it’s also inconsistent with regulations used by most other nations, which don’t allow plant-based imitators to co-opt dairy-specific terms. Ironically, in GFI’s first request to FDA in March, the organization admitted that in China – supposedly the original source of ‘soy milk’ – the more common term used in Mandarin for soy beverages is ‘dòu ji?ng,’ which translates to bean slurry. At least that is a more accurate and legally compliant product description.”

Lastly, while fluid milk sales have been declining for years, despite worthy efforts to turn the ship around, Beverage Digest reports that U.S. soda consumption fell to a 31-year low in 2016. Coke and Pepsi have diversified with bottled water, sports drinks, coffee beverages, and even fluid milk products. The dairy industry may only slow declining fluid milk sales for now but, considering what has happened to butter’s popularity, giving up on fluid milk is not a smart idea.