The Mielke Market Update July 14 – 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 2017 U.S. milk production forecast was lowered for the fourth month in a row by the Agriculture Department’s latest World Agricultural Supply and Demand Estimates (WASDE) report issued July 12. The 2018 output forecast was also reduced as “growth in milk per cow has been slower than expected, and the forecast growth rate was reduced.”

2017 production and marketings were projected at 216.3 and 215.3 billion pounds respectively, down 400 million pounds from last month. If realized, 2017 production would still be up 3.9 billion pounds or 1.8 percent from 2016.

2018 production and marketings were projected at 221.2 and 220.2 billion pounds respectively, down 500 million pounds from last month. If realized, 2018 production would be up 4.9 billion pounds or 2.3 percent from 2017.

The 2017 and 2018 Class III milk price forecasts were lowered from last month “in line with lower component product prices.” Look for the 2017 Class III price to average around $16.00 per cwt., down 55 cents from last month’s projection and compares to $14.87 in 2016 and $15.80 in 2015. The 2018 average was put at $16.95, down 30 cents from last month’s estimate.

Class IV milk price forecasts were increased for 2017 and 2018 reflecting higher butter prices. It is expected to average about $15.85 this year, up 35 cents from what was expected last month, and compares to $13.77 in 2016 and $14.35 in 2015. The 2018 Class IV average was projected at around $16.25, up 45 cents from what was expected a month ago.

Turning to the feed grains side of the report; this month’s 2017/18 U.S. corn outlook is for larger supplies, greater feed and residual use, and higher ending stocks, according to the WASDE. Corn beginning stocks were raised 75 million bushels reflecting lower feed and residual use in 2016/17 based on indicated disappearance during the first three quarters of the marketing year in the June 30 Grain Stocks report.

Corn production for 2017/18 is projected 190 million bushels higher based on increased planted and harvested areas from the June 30 Acreage Report. The national average corn yield was unchanged at 170.7 bushels per acre.

During June, harvested-area weighted precipitation for the major corn producing states was below normal but did not represent an extreme deviation from average. For much of the crop the critical pollination period will be during middle and late July. Projected feed and residual use for 2017/18 is raised 50 million bushels on a larger crop and lower expected prices. With other use categories unchanged, corn ending stocks are raised 215 million bushels from last month.

Small revisions are made to historical trade and utilization estimates based on the 13th month trade data revisions from the Census Bureau. The season average corn price received by producers was lowered 10 cents at the midpoint for a range of $2.90 to $3.70 per bushel with the larger carryout.

Soybean production was projected at 4.26 million bushels, up 5 million on increased harvested area. Harvested area, estimated at 88.7 million acres in the June 30 Acreage Report. The soybean yield forecast was unchanged at 48.0 bushels per acre. Despite slightly higher production, 2017/18 soybean supplies were reduced 35 million bushels on lower beginning stocks. With projections for exports and crush unchanged, 2017/18 soybean ending stocks were reduced 35 million bushels to 465 million.

Soybean exports for 2016/17 were projected at 2.1 million bushels, up 50 million, reflecting shipments and outstanding sales through early July. Soybean crush was reduced 10 million bushels to 1.9 million on lower projected soybean meal exports and domestic use. Soybean ending stocks for 2016/17 were projected at 410 million bushels, down 40 million from last month. The U.S. season-average soybean price was forecast at $8.40 to $10.40 per bushel, up 10 cents at the midpoint. Soybean meal prices were forecast at $300 to $340 per short ton, up $5.00 at the midpoint.

Meanwhile; USDA’s latest Crop Progress report shows 65 percent of the U.S. corn crop was rated good to excellent, the week of July 9, down from 68 percent the previous week and down from 76 percent the previous year. Sixty two percent of the soybeans are good to excellent, up from 64 percent the previous week but down from 71 percent a year ago. Sixty two percent of the cotton crop was good to excellent, up from 54 percent the previous week and up from 54 percent a year ago.

Cash cheese prices strengthened the second week of July at the Chicago Mercantile Exchange. The 40-pound Cheddar blocks finished at $1.6750 per pound, up 12 1/4-cents and the highest price since June 2, 2017, and a penny and a half above a year ago. The 500-pound Cheddar barrels closed Friday at $1.4750, up a dime on the week, 27 cents below a year ago, but at an unsustainable 20 cents below the blocks. Seventeen cars of block traded hands on the week at the CME and 50 of barrel.

The Daily Dairy Report’s (DDR) Sarina Sharp wrote in the July 7 Milk Producers Council newsletter; “Domestic cheese demand seems to be improving modestly, but America’s appetite for cheese is unequal to its output.”

Speaking to the price spread, the July 11 DDR stated that “For the first time in June 2017, the June block-barrel price spread topped 20.5 cents. Interestingly, it also pointed out that “There is clearly more barrel cheese sold at the CME cash market. Approximately 228 loads, about 9.7 million pounds of barrel cheese, exchanged hands in June 2017, compared to 63 loads in June 2016. Since January 2017, slightly more than 300 loads of block cheese have traded at the CME compared to nearly more than 850 loads of barrel cheese.”

FC Stone’s July 14 Early Morning Update summed up the cheese market: “Uncertainty around the spot spread, continued discussions of plenty of available fresh cheese, not enough cold storage space, these are all the hot-button issues of today. On balance, discussions tend to lean more bearish this week.”

Milk intakes are mixed amongst cheesemakers in the Midwest, according to Dairy Market News (DMN). Some reports indicate milk is still available, although storage capacity concerns are hindering some producers from taking on extra milk. Others report taking on spot milk from flat market to $3.00 under Class III. Cheese sales generally range steady to slow but the block to barrel price gap is “distressing for the overall market.”

Cheese curd producers are experiencing a “seasonal robustness in orders. As local fairs and community events are in their prime season, some producers report a shift in production from other varieties to curds, for the near term.”

Western cheese makers report active manufacturing, although milk production is slowing to some extent. The lighter intakes have had a negligible effect on cheese prices and inventories. Contacts say stocks are still long, but demand is starting to catch up to production and, perhaps, starting to draw on stocks. Domestic demand is stable and a number of manufacturers say cheese is moving well but marketers remain hopeful that the lower U.S. cheese prices, compared to world markets, may boost export opportunities in the near future.

A lot of butter made its way to the CME this week and the price dipped to $2.5850 per pound Wednesday. But, it closed Friday at $2.60, up a penny and a half on the week and 28 cents above a year ago, with 67 cars sold on the week.

FC Stone dairy broker Dave Kurzawski wrote in his July 13 Early Morning Update “U.S. butter weakness seems counter-intuitive in the face of the recent strengthening of EU prices, and discount to those of Oceania, as the growing spread in values will attract export interests which would constrain future domestic supplies.”

Speaking of Oceania, Russia warned New Zealand this week that it may face restrictions of dairy imports after local tests revealed the presence of tetracycline in New Zealand butter.

Adding to Canada’s butter shortage woes, the Canadian Food Inspection Agency (CFIA) announced an additional recall of various brands of butter due to possible Listeria monocytogenes contamination.

In other butter news; HighGround Dairy reported that “France now takes the lead on record high butter prices as the strong Euro pushed values to $3.38 per pound, a full 77 cents above the U.S. May ’17 milk production in France was down 2.9 percent YoY with weekly volumes reported throughout June worsening against prior year. The production of butterfat during May was down a whopping 10.2 percent YoY for the second consecutive month. During April and May, France reported a total loss of 19.3 million pounds from last year.”

Back home; DMN says butter sales are “steady to strong.” Some producers relay that retail butter sales are on par with this time last year. Butter production is ongoing, although some producers are opting to sell cream on the spot market.

“There is some indication of firming cream markets, as seasonal temperatures are taking their toll on overall milk production,” says DMN, “However, some butter manufacturers suggest the current cream availability will continue for the near term, as Class II manufacturers entered cream buying relatively early to avoid an expected tightening of supplies in the summer months.”

Western butter makers report steady to lower production. A number of operators who reduced their churning activity during the Fourth of July holiday were back to normal volumes. Some are decreasing output to take advantage of higher cream prices. Those who can afford to, are selling cream to ice cream processors, according to DMN. Butter inventories are stable and in line with processing needs while demand is steady at seasonal levels.

Cash Grade A nonfat dry milk closed Friday at 86 1/4-cents per pound, down a half-cent on the week and 1 1/4-cents below a year ago. Sixty one carloads were sold on the week, including a single day record of 31 loads on Tuesday.

The DDR’s Sharp writes that “The American discount will likely continue to fuel U.S. milk powder exports, and the weak currency will add to our competitive advantage.”

“We’ll need all the currency leverage we can get,” she said, “as we are losing our edge on other fronts. This week Japan and the European Union reached a preliminary trade pact, featuring dramatic cuts in Japanese cheese and SMP tariffs. The lower tariffs will be phased in over the next 15 years, gradually opening the door wider for European dairy products. Shawna Morris, vice president of trade policy at the U.S. Dairy Export Council warns, ‘Limits in exports ultimately flow back to farmers through lower returns. [The trade pact] gives certain European products a leg up at our expense.”

USDA’s latest Livestock, Dairy and Poultry Outlook reported that May American cheese demand was up 1.5 percent from April and up 8.5 percent from a year ago. “Other” cheese was up 0.1 percent from April and 6.1 percent above a year ago. Total cheese disappearance was up 0.6 percent from April and almost 7 percent above May 2016.

Year to date, American cheese use is up 1.6 percent on a daily average basis, other than American cheese use is up 2.01 percent, and total cheese use is up 1.9 percent.

NFDM disappearance was down 17.8 percent in May but butter demand was up 4.9 percent from 2016, according to the USDA.

California’s August Class I milk price is $18.32 per cwt. for the north and $18.59 for the south. Both are down 13 cents from July but are $1.95 above August 2016 and the highest August Class I since 2014.

That put the eight month average at $17.84 for the north, up from $15.49 a year ago and $17.60 in 2015. The southern average, at $18.11, is up from $15.76 a year ago and $17.87 in 2015. The August Federal order Class I base price is announced by the USDA on July 19.

Cooperatives Working Together (CWT) accepted 10 requests for export assistance this week from member cooperatives that have contracts to sell 1.49 million pounds of Cheddar and Monterey Jack cheese to customers in Asia, Central America, and the Middle East.

The product has been contracted for delivery through October and raised CWT’s 2017 exports to 43.3 million pounds of American-type cheeses, and 3.01 million pounds of butter (82 percent milkfat) to 17 countries on five continents. The sales are the equivalent of 467.7 million pounds of milk on a milkfat basis.

In politics, Congress will cut its summer vacation short by two weeks. It has much to deal with, starting with repealing and/or replacing Obamacare, immigration, tax reform, and the 2018 Budget to name a few. Work on the 2018 Farm Bill is also underway and face steep cuts which is not good news for dairy and those who want to correct shortcomings in the Dairy Producer Margin Protection Program.