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.
There’s no need to worry about any milk shortage in the U.S. Preliminary Agriculture Department data reported June milk output in the top 23 producing states at 16.9 billion pounds, up 1.7 percent from June 2016. Revisions added 17 million pounds to the original May estimate, now put at 17.8 billion pounds, up 1.9 percent from a year ago.
The June 50-state total is 18.0 billion pounds, up 1.6 percent and output for the April to June quarter hit 55.3 billion pounds, up 1.8 percent from a year ago. Cow numbers averaged 9.4 million head, in the quarter, up 76,000 from 2016.
June milk cow numbers in the 23 states totaled 8.73 million head, up 4,000 from May and 83,000 more than a year ago. Output per cow averaged 1,939 pounds, up 13 pounds from a year ago.
Heat took a heavy toll on California cow numbers and milk output, down a hefty 2.1 percent, and the fifth month in a row the nation’s number 1 milk producer was below a year ago. Cow numbers were down 13,000 head, cow disposal services couldn’t keep up. Output per cow was down 25 pounds.
America’s Dairyland, Wisconsin, was nowhere close to making up the difference either, up just 0.2 percent, as output per cow was only up 5 pounds and cow numbers were unchanged.
Texas continued to outpace the rest of the states, up a tank busting 15 percent, driven by 40,000 more cows and a 115 pound gain per cow. New Mexico, was up 9.8 percent, on 22,000 more cows and a 50 pound gain per cow from a year ago.
Idaho was up 1.9 percent, on 8,000 more cows and 10 pounds more per cow. Michigan was up 2.8 percent, also on 8,000 more cows and a 20 pound gain per cow. A 40 pound gain per cow propelled Minnesota to a 1.4 percent increase, despite a 4,000 cow loss. New York inched 0.4 percent higher on 4,000 more cows outweighing a 5 pound drop per cow. Pennsylvania was unchanged. A 15 pound gain per cow was offset by 5,000 fewer cows. Washington State was down 1.3 percent on a 10 pound loss per cow and 2,000 fewer cows.
Meanwhile; USDA’s latest Livestock Slaughter report shows June culling was down from May but still above 2016. An estimated 236,700 head were slaughtered under Federal inspection, down 500 head from May but 13,000 above June 2016. Culling in the first half of 2017 totaled 1.495 million head, up 46,100 from a year ago or 3.2 percent.
The other big story of the week was Tuesday’s Global Dairy Trade (GDT) auction which slightly reversed two events of decline. The weighted average for all products offered inched up 0.2 percent, following a 0.4 percent slip on July 4 and 0.8 percent on June 20.
Butter led the gains, up 3.4 percent, after it slipped 0.1 percent last time and Cheddar cheese was up 1.6 percent, after it dropped 3.2 percent. Whole milk powder was up 0.3 percent, following a 2.6 percent advance last time.
Skim milk powder again led the declines, down 3.2 percent, following a 4.5 percent drop and anhydrous milkfat was off 0.2 percent, after it dropped 3.5 percent last time.
FC Stone equated the GDT 80 percent butterfat butter price to $2.6570 per pound U.S. CME butter closed Friday at $2.5850. GDT Cheddar cheese equated to $1.8650 per pound U.S. and compares to Friday’s CME block Cheddar at $1.7075. GDT skim milk powder averaged 91.82 cents per pound and whole milk powder averaged $1.4127 per pound U.S. CME Grade A nonfat dry milk closed Friday at 87 1/4-cents per pound.
In other global trade news, USDA’s biannual Dairy: World Markets and Trade report, issued July 18, stated that “During the past year, international prices for such dairy commodities as butter, cheese, and whole milk powder (WMP) have staged a significant recovery trading at over $3,000 per ton. While skimmed milk powder (SMP) prices have recovered they remain relatively soft at levels below $2,000 per ton. Import demand has been insufficiently strong to significantly draw down the readily available stocks and exportable supplies in the U.S. and the EU.”
“The most notable price movement has been the rapid rise in butter prices which have climbed from a mid-point low of $2,650 per ton FOB for Oceania and EU to a current mid-point price at about $6,100 per ton FOB, a 130 percent increase in the span of little over a year. This rapid upswing is due largely to relatively tight world supplies and steady demand particularly evident in the U.S. and the EU.”
“Demand growth has been fueled by consumers who now perceive butter as a safer alternative to vegetable oil substitutes such as margarine. The price situation for butter is unlikely to change in the near future if current shipments are an indication of available supplies to the international market. Exports from the top five major exporters, New Zealand, the EU, Belarus, Australia, and the United States, through April 2017 are lagging behind last year’s pace by 17 percent.”
“This drop off has been particularly evident in the EU, which is down 28 percent or 25,000 tons. In the period 2012-16 exports of butter from these major suppliers had been growing at annual rate of 4 percent. While high prices of butter will be welcomed by dairy farmers this will likely induce further production of butter and its co-products, mostly in the form SMP. This will add to SMP supplies and likely temper any recovery in prices,” the report warned.
Checking the week’s cash dairy markets; the CME cheese price gap shot higher the third week of July. The 40-pound Cheddar blocks closed Friday at $1.7075 per pound, up 3 1/4-cents on the week, following a 12 1/4-cent jump the previous week, and are dead even with a year ago. The 500-pound Cheddar barrels closed at $1.41, down 6 1/2-cents on the week, after jumping10 cents the previous week, and are 36 1/2-cents below a year ago, and gapping 29 3/4-cents below the blocks. The typical spread is only 3 to 5 cents so this week’s gap is the largest spread since October 22, 2014 when it hit 30 cents. Eight cars of block traded hands this week at the CME and 40 of barrel.
Central cheese contacts suggest milk production is easing back a bit, but there is still plenty of it, according to Dairy Market News (DMN), and some say spot loads are available at $1.50 to $3.50 under Class. Plants are running at or near full capacity and demand is generally following seasonal patterns. Sales into food service are steady to lower, ahead of the seasonal gear up of school and college cafeterias and the advance of the fall pizza season.
Some manufacturers report that their cheese stocks are building and, in an effort to limit the size, market participants have been actively offering cheese barrels on the CME. Demand for fresh cheese barrels has been able to provide some support to market prices, but there remains a large spread between block and barrel prices. “The disparity in price, and the length to which it has lasted, is unsettling to some barrel cheese producers in that it makes procurement and cost management more challenging,” says DMN.
Cheese is also being produced at full capacity in most western plants as milk is readily available despite higher daytime temperatures. Cheese is plentiful but contacts suggest that block inventories are slightly tighter than the barrels. Some contacts don’t think prices reflect current conditions due to the abundance of cheese but demand is steady and, “With current higher cheese prices in the EU, the international market is showing more interest for U.S. cheese.”
Spot butter crept up to $2.6450 Tuesday but then headed south, finishing Friday at $2.5850 per pound, down 1 1/2-cents on the week but still 29 1/4-cents above a year ago, with 26 cars exchanging hands on the week at the CME..
Butter manufacturing is at seasonal levels, says DMN, encouraged by readily available cream. Producers stocks, in general, are in balance and some suppliers indicate that their inventories are in good shape for impending fall needs. Overall, domestic interest for butter and sales remain steady. “As a few suppliers look ahead, expectations are that milkfat shortages in Europe will track butter prices to $3.00 by the year’s end.”
Western butter makers also report strong sales and some buyers feel U.S. butter prices are more attractive than prices overseas. In many international markets milk fats are in tight supply and prices are above U.S. prices.
Cash Grade A nonfat dry milk saw a July 21 close at 87 1/4-cents per pound, up a penny on the week and 2 3/4-cents above a year ago, on 28 sales for the week at the CME.
There’s abundant supplies of powder in the EU and the word last week was that the EU commission would be selling additional inventories. FC Stone pointed out in the July 20 Early Morning Update; “The domestic user (of powder) has been a nimble buyer this year. They have been consistently rewarded, staying in the spot market over the past 3 years buying hand to mouth. This has caused domestic disappearance to disappoint thus the US is sitting on record stocks.”
As to butter, the Update states; “Market players continue to closely monitor EU prices which are now $3.20 plus for 82 percent fat,” adding; “It won’t take much exports from the US to tighten our stocks considerably. The US has been a net importer of fat the past couple years with prices above $2 per pound. The US no longer has the luxury of being a net importer with the current pricing dynamics.”
May fluid milk consumption inched higher, according to the USDA. Packaged fluid sales totaled 4.1 billion pounds, up 5.8 percent from April and 0.4 percent above May 2016. Conventional product sales totaled 3.84 billion pounds, up 0.1 percent from a year ago; organic products, at 226 million pounds, were up 4.1 percent. Organic represented about 5.6 percent of total sales for the month.
Whole milk sales totaled 1.2 billion pounds, up 4.3 percent from a year ago, up 2.1 percent year to date, and made up 30.2 percent of total fluid sales in the month. May skim milk sales were down 10.1 percent from a year ago.
Total packaged fluid milk sales for first five months of 2017 totaled 20.2 billion pounds, down 2.4 percent from the same period a year ago. Year-to-date sales of conventional products, at 19.1 billion pounds, were down 2.6 percent; organic products, at 1.1 billion pounds, were up 1.3 percent. Organic represented about 5.4 percent of total fluid milk sales so far in 2017.
Speaking of fluid, the August Federal order Class I base milk price is $16.72 per hundredweight, up 13 cents from July and $1.65 above August 2016, propelled by the rising butter price. It is the highest Class I since March 2017 and equates to $1.44 per gallon, up from $1.43 in July and $1.30 a year ago. The eight month average stands at $16.37, up from $14.10 a year ago and $16.33 in 2015.
The surveyed butter price used in calculating the month’s Class I value averaged $2.6256 per pound, up an enhancing 20.7 cents from July. Nonfat dry milk averaged 90.26 cents per pound, down 1.8 cents. Cheese averaged $1.5266, down 11.5 cents, and dry whey averaged 44.89 cents per pound down 4.7 cents.
Cooperatives Working Together (CWT) accepted five requests for export assistance this week to sell 1.37 million pounds of Cheddar cheese to customers in Asia and the Middle East. The product has been contracted for delivery through October and set CWT’s 2017 exports at 44.3 million pounds of American-type cheeses and 3.01 million pounds of butter to 17 countries.
USDA’s latest Livestock, Dairy, and Poultry Outlook reported that U.S. dairy exports increased significantly in May, up 173 million pounds on a milk-fat basis, from April and 271 million higher than May 2016. Skim-solids basis exports were 94 million pounds higher than April and 370 million higher than May 2016.
“May cheese exports were particularly robust at 78 million pounds, 48 percent higher than the previous year. Competitive U.S. prices compared to foreign prices since the beginning of the year have likely contributed to the increase. May exports of nonfat dry milk and skim milk powder (NDM/SMP) were also strong at 129 million pounds, 32 percent above the previous year.”
“Exports of butter remained relatively weak at about 3 million pounds in May. While recent U.S. wholesale prices for butter have been substantially less than prices of competing exporters, they have been competitive for only the last two to three months. It usually takes several months of persistent gaps between U.S. domestic prices and foreign export prices to impact exports,” writes USDA.
In politics, the National Milk Producers Federation (NMPF) applauded the inclusion of improvements to the dairy Margin Protection Program (MPP) and the cotton program in the Senate Appropriations Committee mark-up of its fiscal year 2018 agricultural appropriations bill.
NMPF President and CEO Jim Mulhern stated; “The enhancements to the dairy MPP contained in the bill would strengthen the program and help pave the way for additional necessary improvements in the upcoming farm bill.”
A NMPF press release stated the appropriations bill makes two important changes that were included in NMPF’s farm bill proposal: It would reduce premiums paid by dairy farmers for the first 5 million pounds of milk coverage in the program, as well as change the U.S. Department of Agriculture’s calculation of the actual margin from a two-month average margin to monthly.
Meanwhile, Stan Ryan, president and CEO of Seattle-based Darigold, told a Congressional panel Tuesday that the North American Free Trade Agreement (NAFTA) “has created jobs and increased sales for his company and the entire U.S. dairy sector, and that a renegotiated treaty must maintain market access to Mexico while also fixing trade challenges with Canada.” “An agreement that has done this much good and that supports more than 25,000 in the dairy sector alone must be preserved,” Ryan said
The International Dairy Foods Association’s Michael Dykes, D.V.M., president and CEO also weighed in, stating that “The members of the IDFA are encouraged to see that several key priorities for the U.S. dairy industry are reflected in the administration’s objectives for renegotiating the North American Free Trade Agreement. We strongly support the call for renegotiation, and we look forward to working with the U.S. Trade Representative and others in the administration to preserve the critically important dairy export market in Mexico.”
“We are pleased to see efforts to address unjustified measures that unfairly limit access to markets for U.S. goods, such as price undercutting, included in the administration’s negotiating objectives. We believe these goals will allow the administration to address Canada’s new milk pricing policy, referred to as Class 7, which has allowed Canadian companies to sell their products below world market prices.”
“Overall, NAFTA has been very positive for the U.S. dairy industry,” Dykes concluded, “and we look forward to working with administration officials as they negotiate the new NAFTA.”