The Mielke Market Update July 28 – 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.

Americans and exports consumed plenty of butter and cheese during June Dairy Month. The Agriculture Department’s latest Cold Storage report shows U.S. butter stocks stood at 310.1 million pounds on June 30, down 3.5 million pounds or 1.1 percent from May and 18 million or 5.8 percent below June 2016, third month in a row they were below a year ago. Stocks peaked last year in July at 332.8 million.

American type cheese stocks, at 810.3 million pounds, were down 26.4 million pounds or 3.3 percent from May but 53.3 million pounds or 7.0 percent above a year ago. May stocks were also revised 10.3 million pounds lower by USDA.

The total June 30 cheese inventory stood at 1.32 billion pounds, down 13.2 million or 1.0 percent from May, and the second month in a row that stocks declined, but were 66.5 million pounds or 5.3 percent above June 2016.

The data added some bullishness to the cash dairy markets. The 40-pound CME Cheddar cheese closed Friday morning at $1.7550 per pound, up 4 3/4-cents on the week, 23 cents above its July 3 perch, the highest level since February 2, 2017, and 2 1/4-cents above a year ago. The 500-pound Cheddar barrels even rolled up hill and narrowed the price spread a bit, closing Friday at $1.5550 per pound, up 9 1/2-cents on the day, 14 1/2-cents on the week, 20 1/4-cents above the July 3 level, but 22 cents below a year ago and still at an unsustainable 20 cents below the blocks. Trading saw only one load of block exchange hands on the week at the CME but 36 of barrel, as traders anticipate the August 1 Global Dairy Trade auction.

FC Stone’s Dave Kurzawski wrote in his July 25 Early Morning Update; “The draw down in stocks might be the first indication that demand has been underestimated so far this summer, at least for blocks. We know for certain the Midwest has been long on milk for an extended time, and parts of Idaho have been reported to have been dumping milk. Those two areas cover most of the barrel production in the US, and can potentially explain the current spread between block and barrels.” He cites bullish Chinese import data, a weak US dollar, and a supportive Cold Storage report as positives for the market.

Cheese demand reports in the Central region vary, according to Dairy Market News (DMN). Pizza cheese producers report upticks in orders and expect to get busier in the next few weeks. Cheddar and traditional producers’ demand varies from mediocre to seasonally appropriate. Cheese production in the Midwest varies, but generally plants remain on regular and active schedules however milk availability has decreased.

Western cheese makers say production is steady and cheese is generally moving well but domestic demand outside of current contracts is not spectacular. Buyers are not seeking extra loads and are content to wait until consumer demand picks up with the start of football season and school. Milk supplies are adequate to plentiful. Cheese inventories, although generally long, are stable.

Cash CME butter closed the week and the month at $2.72 per pound, up 13 1/2-cents on the week, up 7 1/2-cents since July 3, and the highest price since December 9, 2015. It is 58 1/2-cents above a year ago when it plummeted 15 3/4-cents, to $2.1350. A whopping 51 cars were sold the final week of July at the CME.

Some Midwest butter producers report current sales have improved from last year, both in retail and more noticeably food service. Some suggest market prices will continue to maintain and/or increase. They propose current conditions, including the global milkfat shortage and the positive public health views of butter, will sustain a market price in the $2.50-$2.70 range. Contacts point out that current butter prices are at or ahead of where they were in 2014 and 2015, when the CME price broke the $3.00 threshold by late September, in both years.

Western butter output was unchanged from the previous week. Although ice cream producers and other Class II processors are using a lot of cream, cream is still available and churning is active. However, due to fairly high cream prices, some processors are opting to sell it instead of churning butter for storage. Others are holding on to their stock for immediate and yearend holiday needs. Domestic demand continues to be strong. Contacts report that the international market is showing more interest in U.S. butter.

Cash Grade A nonfat dry milk ended the week at 86 cents per pound, down 1 1/4-cents, up 2 cents since July 3, and a penny above a year ago on 17 carloads exchanging hands on the week.

Dairy margins have been unchanged to slightly weaker since the end of June, with little movement in price for either milk or feed, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC, but “Margins remain relatively strong from a historical perspective, near or above the 70th percentile of the previous 10 years through First Quarter 2018, and near the 80th percentile in Second Quarter. Milk prices have been rather stagnant in the past two weeks, without much movement in the market.”

It cited the latest World Agricultural Supply and Demand Estimates report which lowered projected U.S. milk production for 2017 and 2018, blaming slower growth in milk per cow, adding that “Drought conditions and high temperatures in western states, including California, Idaho and the Dakotas, have impacted milk production recently, and this trend may continue through the rest of the summer.”

“Feed prices have been more volatile recently following the June acreage and quarterly stocks reports,” according to the MW. “While the reports were generally seen as negative, with trend line yield assumptions maintained and higher-than-expected projected production, recent forecasts returning heat to the Corn Belt have begun to put risk premium back into the market. Both corn and soybeans sold off following the reports at month end, although soybean meal in particular has been quite strong relative to corn due to concerns that the soybean crop could be much more negatively impacted by sustained heat and drought over the next month of pod fill,” the MW says.

Crop conditions continue to worsen. USDA’s latest Crop Progress report shows 62 percent of the corn was rated good to excellent, the week ending July 23, down from 64 percent the previous week and down from 76 percent the 2016. Fifty seven percent of the soybeans are good to excellent, down from 61 percent the previous week and 71 percent a year ago. Fifty five percent of the cotton was good to excellent, down from 60 percent the previous week but up from 52 percent a year ago.

FC Stone warned Friday that “The corn market faces the prospects of overall declining crop conditions as the rains of late have skirted some of the more arid regions with the latest weather models are calling for drier conditions in the coming days.” He adds that “Recent rains have benefited the soybean crop while forecasts looking two weeks out are projecting cooler and drier conditions.”

In other news; Western United Dairymen’s (WUD) July 21 newsletter reported that the California Department of Food and Agriculture released its cost of production data for the first quarter of 2017, which showed the lowest cost of production since the second quarter of 2011.

“The average California dairy managed to produce milk at a cost of $17.30 per cwt, down $1.14 per cwt from last year, but still below the current milk price,” the WUD said. “In fact, comparing the income received on the farm with the cost of production shows a loss of 23 cents per cwt. during the first quarter of 2016. It is not good news that California dairies are experiencing a loss, but it is the closest it has been to a positive number since 2014.”

Lower feed costs were the greatest help, according to WUD, as feed costs dropped 10 percent below last year, and were at the lowest level since the beginning of 2010. Replacements also contributed to the decrease costs.

Meanwhile, Dairy Management Incorporated’s latest Dairy Market Report says “The U.S. average all-milk price rose by 20 cents per hundredweight in May from a month earlier, and the June federal order class prices were all up over May, by between 11 cents to $1.40 per hundredweight. These are all strong indications that milk prices have rebounded off their early spring lows for the year.

“The U.S. dairy trade balance continues to improve. An additional 1.3 percent of total U.S. milk solids production was exported during March-May over and above exports a year earlier, while imports were lower by the equivalent of 0.2 percent of domestic milk solids production. The monthly Margin Protection Program (MPP) milk price-feed cost margin for May was $8.61 per cwt., just marginally higher than the April monthly margin,” according to the DMI report.

U.S. cheese continues to head overseas. Cooperatives Working Together (CWT) accepted five requests for export assistance this week to sell 1.4 million pounds of Cheddar to customers in Asia, the Middle East and Oceania. The product has been contracted for delivery through October and raised 2017 exports to 45.7 million pounds of American-type cheeses and 3 million pounds of butter (82 percent milkfat) to 17 countries on five continents.

In other trade news; FC Stone reports that official Chinese imports were stronger than expected in June, up 34.6 percent from last year on a milk equivalent basis. “The only dairy product that didn’t see double-digit percentage growth was lactose, which saw a double digit decline,” according to Stone.

“Is this the start of some super surge in Chinese imports? No, probably not, but Chinese imports have been doing better than expected. At the start of the year we were forecasting calendar 2017 imports up 12 percent, but our forecast has now drifted to up 14.4 percent with room to move higher if the current pace holds. Every 1 percent change in Chinese imports from the baseline changes the price forecast by about 1 percent. So if Chinese imports end up growing at 20 percent for 2017 compared to our current forecast of plus 14.4 percent, then our price forecasts are about 5 percent too low,” says FC Stone.

HighGround Dairy reported that New Zealand-based Fonterra announced an increased forecast Farmgate Milk Price for the upcoming 2018 season, to $6.75 per kilogram of milksolids (kgMS). The Co-operative also announced a forecast earnings per share range of 45 to 55 cents, making the forecast total available payout to farmers in the 2017/2018 season $7.20 to $7.30, before retentions.

Fonterra Chairman John Wilson says the revised forecast Milk Price is a lift of 25 cents on the original forecast of $6.50 per kgMS in May 2017 and “reflects the ongoing rebalancing of supply and demand in global dairy markets.”

“We are seeing growing confidence on-farm across the country and, with global demand for dairy strengthening, the signs are for a good start to the season for our farmers and their rural communities although following a challenging period of very wet conditions for some of our farmers,” Wilson stated.

In dairy politics; Ken Nobis, president of the Michigan Milk Producers Association (MMPA) and first vice-chair of the National Milk Producers Federation (NMPF), spoke at a 2018 Farm Bill hearing Tuesday. He called on lawmakers to “revise the dairy safety net program established in the 2014 Farm Bill to provide farmers with effective risk management protection that will increase participation.”

Nobis testified before the Senate Agriculture Committee that while he believes the dairy Margin Protection Program (MPP) remains the right program for the dairy industry, “the changes Congress made to the MPP when writing the last Farm Bill rendered it ineffective when dairy farmers needed it the most.”

A NMPF press release reported that “In calendar year 2015, dairy farmers paid more than $70 million into the MPP and received payments totaling just $730,000. In 2016, those figures were $20 million and $13 million, Nobis said, and farmers found that the program was not helpful during the two years that were particularly detrimental to the dairy industry. As a result, many of them have become disenchanted with the program, and participation has dwindled.”

And, in a high level meeting in Maryland Wednesday, NMPF officials charged that “the U.S. Food and Drug Administration’s (FDA) long absence of enforcement of its own food standards has allowed the marketing of hundreds of deceptively labeled dairy imitators.”

NMPF food policy staff, led by President and CEO Jim Mulhern, met with key FDA regulators to discuss the Federation’s concern over what it called “the agency’s persistent inaction toward the misleading labeling practices of plant-based food manufacturers.”

NMPF charged that, “During the last two decades, plant-based ‘milk’ imitators have flooded the market, using dairy terminology and imagery to advertise their products as suitable replacements for cow’s milk, despite the fact that they are nutritionally inferior. While FDA’s own standards of identity clearly stipulate that products labeled as ‘milk’ must come from a lactating animal, the agency has consistently turned a blind eye to violations of these standards, thereby encouraging these imitation dairy manufacturers to inappropriately use that term, as well as other dairy product terms like cheese, yogurt, and ice cream.”

“Today’s meeting with FDA allowed us to convey our concern that in the absence of enforcement of existing clear and consistent regulations, well-defined product labels lose their meaning,” Mulhern said. “In the case of imitation milks, these beverages are nothing but a factory-made slurry of ground-up nuts or seeds combined with water, sugar, emulsifiers and thickeners.”

NMPF says the FDA is “out of step with its international counterparts, including Canada, the United Kingdom and the European Union. Each country actively polices improper labeling of imitation dairy products; Canada requires U.S.-based companies to change the wording on their labels to comply with the country’s own rules, for example, requiring that the product marketed as ‘almond milk’ in the United States be labeled as ‘almond beverage.’ Meanwhile, the EU Court of Justice determined last month that products not sourced from an animal cannot bear the terms milk, cheese and so on.”

NMPF surveyed imitation dairy beverages in the marketplace and concluded that none of the imitation products matched the nine essential nutrients found in cow’s milk. The strongest discrepancies were noticed in amounts of protein, sodium and potassium. While almond “milk” has become the most popular dairy alternative, it fails to deliver one of real milk’s core nutrients: protein; almond beverages contain just 1 gram per serving, compared to real milk’s 8 grams (other popular milk imitators, including rice- and coconut-based beverages, also offer little to no protein).

The survey also highlighted the amount of sodium added to dairy imitators for flavor. About two-thirds of the products surveyed contained more sodium than cow’s milk (which is all naturally occurring), some close to double the amount. A similarly large majority failed to offer the same amount of potassium, one of three nutrients most lacking in Americans’ diets, according to government dietary research.

NMPF executives pointed out that the current federal Dietary Guidelines for Americans admonish consumers that “other products sold as ‘milks’ but made from plants are not included as part of the dairy group [of recommended foods] because their overall nutritional content is not similar to dairy milk.”

“We are not trying to eliminate the marketing of these foods,” Mulhearn argued, “We want to end the consumer deception associated with these products and for FDA to enforce its regulations on product integrity. We will continue to push on this issue until FDA acts to ensure dairy standards are enforced.”