The Mielke Market Update September 15 – Lee Mielke

Lee Mielke

Lee MielkeThe Mielke Market Update September 15 – 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 raised its 2017 milk production forecast in its latest World Agricultural Supply and Demand Estimates report issued Tuesday, reversing five months of decreases, reasoning that “increases in milk per cow more than offset a slower rate of milk cow expansion.” The 2018 forecast was reduced from last month’s report due to “slower growth in cow inventories.”

2017 production and marketings were projected at 216.0 and 215.0 billion pounds respectively, up 300 million pounds from last month. If realized, 2017 production would still be up 3.6 billion pounds or 1.7 percent from 2016.

2018 production and marketings were projected at 220.1 and 219.1 billion pounds respectively, down 200 million pounds from last month. If realized, 2018 production would be up 4.1 billion pounds or 1.9 percent from 2017.

Fat basis 2017 exports were reduced from last month due to slowing cheese shipments, while fat basis imports were raised on increased purchases of butterfat. On a skim-solids basis, the export forecast for 2017 was lowered on weaker than expected skim milk powder sales, while the import forecast was raised due to stronger demand for a number of dairy products.

The 2018 annual fat basis export forecast was unchanged from the previous month, but the import forecast was reduced on expected declining cheese imports. The skim-solids basis export forecast was reduced from the previous month as competition in international powder markets is expected to remain strong; imports are reduced on lower milk protein and cheese shipments.

Butter, NDM, and whey prices were forecast lower for 2017 while cheese prices were forecast higher. All 2018 product prices were reduced. The 2017 Class III milk price average was raised as higher forecast cheese prices offset lower whey prices. Look for a 2017 average of $16.15 per hundredweight, up 15 cents from last month’s forecast and compares to $14.87 in 2016 and $15.80 in 2015. The expected 2018 average was lowered to $16.50, down 30 cents from last month.

The Class IV price was reduced on lower butter and NDM. It is projected to average $15.55, down 35 cents from last month’s estimate and compares to $13.77 in 2016 and $14.35 in 2015. The 2018 Class IV average is now pegged at $15.65, down 60 cents from what was projected a month ago.

The Crop Production report, issued the same day, stated that rainfall and flooding from Hurricanes Harvey and Irma will impact the data collected but updates will appear in the October report. It forecasts corn production at 14.2 billion bushels, down 6 percent from last year but up less than 1 percent from the August forecast.

Based on conditions as of September 1, yields are expected to average 169.9 bushels per acre, up 0.4 bushel from the August forecast but down 4.7 bushels from 2016. If realized, this would be the third highest yield and production on record for the United States. Area harvested for grain is forecast at 83.5 million acres, unchanged from the August forecast but down 4 percent from 2016.

Soybean production is forecast at a record 4.43 billion bushels, up 1 percent from August and up 3 percent from last year. Based on September 1 conditions, yields are expected to average 49.9 bushels per acre, up a half bushel from last month but down 2.2 bushels from last year. Area for harvest in the U.S. is forecast at a record 88.7 million acres, unchanged from August but up 7 percent from 2016.

Cotton production was forecast at 21.8 million 480-pound bales, up 6 percent from August and up 27 percent from last year. Yield is expected to average a record high 908 pounds per harvested acre, up 16 pounds from last month and up 41 pounds from last year. An estimated 350,000 bales of cotton have reportedly been destroyed by Hurricane Harvey. Time will tell.

Meanwhile, the week’s Crop Progress report shows 61 percent of U.S. corn was rated good to excellent, the week ending September 10, unchanged from the previous week and down from 74 percent in 2016. Sixty percent of the soybeans were rated good to excellent, down 1 percent from the previous week and down from 73 percent a year ago. Sixty three percent of the cotton was good to excellent, down 2 percent from the previous week but compares to only 47 percent a year ago.

Checking the latest news in milk prices, California’s October Class I price was announced by the California Department of Food and Agriculture at $18.02 per hundredweight for the north and $18.30 for the south, down 63 cents and 62 cents respectively from September but 25 cents and 26 cents respectively above October 2016.

The 10 month average for the north stands at $17.94, up from $15.98 at this time a year ago and $17.62 in 2015. The southern average, at $18.21, is up from $16.25 a year ago and $17.90 in 2015. The October Federal order Class I base price is announced by the USDA on September 20.

Speaking of fluid milk, the challenge remains. Class I fluid sales in the U.S. dropped in July, according to USDA’s latest data. Packaged fluid sales totaled 3.7 billion pounds, down 1.7 percent from July 2016. Conventional product sales totaled 3.5 billion pounds, down 1.9 percent from a year ago; organic products, at 199 million pounds, were down 1.7 percent. Organic represented about 5.4 percent of total sales for the month.

Whole milk sales totaled 1.2 billion pounds, up 2.0 percent from a year ago, up 2.4 percent year to date, and made up 33 percent of total fluid sales in July. Skim milk sales, at 321 million pounds, were down 10.8 percent from a year ago and down 12.4 percent, year to date.

Total packaged fluid milk sales in the seven month period amounted to 27.6 billion pounds, down 2.1 percent from the same period a year ago.

Year-to-date sales of conventional products, at 26.1 billion pounds, were down 2.3 percent; organic products, at 1.5 billion pounds, were up 0.9 percent. Organic represented about 5.4 percent of total fluid milk sales so far in 2017.

The figures represent consumption of fluid milk products in Federal milk order marketing areas and California, which account for approximately 92 percent of total fluid milk sales in the U.S.

Dairy product prices weakened the week of 911 at the Chircago Mercantile Exchange. The 40-pound Cheddar blocks closed 3 1/4-cents lower, at $1.61 per pound, 4 cents below a year ago. The 500-pound Cheddar barrels were down 9 cents, at $1.45, 16 cents below the blocks and 3 cents below a year ago when they plunged 12 1/2-cents. Eight cars of block sold on the week and 32 of barrel.

Milk supplies for Midwest cheesemakers varies by location, according to Dairy Market News. Some report fairly balanced milk supplies while others state that school pipelines are pulling from their usual availability. Southern and Southeastern bottlers, following the flurry of severe weather, have dipped into the milk supplies of Midwestern cheese plants. Spot milk prices ranged from flat market to $1.50 over Class III.

Cheese demand is mixed. Some Cheddar and/or traditional type cheesemakers report fair to slow demand but some pizza cheese producers are in an early rush and have increased production. “Cheese contacts are cautious as cheese market prices have been far from predictable of late,” says DMN.

Western cheese output is active, following its normal seasonal course, and most facilities are running at or near full capacity. Domestic sales continue to follow a steady trend but, as cheese prices vary day to day, so does the interest from buyers. Contacts report that the competition with the European cheese market remains active. Current supplies are greater than demand, resulting in a buildup in stocks, “but the market undertone seems to be stable for the most part.”

Spot butter fell to $2.41 per pound Monday, lowest spot butter price since June 1, 2017, but recovered a litttle and closed the week at $2.4475, still down a penny but is 44 3/4-cents above a year ago when it fell to $2 per pound. Nineteen cars traded hands on the week at the CME

DMN reports that demand for butter, primarily in the retail sector, remains healthy for Central region producers. European exports and purchases have picked up. Cream remains available for seasonally active butter production. “The sliding market prices have some butter contacts questioning when and if CME prices will start to increase,” says DMN.
Contacts only a month ago were believing a $3.00 CME price was a solid possibility but “now are unclear whether the markets will find their stride during the typical fall strong season.”

Ice cream processors continue to pull a good volume of cream in the West but cream continues to be available for churning. Butter production is steady ahead of the fall season. Supplies vary from comfortable to long, says DMN. Demand in the domestic market continues to be stronger however, some buyers are taking the wait-and-see approach as they are hoping for prices to decrease more. Others are looking to sign their First Quarter 2018 contracts.

Cash Grade A nonfat dry milk closed Friday at 82 1/4-cents per pound, down a quarter-cent on the week and 8 3/4-cents below a year ago. Sixteen carloads exchanged hands on the week at the CME.

DMN says nonfat dry milk is flowing well to Mexico but the Mexican market is mostly interested in lower priced product so competition with European skim milk powder remains “intense.”

The USDA’s Economic Research Service reported this week that 2016 U.S. per capita dairy product consumption was up 2.5 percent from 2015, driven primarily by cheese and butter. So, why are Class III futures so bleak?

Matt Gould, analyst and editor of the Dairy and Food Market Analyst newsletter, reported in a September 18 “Dairy Radio Now” interview that butter consumption was up 1.7 percent and American cheese consumption was up 2 percent, but the real standout was the “other” cheese category, which includes Italian style cheese like mozzarella. Those sales saw a boom of 4.6 percent.

“These are all fat heavy products,” Gould said, “so milkfat consumption in the U.S. continues to rise at a pretty robust pace.” The other side of the coin is that the products heaviest in protein and lactose did not perform nearly as well. Fluid milk sales were down around 1.3 percent, he said, yogurt was down 4.5 percent.

“On one hand you have fat consumption doing very very well,” he said, “on the other hand you have consumption of proteins not doing very well.” He added that the two components that make up the Class III milk price is Cheddar cheese and “Cheddar is roughly half water and, when you look at the solids, its half fat and half protein, and the other part is whey which is protein. It’s the protein side of the equation that’s been very weak and that’s struggled,” he concluded.

The dairy farmer funded Cooperatives Working Together program (CWT) kept some cheese from heading to the cooler this week, accepting 29 requests for export assistance from member cooperatives Dairy Farmers of America, Foremost Farms and Northwest Dairy Association on 4.784 million pounds of Cheddar, Gouda and Monterey Jack cheese and 440,925 pounds of butter to customers in Asia, Europe, the Middle East, North Africa and Oceania.

The product has been contracted for delivery through December and raised CWT’s 2017 exports to 53.1million pounds of American-type cheeses and 3.45 million pounds of butter (82 percent milkfat) to 20 countries on five continents.

Milk yield in the U.S. is steady to lower depending on the area, according to the USDA’s weekly update. Milk output in the Northeast, Mid-Atlantic, and Florida is declining while holding steady in the Southeast, upper Midwest, California, Arizona, and the mountain states of Idaho, Utah, and Colorado.

Farm milk sales are up in Florida but manufacturing milk supplies increased substantially due to plants closing for Hurricane Irma. Some handlers in Idaho, Utah, and Colorado were finding it difficult to market their milk and were moving it to neighboring states at discounted prices, ranging $2 to $4 under Class.

In the world of dairy politics, National Milk President and CEO Jim Mulhern wrote in his “CEO’s Corner” that “September is shaping up as the beginning of an eventful period on Capitol Hill in which movement is expected on issues in which NMPF and its members are heavily engaged. While the outlook is promising for several dairy-specific priorities, the fate of these matters will largely be driven by the broader political forces at play in Congress and with the Trump Administration.”

He listed some of the Federation’s concerns, starting with immigration reform and said that NMPF has been collaborating for the past year with Rep. Bob Goodlatte (R-VA), Chairman of the House Judiciary Committee, as he has developed a major bill creating a new agricultural visa program.

A NMPF press release stated; “The Agricultural Guestworker Act will reflect NMPF’s input as it specifically addresses the needs and concerns of dairy farmers. Although the final text of the bill is not quite complete, the legislation will be a major improvement over the status quo and will help address our industry’s major farm labor challenges.”

Next issue is fixing the farm bill’s dairy safety net. NMPF’s message is that “dairy farmers need Congress to greatly improve the Margin Protection Program, and to do so as soon as possible. The USDA announcement at the start of the month that farmers can opt-out of the MPP for next year simply reflects the reality that the program is not currently working. But what’s really needed is for Congress to fix the program so it offers a more effective, affordable safety net, one that provides support when farmers need it.”

Enforcing dairy labeling terms was next. Mulhern said “We’ve made great strides in building support for a bipartisan measure, the DAIRY PRIDE Act, which would compel the FDA to take enforcement action against mislabeled imitation dairy products that improperly use terms such as milk and cheese. Passage of the DPA would mean the FDA can no longer sit idle while plant-based imitators offer inferior, copycat foods and confuse consumers into thinking such products are nutritionally equivalent to real dairy milk.”