The Mielke Market Update September 22 – 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.

U.S. milk is flowing, bearishly plentiful. Preliminary Agriculture Department data reports August output in the top 23 producing states at 17 billion pounds, up 2.1 percent from August 2016, with the 50-state total at 18.1 billion pounds, up 2 percent. Revisions added 31 million pounds to the original July 23-state estimate, now put at 17.2 billion pounds, up 2.1 percent from a year ago.

Dairy cow numbers totaled 8.73 million head in the 23 states, unchanged from July but 66,000 more than a year ago. The 50-state head count, at 9.41 million head, was also unchanged from July but is 71,000 head above a year ago. Output per cow averaged 1,948 pounds in the 23 states, up an impressive 26 pounds, and the highest output for the month of August since the series began 13 years ago.

California's August output was down 0.7 percent from a year ago, the seventh consecutive month it has trailed the previous year, largely due to 13,000 fewer cows milked, the lowest cow level since March 2005. Output per cow was unchanged. Wisconsin meanwhile, was up 1.8 percent, thanks to a 35 pound gain per cow. Interestingly, cow numbers were unchanged.

Utah saw the biggest increase at 10.2 percent, but Texas was right up there with a 9.2 percent increase, driven by 30,000 more cows and a 55 pound gain per cow. Traveling around the nation; Idaho was down 0.2 percent, on a 10 pound loss per cow not offset by a 2,000 cow increase. Michigan was up 3 percent, thanks to a 40 pound gain per cow and 5,000 more cows. Minnesota was up 4 percent on an 85 pound gain per cow, but cow numbers were down 4,000 head. New Mexico was up 3.5 percent, despite a 20 pound loss per cow. Cow numbers made up the difference, up 14,000 head. New York was up 1.9 percent on a 25 pound gain per cow and 4,000 more cows. Pennsylvania saw a 2.8 percent increase, thanks to 60 pounds more per cow, but cow numbers were down 4,000. Washington State inched 0.2 percent lower on a 5 pound loss per cow and unchanged cow numbers.

Dairy economics is forcing "retirement" on U.S. dairy cows. USDA's latest Livestock Slaughter report shows August culling was up sharply from July and August 2016. An estimated 265,600 head were slaughtered under Federal inspection, up 39,800 from July and 21,000 above a year ago. Culling in the first eight months of 2017 totaled 1.99 million head, up 79,500 from a year ago or 4.2 percent.

 

The September 19 Global Dairy Trade (GDT) auction saw another small gain but it was another gain. A hefty 75.2 million pounds of product found new homes on the day, up from 73.9 million on September 5, and 71.1 million on August 15. The weighted average for products offered was up 0.9 percent following a 0.3 percent increase September 5, a 0.4 percent slippage August 15, and a 1.6 percent loss on August 1.

Lactose led the declines, down 3.8 percent after it led the gains last time with a 5.1 percent jump. Cheddar was down 1.9 percent, after a 2.5 percent increase, and skim milk powder was off 1.2 percent, following a 1.2 percent loss last time.

Anhydrous milkfat led the gains, up 5.3 percent, following a 3.6 percent advance, and butter was up 1.2 percent, following a 3.8 percent increase last time. Whole milk powder inched 0.6 percent higher, after slipping 1.6 percent last time.

FC Stone equated the GDT 80 percent butterfat butter price to $2.6668 per pound U.S., up from $2.6349 last time. CME butter closed Friday at $2.4475. GDT Cheddar cheese equated to $1.8287 per pound U.S., down from $1.8681 and compares to Friday's CME block Cheddar at $1.6125. GDT skim milk powder averaged 87.11 cents per pound, U.S., down from 88.17 cents, and whole milk powder averaged $1.4161, up from $1.4061. CME Grade A nonfat dry milk price closed Friday at 82 1/4-cents per pound.

In other trade news, HighGround Dairy (HGD) reports that New Zealand's milk production posted the lowest August milk solids collected since 2013 (111.385 million kg/milk solids). HGD says "August output was down 1.54 percent from the prior year on top of an already weak August 2016 figure that fell 3 percent from 2015." August typically accounts for 6 percent of total productivity for the season.

The European Energy Exchange (EEX) announced that it will launch a liquid milk future in the first half of 2018, subject to the approval of the Exchange Council. EEX will be the first European exchange to offer a liquid milk product for trading, according to HGD. The contract would be 25,000kgs and the future will be settled financially against a liquid milk index currently being developed by EEX.

"Generally liquid milk can already be hedged synthetically at EEX by trading butter and skimmed milk powder contracts. With the introduction of liquid milk futures we will offer an additional direct price hedging tool, in particular for dairies whose output is not focused on butter and powder as well as milk producers", explains Sascha Siegel, Head of Agricultural Commodities at EEX.

The U.S. dairy farmer-funded Cooperatives Working Together (CWT) accepted nine requests for export assistance this week from member cooperatives to sell 760,600 pounds of Cheddar, and Monterey Jack cheese, and 275,600 pounds of butter to customers in Asia.

The product has been contracted for delivery through December and put CWT's 2017 exports at 53.85 million pounds of American-type cheeses and 3.73 million pounds of butter (82 percent milkfat) to 20 countries on five continents. The sales are the equivalent of 580.95 million pounds of milk on a milkfat basis, according to the CWT.

U.S. dairy product prices strengthened some the week of September 18, despite a fair amount of product coming to Chicago. CME block Cheddar cheese closed Friday morning at $1.6125 per pound, as traders awaited the afternoon's August Cold Storage data. That's up a quarter-cent on the week and 5 1/4-cents above a year ago. The Cheddar barrels finished at $1.60 per pound, up 15 cents on the week and 9 cents above a year ago. Twenty seven cars of block and a whopping 59 of barrel were sold this week at the CME.

Milk supplies to the cheese vat continues to tighten, according to Dairy Market News. Discounted spot milk is no longer available and spot prices ranged from flat market to $1.50 over Class. Cheese sales vary by type, with provolone and mozzarella makers continuing to report steady to increasing orders. Some curd producers also report continued heavy sales, according to DMN.

Cheddar and traditional cheesemakers have eased back production while some will increase output in the next few weeks to build inventories for the holidays but CME price fluctuations are aiding current market instability, says DMN.

Cheese production in the West is steady. Some processors report slightly lower milk intakes due to some plants being closed for maintenance. Sales into the domestic market are unchanged from the previous week but competition with Europe continues to be "intense." Cheese stocks are still plentiful and outweigh recent demand. Contacts report that barrels are currently available, but the market will tighten in the coming weeks due to process cheese being exported.

Cash butter inched up to $2.4725 per pound on Wednesday but it closed Friday at $2.4475, unchanged on the week but that ended seven weeks of losses, and is 42 cents above a year ago. Eleven carloads found new homes on the week at the CME.

Grocers are beginning to build butter inventories ahead of the fall rush, says DMN, so Central region butter makers are remaining busy. Butter production is active and cream availability is aiding the push. School pipelines have begun to increase bottling activity thus butter producers are receiving more cream offers.

Western butter processors also report adequate supplies of cream and butter production is regular and more than sufficient to meet current demand. Industry-wide stocks are still comfortable to long. However, domestic buyers are lining up again to buy butter and worldwide demand and prices for butter are strong.

One indirect influence on world butter prices; the September 15 Daily Dairy Report (DDR) says Russia is regaining its presence as a dominant dairy importer. "Through June, Russia has imported 127.8 million pounds of butter and butter oil, up 28 percent from the same period a year ago, and was running ahead of the five-year average for the first half of the year at 119 million pounds."

The DDR says that "while Russia has been the largest butterfat importer for the last five years, the gap between Russia and China closed considerably in 2015 and 2016." Since 2013, most of Russia's butter comes from Belarus, according to the DDR, but imposed trade restrictions by Russia has resulted in increasing imports from New Zealand of late.

Cash Grade A nonfat dry milk also finished the week unchanged, closing at 82 1/4-cents per pound, 11 1/4-cents below a year ago, with 13 cars selling on the week at the CME.

HGD says "Demand is lower for skim milk powder within the EU as buyers are likely waiting until the end of the month to secure product that will likely become even cheaper after the Public Intervention scheme officially ends. However in July, export volumes remained strong with shipments to Mexico recording the most growth by volume from the prior year."

The October Federal order Class I base milk price was announced by USDA at $16.44 per hundredweight, down 27 cents from September and 16 cents below October 2016. It is the lowest Class I price since June 2017 and equates to about $1.41 per gallon, down from $1.44 in September and $1.43 a year ago. The 10-month Class I average stands at $16.41, up from $14.60 at this time a year ago and $16.28 in 2015

"Dairy margins continued to deteriorate over the first half of September due primarily to lower milk prices as projected feed costs held relatively steady," according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC. "Margins remain positive and above average from a historical perspective through the first half of 2018, though the recent sharp decline in milk prices remains worrisome for producers heading into the fall."

"Milk prices continue to be pressured by heavy supplies of dairy products and reduced demand," the MW warns. "Nonfat Dry Milk Powder (NDM) stocks in the U.S. are growing at a time when EU stockpiles are huge, with their intervention closing at the end of September. Moreover, the peak milk production months in the Southern Hemisphere are still in front of us and we see indications that New Zealand will have growing supplies of milk powder to market this season."

"July NDM exports totaled only 93.1 million pounds, a 13-month low and down 12 percent from last year. USDA released the September WASDE report, which was considered quite bearish for both corn and soybeans, although the price response has not been nearly as negative. Contrary to market expectations, yield and production were raised for both crops from the August estimates, with new-crop soybean ending stocks remaining unchanged at 475 million bushels, while corn ending stocks increased 62 million bushels to 2.335 billion. Corn has been largely flat since the report was released, while soybean meal prices have rallied about $20 per ton off the low on the day of the report," according to the MW.

The Agriculture Department's latest Livestock, Dairy and Poultry Outlook estimates 2016/17 marketing year prices for corn and soybean meal at $3.35 per bushel and $320 per short ton, respectively. The 2017/18 price forecast for corn is $2.80-$3.60 per bushel, unchanged at the midpoint from last month's forecast. The 2017/18 soybean meal forecast is $290-$330 per short ton, $5 lower than last month's forecast. The alfalfa hay price in July was $152 per short ton, $2 lower than June but $14 higher than July 2016.

The latest Crop Progress report shows 61 percent of U.S. corn was rated good to excellent, the week ending September 17, unchanged from the previous week and down from 74 percent in 2016. Fifty nine 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 one percent of the cotton was good to excellent, down 2 percent from the previous week but compares to only 48 percent a year ago.

Milk production varies from steady to lower in most parts of the U.S., according to USDA's weekly update, however, outputs are enough to meet most processing needs. Due to distribution centers being down in the Southeast, milk is moving slowly from the farm in that region. Texas bottlers are stocking up their pipelines after the storm. As the result, milk supplies going into manufacturing plants declined in the Midwest. Florida was receiving milk from other regions.

Milk supplies are long in Idaho, but slightly tight in California. Class I demand is mixed. Class I intakes In the Northeast, Mid-Atlantic, and Arizona, are steady, whereas in the Southeast and New Mexico they are down. Condensed skim sales are increasing in the East as bottling plants fill their pipelines. Ice cream processors in the West are actively taking condensed skim and a few loads of cream moved to Texas and Mexico from Arizona, according to DMN.

Looking westward; progression continues in California's quest to establish a Federal Milk Market order. The Producer Review Board considered public comments at its September 12 meeting in Modesto and the California Department of Food and Agriculture prepared a summary of the comments and their responses.

Agriculture Secretary Ross must now review the work and approve it for consideration by producers, according to the Milk Producers Council (MPC) newsletter. A ballot will then be sent to producers requiring them to vote on the Stand-Alone Quota program because it will only be implemented if California producers vote to join the Federal Milk Marketing Order system.

"Because the cooperatives, who are the petitioners for a California FMMO have said that they will only consider a FMMO for California if it protects Quota value, it is very important that the Stand-Alone Quota Plan passes or we will not get a chance to consider a FMMO for California. In order for a vote to pass, 51 percent of California producers need to vote and of those voting, in order for the referendum to pass, 65 percent of the producers representing at least 51 percent of the milk that is voting need to vote yes or 51 percent of the votes representing 65 percent of the voting milk need to vote yes," according to the MPC.