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@example.com or by phone 360.201.4033.
The global gears reversed ever so slightly in Tuesday's Global Dairy Trade (GDT) auction where 73.9 million pounds of product made its way to the block, up from 71.1 million pounds in the last event and 72.2 million in the event before that. The weighted average for all products offered was up 0.3 percent, following a 0.4 percent slippage in August 15 and 1.6 percent on August 1.
Buttermilk powder led the declines, down 10.1 percent. Whole milk powder was down 1.6 percent, following a 0.6 percent slippage last time, and skim milk powder was off 1.2 percent, after it inched up 0.3 percent last time.
The gains were led by lactose, up 5.1 percent, after leading the declines last time with a 4.9 percent descent. Butter was up 3.8 percent, following a drop of 1.3 percent. Anhydrous milkfat was close behind, up 3.6 percent, after slipping 1.3 percent last time. Cheddar was up 2.5 percent, following a 1.4 percent rise, and rennet casein was up 1.2 percent, after it gained 2.9 percent last time.
FC Stone equated the GDT 80 percent butterfat butter price to $2.6349 per pound U.S. CME butter closed Friday at $2.4575. GDT Cheddar cheese equated to $1.8681 per pound U.S. and compares to Friday's CME block Cheddar at $1.6425. GDT skim milk powder averaged 88.17 cents per pound, U.S. and whole milk powder averaged $1.4061. CME Grade A nonfat dry milk price closed Friday at 82 1/2-cents per pound.
The European Energy Exchange (EEX) and the GDT have signed a letter of intent to evaluate the possibility of working together to set up and operate an auction mechanism for dairy products originating in Europe. EEX and GDT will consult with dairy product buyers and sellers in developing a plan.
Back on the home front, July U.S. export data was made available this week and while cheese exports posted increases from 2016, the numbers came in lower than expected, according to FC Stone dairy broker Dave Kurzawski, and that despite the significant discount U.S. prices to international markets and the weak U.S. dollar.
"We think some of the U.S. weakness is likely due to contractual sales made by Europe, their cheese and skim milk powder exports have been doing better than expected," Kurzawski wrote in his September 7 Early Morning Update. "We've probably rolled off those contracts (or will soon), and with US prices competitive on everything we should still get a bounce in exports before the end of 2017."
"In our opinion, weakness for U.S. markets seems to have played out recently. In other words, don't expect more price weakness off of negative chatter around any negative July Export discussions you may be having we just went through it."
"Like cheese, fat exports for came in lower than expectations," he says. "The 23 percent increase YoY is deceiving because of the lack of exports last year. To put it into perspective we only exported around 77 loads of butter in July. During that same time 187 loads of butter traded on the spot market."
You'll recall that preliminary USDA data reported July's 50-State milk production at 18.2 billion pounds, up 1.8 percent from Junly2016. USDA's latest Dairy Products report shows where the milk went.
July cheese output totaled 1.03 billion pounds, down 0.3 percent from June but 1.0 percent above July 2016. Year to date (YTD) output stands at 7.2 billion pounds, up 2.5 percent from a year ago.
California produced 213 million pounds of that cheese, up 2.8 percent from June but 0.3 percent below a year ago. Wisconsin, at 273.9 million pounds, was up 1.0 percent from June and 0.7 percent above a year ago. Idaho output dropped to 76.2 million pounds, down 7.9 percent from June and 8.1 percent below 2016. Minnesota output was off 0.7 percent from June but 9.7 percent above a year ago. New York was down 13.0 percent from June and 5.6 percent below a year ago.
Mozzarella, at 352.1 million pounds, was up 1.1 percent, with YTD at 2.4 billion pounds, up 0.8 percent.
Total American type cheese production hit 401.8 million pounds, down 0.4 percent from June but 0.2 percent above a year ago. YTD totaled 2.86 billion pounds, up 3.5 percent.
Cheddar output, the cheese traded at the CME, totaled 286.4 million pounds, down 0.3 percent from June, but up 0.8 percent from a year ago, with YTD at 2.1 billion pounds, up 5.2 percent.
U.S. butter churns produced 137.3 million pounds, down 2.0 percent from June but 1.6 percent above a year ago. YTD totaled 1.1 billion pounds, down 1.4 percent.
California butter output totaled 38.2 million pounds, down 6.0 percent from June and 12.2 percent below a year ago. New York output was down 2.3 percent from June and 0.5 percent below a year ago.
Yogurt output amounted to 341.3 million pounds, down 0.1 percent from a year ago, with YTD at 2.59 billion pounds, down 0.9 percent.
Dry whey totaled 99.2 million pounds, up a hefty 21.0 percent, with YTD hitting 601.8 million pounds, up 6.1 percent.
The report pegged July nonfat dry milk stocks at 298.8 million pounds, up 3.1 million pounds or 1.1 percent from June and a whopping 41.7 million pounds or 16.2 percent above a year ago.
Milk powder inventories are bulging in both the U.S. and Europe and European skim milk powder continues to move to the government Intervention program.
The U.S. dairy markets took the Dairy Products report and the GDT in stride in the Labor Day holiday shortened week. The 40-pound block Cheddar cheese closed Friday at $1.6425 per pound, up 10 1/4-cents on the week but 6 3/4-cents below a year ago. The 500-pound Cheddar barrels climbed to $1.58 Wednesday, then relapsed and finished Friday morning at $1.54 per pound, still 2 cents higher on the week, 6 1/2-cents below a year ago, and a way too high 10 1/4-cents below the blocks. Twenty two cars of block traded hands on the week at the CME and a whopping 62 of barrel.
Reports on milk availability for cheese production are mixed in the Central region, according to Dairy Market News. Some producers reported that expected milk supplies were reduced by bottlers for school intakes. Other Class III plants took adequate milk supplies for current schedules. Spot milk prices into Class III ranged from $1.50 under to $1 over Class.
Generally, cheese sales are slower for cheesemakers in the Midwest. Some producers reported scaling production schedules back, as milk supplies are lower and demand has slowed. However, some pizza cheese makers are still reporting heavy orders and have bullish expectations for the upcoming fall season. The cheese market tone is unstable. Contacts report that long barrel inventories are affecting the tone and giving buyers incentive to wait out sliding market prices.
Western cheese output is active. Plenty of milk is still finding its way into the vat. Industry contacts describe domestic demand as steady or solid, however some indicate a short term lull on either side of the last summertime holiday weekend. Food service demand is picking up slightly as schools resume. Inventories are larger than typical, but some market participants feel this is a new norm for cheese markets. International buyers are watching U.S. cheese prices closely. As the price fluctuates, so does their level of interest in making purchases.
It was a weak week for the spot butter which dropped to $2.4375 per pound Tuesday, lowest price since June 1, 2017. It recovered some Wednesday and Thursday but it finished Friday morning at $2.4575 per pound, down a nickel on the week and the fifth consecutive week of decline, but is still 42 1/2-cents above a year ago. A hefty 32 cars exchanged hands on the short week at the CME.
Butter makers are taking advantage of favorable cream prices, according to DMN, and butter production continues as peak demand season draws near. Central region butter producers report that retail/print sales are strong. Food service has also picked up, as most schools have reopened in the Midwest.
Western butter output is following the previous week's trend and inventories are sufficient to meet the needs of buyers and end-users. In some parts of the West, demand from vegetable processors is strong and retail interest is picking up. Ice cream manufacturers continue to pull a lot of cream but cream is still available for churning. With the recent drop in CME butter prices, some purchasers' demands are increasing as they try to lock up prices, even to the beginning of next year.
HighGround Dairy points out that U.S. butter exports to Canada fell to five-month lows as the Canadian government did not issue any additional cream import permits during June or July.
Cash Grade A nonfat dry milk closed Friday at 82 1/2-cents per pound, down 3 3/4-cents on the week and 8 cents below a year ago, on seven sales for the week.
Dairy analyst and editor of the Dairy and Food Market Analyst newsletter (DFMA), Jerry Dryer, blamed the July Cold Storage report primarily for the down fall in cheese prices. Speaking in September 4's Dairy Radio Now, Dryer said commercial disappearance has been "ho hum," for the past several months, and "food service sales aren't growing as robustly as they were a year ago."
"Retail sales were pretty strong a year ago," he said, "but we're having trouble matching that level. Cheese is moving to consumers through some other channels where it isn't getting measured, according to Dryer, so he believes demand is little stronger than what the data indicates but "I think it's the Cold Storage report really drove the nail into the price."
He adds that inventories grew more than usual and are higher than normal and "that's made buyers realize there's plenty of cheese out there that can be bought at a lower price."
He remains bullish on butter however. When asked if he's pulled back his prediction that it would hit $3 per pound, he said "No." U.S. butter and cheese prices are the lowest globally," he reasoned, "especially with CME prices falling, and that makes us that much more competitive," so he sees "really good international movement in Fourth Quarter."
DMN says EU milk production is still down by a half percent for the year to June, from a year ago. Recently improved farm gate milk processing volumes in Australia are driving some projections of growth this season of between 2 and 3 percent and milk output in New Zealand is improved over the last season.
USDA's National Milk Cost of Production report shows July's total milk production costs were down from June and slightly below a year ago. The report shows total feed costs averaged $10.67 per hundredweight (cwt.), up 23 cents from May, up 24 cents from June, but 27 cents below July 2016. Purchased feed costs, at $5.71 per cwt., were up 14 cents from May, 12 cents above June, but 66 cents below July 2016.
Total costs, including feed, bedding, marketing, fuel, repairs, hired labor, taxes, etc., at $21.41 per cwt., were down 38 cents from May, 46 cents below June, and 7 cents below a year ago. Feed costs made up 47.6 percent of total costs in July, up slightly from 47.5 percent the month before and down from 48.7 percent a year ago.
Meanwhile the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC says "Dairy margins weakened over the second half of August, as sharply lower milk prices more than offset the savings from a similar decline in corn prices." It added that "Margins through First Quarter 2018 are at or above the 70th percentile of the previous 10 years, and Second Quarter 2018 margins are over the 80th percentile."
Zeroing in on the feed side, the MW reports that "Corn prices sold off recently, and many private forecasters raised their yield and production estimates following the surprise World Agricultural Supply and Demand Estimates report from USDA earlier this month. In general, concerns over a significant yield drag have lessened despite uneven weather across the Corn Belt this season."
Just as Hurricane Irma was threating Florida, Dairy Market News reported that Houston area bottling operations had begun taking on loads of milk midweek, even while evacuations and floods were ongoing. The storms created some cream shortages, but in most of the West, cream remains available.
USDA's Crop Progress report shows 61 percent of U.S. corn was rated good to excellent, the week ending September 3, down from 62 percent the previous week and down from 74 percent in 2016. Sixty one percent of the soybeans were rated good to excellent, unchanged from the previous week but down from 73 percent a year ago. Sixty five percent of the cotton was good to excellent, also unchanged from the previous week but compares to only 48 percent a year ago.
Cooperatives Working Together accepted 10 requests for export assistance this week from member cooperatives to sell 793,664 pounds of cheese to customers in Asia.
The product has been contracted for delivery through November and raised CWT's 2017 exports to 48.3 million pounds of American-type cheeses, and 3.0 million pounds of butter (82 percent milkfat) to 18 countries.