This Week in Dairy – Lee Mielke

This Week in Dairy – 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 [email protected] or by phone 360.201.4033.

The Agriculture Department lowered its 2017 milk production forecast in its latest World Agricultural Supply and Demand Estimates (WASDE) report as “reductions in milk per cow offset increases in milk cow numbers.”

2017 production and marketings were projected at 217.3 and 216.3 billion pounds respectively, down 200 million pounds from last month. If realized, 2017 production would be up 4.9 billion pounds or 2.3 percent from 2016.

“Fat basis imports were reduced on weaker imports of cheese and butterfat products, but imports of milk protein products support a higher skim-solids basis import forecast. Fat basis exports were lowered on weaker sales of whole milk powder (WMP), but skim-solids basis exports were raised as weaker WMP is more than offset by higher sales of a number of skim-based products. Ending stock forecasts were raised on both a fat and skim-solids basis, reflecting current large supplies and lower expected domestic use,” the report stated.

Dairy product price forecasts for cheese, butter, nonfat dry milk, and whey were lowered as both domestic and international supplies are large. As a result both Class III and Class IV price forecasts were reduced from last month.

The Class III milk price is projected to range $16.10-$16.60 per hundredweight (cwt.), down from the $16.60-$17.20 expected a month ago, and compares to $14.87 in 2016 and $15.80 in 2015.

The Class IV forecast averages $14.30-$14.90, down from $14.85-$15.55 predicted last month, and compares to $13.77 in 2016 and $14.35 in 2015.

The California Department of Food and Agriculture announced its May Class I milk prices at $16.65 per cwt. for the north and $16.92 for the south. They are down 11 and 12 cents respectively from April, both are $1.81 above May 2016, but are the lowest Class I prices since November of last year.

The five month average for the north stands at $17.79, up from $15.67 at this time a year ago and compares to $17.45 in 2015. The southern average, at $18.06, is up from $15.94 a year ago and $17.72 in 2015. The May Federal order Class I base price is announced by USDA on April 19.

Meanwhile; the April Crop reports were “neutral to bearish, with the data released in line with expectations,” according to FC Stone. Corn stocks were unchanged and soy stocks raised by 10 million bushels.

Three percent of the nation’s corn crop was in the ground, as of April 9, according to the USDA’s latest Crop Progress report. That’s down 1 percent from this time a year ago but on par with the latest four-year average.

Penn States Dr. James Dunn reports in his latest Dairy Outlook that “The long-term issues depressing dairy prices are the strong dollar, the continuing Russian embargo on EU dairy imports, and problems in the Middle East. Overall the outlook for milk prices for 2017 is better than 2016, although not as attractive as it was a few weeks ago. Feed prices will remain low so dairy profitability this year should be better than in 2016.”

Regarding feed prices, Dunn reports that corn and soybean meal prices are lower than last month, with corn down 6 percent, meal down 6 percent, and soybean prices down 6.5 percent.

“South American corn and soybean crops will be very good and world inventories are very high,” according to Dunn. “U.S. exports of corn and beans are large despite the strong dollar. There is no reason to expect corn and soybean meal prices to increase, given the large inventories worldwide if 2017 crops are good.”

“Income over Feed Costs (IOFC), Penn State’s measure of income over feed costs, fell by 0.5 percent in February from its January value. February’s value is about the same as the last two months, with all three months well above 2016. Income over feed cost reflects daily gross milk income less feed costs for an average cow producing 65 pounds of milk per day,” he says.

“The net revenue per hundred pounds of milk (milk margin) is the estimated amount of the Pennsylvania all milk price that remains after the feed costs per hundredweight of milk production are paid. Like income over feed cost, this measure shows that the February PA milk margin was 0.5 percent lower than in January. The Pennsylvania drought continues, Dunn concludes, with the southeastern part of the state having moderate drought.”

Dairy prices were mixed in the Good Friday holiday-shortened week, as a lot of product made its way to Chicago and traders awaited the April 18 Global Dairy Trade auction and the April 20 March Milk Production report.

The CME’s 40-pound Cheddar blocks closed Thursday at $1.4750 per pound, up 1 1/2-cents on the week and 4 3/4-cents above a year ago. The 500-pound Cheddar barrels finished at $1.4275, down three-quarters but 1 3/4-cents above a year ago. Three cars of block traded hands on the week and 37 of barrel.

Dairy Market News (DMN) called the market “uncertain” but says Midwest cheese production is active. Some cheesemakers cancelled planned production downtime in order to keep up with the milk surplus. Readily available milk continues to flow into cheese vats. Class III spot milk prices remain $1.50 to $5.00 under Class. Some processors are hesitant about using stored nonfat dry milk to fortify their cheese because milk is so abundant. Cheese orders vary from steady to strong. Even with some good sales reports, some contacts question whether demand will keep up with supply, as most reports point to long inventories of both block and barrel cheeses.

Western cheese output is increasing at a declining rate. Sales are lower and reports suggest that people are buying only what they need. Export sales are picking up as South Korea and Mexico have increased demand for U.S. cheese. Contacts believe exports might increase if the exchange rate drops.

Cash butter dropped to the lowest price since December 9, 2016 on Monday but it saw a pre-Easter close at $2.0875 per pound, down a penny on the week and 1 3/4-cents above a year ago, with 28 cars exchanging hands on the week.

Butter demand is mixed, according to DMN. Some Central region butter makers report continued strength in sales. Others point to a drop following the spring holiday peak. Some contacts expect a tightening of cream in the weeks to come, with increased interest from Class II and Class III producers. Butter inventories are adequate. The market tone is steady in the near term, says DMN.

Western butter processors say inventories are heavy, but still manageable. Cream is plentiful and a few manufacturers are opting to sell extra cream as opposed to churning it all.

FC Stone’s Dave Kurzawski noted in his April 10 Early Morning Update that “dairymen across the country have been working diligently with their nutritionists to boost butterfat components, and that is starting to become noticeable in the amount of cream available.”

Unfortunately, butter demand may be slipping. Daily Dairy Report (DDR) analysts estimate February commercial disappearance at about 107 million pounds, down 17 percent from a year ago after adjusting for leap year.

“If USDA confirms these figures, February’s commercial disappearance potentially would be the lowest monthly volume since February 2010,” the DDR warned. “That said, the Easter and Passover holidays were earlier last year than they are this year, making it quite possible that sales took place in February 2016 driving higher totals. Still, commercial disappearance for the first two months of this year has fallen 14 percent behind last year’s pace and is 9 percent lower than the five-year average pace for the same months,” according to the DDR.

The April 7 Dairy and Food Market Analyst (DFMA) confirmed the DDR’s report on slipping butter demand and adds that supplies of American cheese have also outpaced demand.
“During the three-months-ending February 17, domestic use of American cheese grew a mere 0.8 percent year over year,” the DFMA stated. “Including exports, total usage was in negative territory: 1.8 percent below prior-year levels. While demand contracted, supplies of American cheese increased 4.2 percent YoY.”

“The market for other (than American) cheese varieties appears less sloppy,” the DFMA says. “Consumption grew by 2.4 percent during the three-months-ending in February, while output increased by 1.4 percent.”

Spot Grade A nonfat dry milk closed April 13 at 84 1/2-cents per pound, up 3 1/2-cents on the week and 13 cents above a year ago, with only one carload sold.

FC Stone’s Dave Kurzawski gave a strong dose of reality regarding exports, writing that “Recent chatter was starting to circulate in regards to when US/EU dairy imports may be allowed back in to Russia but it’s hard to conceive how the most recent atrocities handed down by the Russian supported Syrian government will not halt the most recent thawing of relations between them.”

He says “The retaliatory sanctions Russia has imposed on the US and EU dairy industry is not a direct issue for US exporters as our market share of Russia was very small but the impact of displaced EU imports has greatly affected our ability to source product into traditional US exporting areas.”

The EU successfully shifted supply to other importers, according to Kurzawski. “World demand isn’t a zero net sum game,” he said, “and there are only so many dollars to go around so Europe’s shift to other importing nations has made world exports more competitive and the US has been behind the eight ball so-to-speak”

New Zealand milk output may be impacted by Cyclone Cook. HighGround Dairy reported that the storm would “likely negatively affect the tail-end of the milking season as sodden paddocks will continue to be an issue for producers. Industry chatter included the potential for early cull rates, which may translate into a revision to Fonterra’s estimate for a 3 percent decline for the season.”

Cooperatives Working Together (CWT) accepted 15 requests for export assistance the week of April 10 from member cooperatives to sell 2.6 million pounds of cheese to customers in Asia, Central America, the Middle East and Oceania.

The product has been contracted for delivery through July and raised CWT’s 2017 exports to 26.1 million pounds of American-type cheeses and 1.4 million pounds of butter (82 percent milkfat) to 12 countries on four continents.

In politics; National Milk reports that “During a Senate Agriculture Committee confirmation hearing March 23, Agriculture Secretary-elect Sonny Perdue indicated that he supports improvements to the dairy safety net. He also said he would “advocate for policies that expand the availability of farm labor in dairy production.”

“The nomination of the former Georgia governor as the next Secretary of Agriculture was approved by the Senate Agriculture Committee on March 30. His confirmation awaits action by the full Senate, expected to take place sometime after Congress returns from its two-week Easter recess.

“Perdue, who grew up on a farm, told Agriculture Committee members that he understands the plight of dairy farmers, and promised to work with the dairy sector on improving the Margin Protection Program (MPP).” This, says NMPF, includes reviewing the Federation’s recent four-point plan to fix the MPP. Perdue also “expressed an openness to examining ways to create additional risk management coverage for milk through USDA’s Risk Management Agency.”

“On the issue of immigration reform, Perdue said he would support an exemption to the H-2A program so that dairy farms could hire workers for year-round labor,” NMPF said. “The current seasonal H-2A visa program does not apply to dairy farms because of their perennial need for farm labor.”

In other legislative news, Californians face higher fuel prices. Western United Dairymen (WUD) reported in its April 7 member newsletter that “Led by Governor Brown and legislative leadership, SB 1 was amended and ushered through the process to impose the single largest gas tax increase we have seen.”

“The bill will generate $52 billion dollars over the next ten years to fund deferred maintenance on state highways, local streets and roads, and to improve trade corridors, transit and transportation facilities. SB 1 passed, earning the bare minimum of aye votes to secure a 2/3rds vote threshold needed to win approval.”

“Most impactful to our members,” says WUD, “is the bill’s tax on diesel fuel which starting on November 1, 2017, includes an increase in the diesel excise tax by 20 cents per gallon, an increase in the diesel sales tax by 4 percent per gallon, and an increase in the vehicle license fee between $25-$175 annually based on the value of the vehicle.” WUD says the bill will cost dairy operations with 1000 head of cows, $30,000 annually.

And, the California Department of Food and Agriculture held an April 4 meeting in Modesto to collect input from dairy producers on how the quota program should be administered in the event that a Federal Milk Marketing Order is adopted in the state. Complete details are posted at WUD’s website.



This Week in Dairy – Lee Mielke

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