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 at or by phone 360.201.4033.

U.S. milk production started 2017 well above a year ago as cow numbers and output per cow remain strong. The Agriculture Department's preliminary data showed January output in the top 23 producing states at 17 billion pounds, up a bearish 2.7 percent from January 2016. The 50-state total, at 18.1 billion pounds, was up 2.5 percent. Revisions lowered the original December estimate 2 million pounds, now pegged at 16.8 billion, up 2.6 percent from December 2015.

January cow numbers in the 23 top dairy states totaled 8.69 million head, up 5,000 from December and 67,000 more than a year ago. Output per cow averaged 1,957 pounds, up 37 pounds from a year ago.

Milk output in 2016 totaled 212 billion pounds, up 1.8 percent from 2015. Revisions lowered the 2015 estimate by 36 million pounds and revisions lowered the 2016 total by 76 million pounds from last month's report. 

Milk cows averaged 9.33 million head in 2016, up 0.2 percent from 2015 and output per cow averaged 22,774 pounds, up 378 pounds from 2015. The average annual rate of output per cow has increased 12.7 percent from 2007.

California's January output slipped for the first time in three months, down 0.6 percent from a year ago, on a drop of 14,000 cows. Output per cow was only up 5 pounds. Wisconsin made up the shortfall, up 1.0 percent, on a 20 pound gain per cow, but cow numbers were unchanged.

Texas garnered the most attention again and had the biggest gain, up 19.2 percent from a year ago, thanks to a whopping 39,000 more cows and a 180 pound gain per cow, but that was measured against the aftereffects of winter Storm Goliath in early 2016, as is the case with New Mexico, up 15.3 percent, on a 190 pound per cow increase and 15,000 more cows.

Michigan was up 3.5 percent, on 12,000 additional cows and 10 pounds more per cow than a year ago. Idaho also milked 12,000 more cows but saw a 20 pound drop in output per cow, resulting in just a 1 percent increase.

New York was up 3.8 percent, on a 70 pound gain per cow and 1,000 more cows. Pennsylvania was up 2 percent, thanks to a 50 pound gain per cow, but cow numbers were down 5,000 head. Minnesota was up 1.7 percent on a 30 pound gain per cow. Cow numbers were unchanged. Washington was down 0.4 percent, on 2,000 fewer cows, though output per cow was up 5 pounds.

Dairy cow culling jumped in the first month of 2017 and topped a year ago, according to USDA's latest Livestock Slaughter report. An estimated 269,000 head were slaughtered under Federal inspection in January, up 16,000 head or 6.3 percent from December and 3,500 head or 1.3 percent above January 2016.

Too Much Milk in the Northeast

A footnote to the January Milk Production report: New York's strong increase is indicative of the abundance of milk in the Northeast. That is pressuring prices on the region's fluid milk market, one that delivers high returns to its producers and frustration is mounting.

The latest development is that Dairy Farmers of America (DFA), on February 17, withdrew its petition to the Market Administrator to "allow handlers to pool, or not pool, all or any portion of a delivery to a non-pool plant" from April 1, 2017 until September 30, 2017, without losing the ability to pool the producer the following month." DFA argued that this would "allow the handler the ability to pay for the milk delivered to the non-pool plant a return that reflects the value of the milk."

In a letter to the Market Administrator, DFA said that it "continues to believe current market conditions will become even more disorderly if our request is not implemented. However, upon learning last week of the lack of support from segments of the industry, we made the determination to respectfully withdraw our request to temporarily change the 'Dairy Farmers for Other Markets Provision' (DFOM) of the Northeast Milk Marketing Order."

DFA defended its request, arguing that the temporary relaxation was to "create fairness and treat all dairy producers in an equitable manner. By doing so, all farmers in the Northeast would have access to the best milk price available, subject to prevailing marketing conditions. However, without support from the entire industry, we understand this request could create additional division and anxiety in an already challenged marketplace."

"Our proposal would have allowed the sharing of balancing costs to buffer the effects to any one group and maintain a more orderly process as the market finds its new equilibrium during this six-month period. Our requested interpretation would not only carry out the intent of the DFOM provision under present market conditions, it would also allow milk marketers more flexibility in balancing supplies of milk with demand. This would have minimized the financial impact to independents as we attempted to make payments equitable for all dairy farmers."

DFA stated that it will "continue to do everything possible to increase processing capacity, provide stability in the marketplace, and to do our best to provide a fair and equitable return for dairy farmers in the region."

International Prices Drop This Week

Meanwhile, global dairy traders reversed direction in the February 21 Global Dairy Trade (GDT) auction. The weighted average for all products offered dropped 3.2 percent, following a 1.3 percent increase on February 7.

Buttermilk powder led the declines for the third event in a row, plunging 12.9 percent. Rennet casein was down 5.8 percent, followed by Cheddar cheese, down 5.3 percent, after a 3.7 percent drop last time. Skim milk powder was down 3.8 percent, after it inched up 0.1 percent last time, and whole milk powder was down 3.7 percent after a 1 percent increase. Anhydrous milkfat was off 1.3 percent, following a 4 percent gain last time.

Lactose was up 6.8 percent after leading the gains, leaping 12.4 percent on February 7, and butter inched 0.2 percent higher, after it saw a 4.9 gain last time.

FC Stone equated the average 80 percent butterfat GDT butter price to $2.0348 per pound U.S. CME butter closed Friday at $2.13 per pound. GDT Cheddar cheese equated to about $1.6286 per pound U.S. and compares to Friday's CME block Cheddar at $1.5750. GDT skim milk powder was at $1.1677 per pound and whole milk powder averaged $1.4463 per pound U.S. CME Grade A nonfat dry milk price closed Friday at 82 1/4-cents per pound.
Product Inventories Higher
U.S. butter stocks started 2017 in abundance, according to USDA's bearish Cold Storage report. Preliminary data pegged the inventory at 223.1 million pounds, up 57 million pounds or 34.4 percent from December and 31 million or 16.1 percent above January 2016.

American type cheese hit 760.7 million pounds, up 34.3 million pounds or 4.7 percent from December and 44.3 million or 6.2 percent above a year ago. The total cheese inventory stood at 1.23 billion pounds on January 31, up 34.3 million pounds or 2.9 percent from December and 54.4 million or 4.6 percent from 2016.

Dairy Demand Slightly Lower

Checking dairy demand, December total cheese disappearance was down 5.7 percent from November and 0.9 percent below December 2015. HighGround Dairy points out that this is the first month of year-over-year declines since June 2015, but says overall 2016 demand was up 2.6 percent from 2015. 

Domestic butter disappearance was down from November and down 1.7 percent from a year ago. Annual butter usage for both domestic and export demand increased 4 percent over 2015.

December Dry Whey disappearance was down 9.9 percent from last year and domestic usage continues to slip as December was 39.7 percent below 2015.
Export demand, however, was up 47.9 percent and December skim milk/nonfat dry milk disappearance was up 2.8 percent from 2015. 

Cash block Cheddar sunk to $1.51 per pound by Wednesday but closed the President's Day holiday shortened week at $1.5750, still down a half-cent on the week but 9 1/2-cents above a year ago. The barrels finished at $1.5175, down 10 1/4-cents, 8 3/4-cents above a year ago, and ended the inversion, slipping 5 3/4-cents below the blocks. Ten cars of block traded hands on the week and a whopping 35 of barrel.

Milk is abundant for cheesemakers in the Midwest, reports Dairy Market News (DMN). Cheese production is active as producers try to balance inventories while maintaining production to coincide with the surplus milk receipts. Demand reports vary. Some cheese manufacturers report fluctuations in demand week by week, inconsistent with past years. Others report a general slowdown in demand, characteristic of this time of year. Buyers are reportedly viewing the CME barrel to block inversion as a sign of instability. Inventories of both are long.

Western cheese output is steady and active. Poor weather in parts of the West suppressed milk intakes but manufacturers were able to acquire milk or condensed skim from inside and outside the region to keep production full. Demand is seasonally lower at this time of year, but many processors are seeing a steady pull of cheese stocks from regular customers, though stocks are rising.

Spot butter fell to $2.1175 per pound on Wednesday but it rallied some and closed Friday at $2.13, 2 3/4-cents lower on the week but 15 1/4-cents above a year ago when it dropped 7 3/4-cents. Only two cars were sold on the week.

DMN says cream remains readily available in the Central U.S. but cream interest from Class II operations is beginning to increase, so competition for cream may escalate. With the current cream surplus, however, butter production is active. Demand reports vary. Inventories are building but the market tone is steady.

Western butter makers also report plentiful cream. Some manufacturers are trying to sell excess cream with mixed results. Butter production is active and domestic butter demand is steady, according to DMN.

Cash Grade A nonfat dry milk closed the week at 82 1/4-cents per pound, down 4 3/4-cents but three-quarters above a year ago. Ten cars exchanged hands.

USDA Announces Prices

The Agriculture Department announced the March Federal Order Class I base milk price at $16.90 per hundredweight, up 17 cents from February, driven by a higher dry whey price. It is $3.12 above March 2016 and equates to about $1.45 per gallon, up from $1.44 in February. The Quarter's average was nudged to $17.03, up from $14.49 at this time a year ago and compares to $16.79 in 2015.

Speaking of milk prices; the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC. Says; "Dairy margins have continued to weaken slightly since the end of January due to a combination of lower milk prices and higher feed costs," but "remain historically strong between the 80th and 90th percentiles of the previous decade through all of 2017."

"Milk prices in particular have been under pressure in Class IV relative to Class III," the MW explained, "with the former dropping nearly $2.00 per cwt. since the beginning of the year while the latter is only down around 50 cents per cwt."

"Much of this disparity is driven by product price performance differentials. Nonfat dry milk (NDM) is down 13.4 percent year to date, while whey is up 9.4 percent. Increased whey prices are helping to offset softer cheese trade, which has declined 3.8 percent since the end of the year, while the drop in NDM combined with a 4.8 percent drop in butter prices have really hammered Class IV Milk."

"Large intervention stocks of NDM in the EU also hang over the global powder market. On another bearish note, USDA raised projected 2017 milk production 300 million pounds in the February World Agricultural Supply and Demand Estimates from the previous estimate. The increase was based on improved margins that resulted in higher forecasted cow inventories and improved quality in feed rations, which should raise milk production per cow."

"Meanwhile, feed costs have continued climbing on active fund buying in the corn and soybean complex markets and ongoing strong demand. However, concerns remain over advancing South American crop harvests, as well as potential backlash from the protectionist trade policies of the Trump administration that may slow exports," the MW states.

Cooperatives Working Together (CWT) accepted six requests for export assistance this week to sell 1.35 million pounds of Cheddar cheese to customers in Asia and Oceania. The product has been contracted for delivery through May and raised CWT's 2017 exports to 8.37 million pounds of American-type cheeses and 1.32 million pounds of butter (82 percent milkfat) to 10 countries.

California FMMO Information Meeting

USDA held an information session about its proposed Federal Milk Marketing Order (FMMO) for California in Clovis on February 22. DairyBusiness/Holstein World publisher Joel Hastings reported that some 70 people including producers, processors, cooperative officials and government officials attended.

Details about the proposed FMMO were presented, which would be like FMMOs in other regions, except for the continuation of the California quota program. USDA proposes that milk quota held by producers would remain and be administered by the California Department of Food and Agriculture.

Dairy producer and Western United Dairyman president Frank Mendonsa said that much more work must be done to analyze how the FMMO would actually affect producer pay prices. He pointed out that a significant part of that equation will be determined by how CDFA will operate the quota program.

A likely timeline is, following the 90-day comment period, USDA will evaluate submitted information, then issue a final recommendation in the fall of 2017. A series of informational meetings with dairymen, processors and other interested parties would be held and then proposed FMMO would be put to a vote of dairymen. If two-thirds voting or those dairymen representing two-thirds of the production approve, then the Order would go into effect within three to six months.

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