Lee Mielke is a veteran dairy journalist and broadcaster. 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.
Dairy price hopes set on the Global Dairy Trade (GDT) auction took a pounding in the first event of March, as the weighted average for all products offered plunged 6.3 percent, following a 3.2 percent drop on February 21.
Declines in powder were expected due to Fonterra’s previous announcement that it was increasing its powder offerings. Skim milk powder led the declines with a 15.5 percent drop, following a loss of 3.8 percent last time. FC Stone’s Dave Kurzawski pointed out that New Zealand’s SMP prices were “so far above the US/EU that this is mostly a re-alignment.”
Whole milk powder was down 12.4 percent after falling 3.7 percent. Rennet casein was down 6.6 percent. Lactose was down 4.3 percent and Cheddar cheese was down 4.2 percent, after dropping 5.3 percent last time. Anhydrous milkfat inched 0.8 percent lower, following a 1.3 percent descent last time.
Buttermilk powder was up 8.4 percent, after leading the declines last time with a 12.9 percent plunge. Butter was up 1.2 percent, after inching 0.2 percent higher on February 21.
FC Stone equated the average 80 percent butterfat GDT butter price to $2.0591 per pound U.S., up from $2.0348 last time. CME butter closed Friday at $2.1625 per pound. GDT Cheddar cheese equated to $1.5580 per pound U.S., down from $1.6286, and compares to Friday’s CME block Cheddar at $1.3850. GDT skim milk powder was 96.07 cents per pound, down from $1.1677, and whole milk powder averaged $1.2618 per pound U.S., down from $1.4463. CME Grade A nonfat dry milk price closed Friday at 81 cents per pound.
USDA Issues World Supply / Demand Estimates
The Agriculture Department raised its 2017 milk production forecast for the second month in a row in its latest World Agricultural Supply and Demand Estimates (WASDE) report “as milk cow numbers are expected to increase more rapidly. However, growth in milk per cow was reduced on January data.”
2017 production and marketings were projected at 217.5 and 216.5 billion pounds respectively, both up 100 million pounds from last month. If realized, 2017 production would be up 5.1 billion pounds or 2.4 percent from 2016.
Dairy exports on a fat basis for 2017 were unchanged, while skim-solids basis exports were lowered on expected strong competition in international skim milk powder markets.
Fat basis and skim-solids basis imports forecasts were unchanged. Skim-solids basis ending stocks were forecast higher for 2017 on higher production of dairy products and weaker exports. Fat-basis ending stocks were unchanged.
Historical milk production and stock estimates reflected recent revisions. The 2017 cheese price forecast was reduced as stocks are high and are expected to pressure prices. The butter price forecast was raised on continued demand strength. The nonfat dry milk price was forecast lower on expectations of slower export growth due to increased competition from global competitors and the whey price forecast was raised reflecting recent market strength, says USDA.
The Class III milk price forecast was raised “as the higher whey price more than outweighs the reduced cheese price.” Look for the Class III price to range $16.60-$17.20 per hundredweight (cwt.), up from the $16.45-$17.15 expected a month ago, and compares to $14.87 in 2016 and $15.80 in 2015.
The Class IV forecast was lowered, “reflecting a weaker nonfat dry milk price which more than offsets a higher forecast butter price.” It will average $14.85-$15.55 per cwt., down from $15.10-$15.90 predicted last month, and compares to $13.77 in 2016 and $14.35 in 2015.
Speaking of rising milk production, output remains plentiful throughout the Northeast, as I have previously reported. Dairy Market News (DMN) reported that a request was submitted from Federal Milk Order number 1 (Boston) to temporarily dispose of surplus milk from March 1 to May 31, 2017.
Dairy Prices Reflect Growing Milk Supply
It was another tough week for dairy prices. Chicago Mercantile Exchange block Cheddar dropped the fifth week in a row, closing March 10 at $1.3850 per pound, down 9 1/2-cents on the week, 11 1/2-cents below a year ago, and the lowest price since June 1, 2016. The barrels ended at $1.40, down 3 3/4-cents on the week, 7 cents below a year ago, and an inverted 1 1/2-cents above the blocks. Twelve cars of block cheese traded hands on the week at the CME and 33 of barrel.
Midwestern cheesemakers report the flow of milk into cheese vats is not slowing, according to DMN. Spot milk offers continue to come in, at discounted prices, but most contacts are not taking extra milk at this time. Cheese production remains active. Demand reports are mixed. Some mozzarella and other pizza cheese producers are seeing steadily growing sales, although the uptick is later in the season than usual. Some process and Cheddar producers are reporting slower sales and say buyers are waiting to see if cheese prices continue downward. Cheese inventories, both barrel and block, are long.
Western contacts say consumption eased following the winter holidays and Super Bowl and buyers have been slow to return. Domestic demand is light and significant volumes of cheese exports have yet to materialize. U.S. cheese is facing stiff competition from European cheeses in some markets. Inventories for western barrels are very long and blocks are readily available.
Cash butter saw some ups and downs and a Friday close of $2.1625 per pound, unchanged on the week but 17 1/2-cents above a year ago, with seven cars finding new homes on the week.
Central region butter producers continue to see plenty of cream, according to DMN. Cream suppliers are receiving more inquiries from Class II users but abundant cream is still finding its way into churns. Butter sales are generally fair to strong. Spring orders have arrived and some report that demand is better than expected but inventories are building.
Western butter makers report steady production as cream is also readily available. Inventories are generally heavy and growing seasonally. Butter demand is stable though end users are buying only as needed, says DMN.
Spot Grade A nonfat dry milk closed Friday at 81 cents per pound, up a half-cent on the week and 6 cents above a year ago. Twelve cars were sold on the week.
Cost of Production
The latest National Milk Cost of Production report shows January’s total milk production costs were down from the previous month and from a year ago.
Total feed costs averaged $10.17 per cwt., down 31 cents from November, down 17 cents from December, and 10 cents below January 2016. Purchased feed costs, at $5.75 per cwt., were down a dime from November, down 7 cents from December, but were up 38 cents from January 2016.
Total costs, including feed, bedding, marketing, fuel, repairs, hired labor, taxes, etc., at $21.91 per cwt., were down 48 cents from November, down 28 cents from December, and 7 cents below a year ago. Feed costs made up 46.4 percent of total costs in January, down from 46.6 percent the month before and 46.7 percent a year ago.
The latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC, reports that “Dairy margins weakened further over the second half of February due to a sharp drop in milk prices although feed costs were steady to slightly higher. Margins remain at or above the 80th percentile of the previous decade through the first half of 2017, and at or above the 70th percentile through the second half of the year.”
The MW warned that “Milk prices continue to be pressured by increasing production and rising stocks of dairy products,” and that New Zealand’s milk production is recovering faster than expected, while January Chinese powder imports were down on the year, which may add to growing global milk powder inventories over the medium term.”
Feed Costs Steady
“Feed costs held mostly steady over the past two weeks,” the MW says, “Although both corn and the soybean complex moved higher recently in response to rumors that the Trump administration may be considering adjustments to the Renewable Fuels Standard that were considered bullish, specifically, allowing for (15 percent ethanol) in domestic gasoline blend stocks year-round and limiting biodiesel credits to domestically manufactured product,” the MW concludes.
Penn State’s Dr. James Dunn reported in his latest Dairy Outlook that “Corn and soybean meal prices are about the same as last month, with the corn price and soybean meal price each up slightly. The South American corn and soybean crops will be very good and U.S. inventories are very high.”
“U.S. exports of corn and beans are very large despite the strong dollar. There is no reason to expect corn and soybean meal prices to increase with very 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, all three of which are 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.”
“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, with the southeastern part of the state having moderate drought,” according to Dunn.
FC Stone’s Brendan Curran says grains remain under pressure. “USDA’s WASDE didn't dole out any favors to the trade” and “came in bearish.” "Big crops get bigger or so the saying goes and the latest data certainly reflected that as a strong increase in Brazilian bean production coupled with a haircut on exports took futures a dime in the red. A case could be made that the market actually held up better than expected given the numbers at hand, but some of this had already been priced in over the past few sessions,” according to Curran.
National Milk Recommends MPP Changes
In politics, the National Milk Producers Federation (NMPF) Board of Directors unanimously approved a series of recommended changes to the dairy Margin Protection Program (MPP) that would “restore several key elements first proposed by NMPF during development of the 2014 Farm Bill.” A NMPF press release stated that “These changes to the MPP will ensure an effective safety net for the nation’s dairy farmers if the recommendations are adopted by Congress.”
The recommendations range from changing the way dairy feed costs are calculated, to providing farmers greater flexibility in signing up for coverage and using other risk management tools. It reflects several features originally proposed by NMPF that were subsequently weakened or eliminated in the final bill.
“Improving the MPP to make it a more realistic, effective safety net is a key focus for our membership in 2017,” said NMPF Chairman Randy Mooney. “As the conversation about the 2018 farm bill begins to take shape on Capitol Hill,” Mooney said that “NMPF is hoping for congressional action to implement its proposed changes at the earliest opportunity. Correcting the current program’s deficiencies will require legislative changes,” he said.
Other recommendations include determining margins monthly, rather than bimonthly, and issuing payments on a more frequent basis when margins drop. NMPF also suggests placing the deadline for annual enrollment toward the end of the year prior to the calendar year for which they want coverage and recommends that the Livestock Gross Margin (LGM) program be expanded and that producers be allowed to use both the MPP and LGM simultaneously.
Meanwhile; the Consortium for Common Food Names has called on the Trump Administration to “aggressively oppose unacceptable geographical indications policies designed to help European farmers, food producers and others by forcing non-Europeans to rebrand familiar products with unfamiliar names.”
Testifying before the office of the U.S. Trade Representative, Consortium Senior Director Shawna Morris noted that the U.S. has “pushed hard against European Union geographical indications policies in the past” and he urged Trump's trade policy team to “continue and intensify opposition to what amounts to a growing threat to U.S. manufacturing of foods with common names.”
In other trade news; Cooperatives Working Together (CWT) accepted 23 requests for export assistance the week of March 6 from member cooperatives to sell 4.616 million pounds of cheese to customers in Asia, Central America, North Africa, and Oceania.
The product has been contracted for delivery through June and raised CWT’s 2017 sales to 15.58 million pounds of American-type cheeses, and 1.38 million pounds of butter (82 percent milkfat) to 12 countries on four continents. The sales are the equivalent of 174.734 million pounds of milk on a milkfat basis.