This Week in Dairy - Lee Mielke

 Lee Mielke is a veteran dairy journalist and broadcaster.  

Based in Lynden, Wash., he can be reached by email at or by phone 360.201.4033.

This column is prepared especially for the readers of DairyBusiness. 

Dairy prices, like thermometers and snow, fell as Winter Storm Stella attacked the Northeast. Weather had already raised havoc in the West and some expect revisions in the January Milk Production data.

Be that as it may, lackluster cheese demand and an abundance of fresh cheese is blamed for faltering CME prices, as traders awaited the February Milk Production report but the prices are now more competitive globally.

CME block Cheddar sunk to $1.35 per pound the week of March 13, lowest level since May 25, 2016, but it rallied Friday, closing at $1.40, up a penny and a half on the week and the first upward climb in five weeks, but is 8 3/4-cents below a year ago. The barrels fell to $1.35, lowest price since May 16, 2016, but regained some ground Friday to finish at $1.3650, down 3 1/2-cents on the week and 11 1/2-cents below a year ago. Sixteen cars of block traded hands on the week at the CME and 23 of barrel.

 Cheese production in the Midwest is active and keeping pace with readily available milk, reports Dairy Market News (DMN). Even with spot milk as low as $5 under Class III, cheesemakers are turning offers away. The challenge for some Midwestern cheese manufacturers is finding a middle ground between cheese production and managing cheese inventories, which are reportedly long.

 Demand reports are mixed. Some contacts report steadiness in retail and specialty orders following a post-Super Bowl lull. However, some report a softness on spot orders, suggesting buyers are holding off while cheese prices continue to weaken. The market undertone is unsteady, says DMN.

Western milk is also readily available and keeping cheese makers busy. Current output is meeting most buyer requests. Some end users suggest their cheese needs are fully satisfied and are hesitant to increase purchases. A few contacts suggest activity from food service and retail accounts is slightly slower but cheese processors describe generally steady domestic demand. In addition, some export buyers are expressing more interest in response to lower cheese prices. Western cheese inventories are still heavy and available storage limited.  

 Cash butter saw a meltdown to $2.11 per pound Thursday as sellers unloaded 22 cars at the CME. Friday saw a closing price of $2.13, down 3 1/4-cents on the week but 7 1/2-cents above a year ago. A total of 32 carloads traded hands on the week in Chicago.

 DMN says Central butter producers are seeing no shortage of cream. Some say Class II interest is increasing, but cream is still available and at prices favorable to butter makers. Butter output is active. Inventories are building when demand allows but reports on butter orders are increasing as spring approaches. Some contacts point to heavy inventories and question whether current demand, although strong, is adequate to keep stocks manageable. Others suggest demand is strong enough and inventories are comfortable for late summer/early fall ordering. The market tone is “steady.”

 Western butter makers report very little change from the previous week. Cream is readily available and manufacturers seem willing to actively churn to fill current orders. Domestic demand is steady, but processors say interest is light outside of contracted purchases. End users are focusing predominantly on immediate needs, buying hand to mouth as opposed to putting up large volumes of butter into storage. Inventories are generally growing, according to DMN.

 The spot Grade A nonfat dry milk closed Friday at 80 1/2-cents per pound, down a half-cent on the week but 7 3/4-cents above a year ago, on 13 cars sold.

 California’s latest surveyed nonfat dry milk price fell 9.2 cents and USDA’s latest National Dairy Products Sales Report showed the powder down 7.8 cents.

 FC Stone’s Dave Kurzawski wrote in his March 14 Early Morning Update that “Political tensions between the US and our powder buying friend Mexico has people concerned.”

 The U.S. Dairy Export Council’s (USDEC) Tom Vilsack, the International Dairy Foods Association’s (IDFA) Michael Dykes and National Milk’s Jim Mulhern traveled to Mexico this week to try and calm the waters, promising to continue a “strong commitment to their time-tested partnership with Mexico’s dairy industry and consumers,” according to a joint press release.

 “We have always seen Mexico as a partner first and a customer second,” USDEC’s Tom Vilsack told Mexican dairy leaders attending the National Dairy Forum in Mexico City. “That’s why we intend to continue working with you and your industry to expand the consumption of dairy products in a way that benefits both countries.”

 “Mexico is our friend, ally and most important trading partner,” said NMPF’s Jim Mulhern. “Our goal this week in visiting Mexico is to communicate our steadfast commitment to our partnership with the Mexican industry, even as we continue to explore ways to deepen that relationship by working on issues of mutual benefit.”

 “The United States proudly provides the majority of imported dairy products to Mexican consumers,” said IDFA’s Michael Dykes. “We strongly believe that it’s in the best interest of both countries to preserve and enhance our excellent trade relationship, now and in the future.”

 Vilsack and Mulhern spoke at the Femeleche conference, attended by Mexican dairy industry leaders, farmers and government officials. The three CEOs also met with a variety of government officials and the U.S. Ambassador to Mexico.

 But, the chilliness may not all be political. The Daily Dairy Report’s (DDR) Sarina Sharp asked the question in the March 10 Milk Producers Council newsletter; “Why is Mexico so conspicuously absent from the U.S. milk powder market?”

 She reports that U.S. milk powder exports to Mexico in January totaled 41.9 million pounds, down 4.6 percent from the impressive volumes of a year ago.

 She explained that “There are likely a number of reasons. Mexican milk production climbed 4.6 percent in 2016, and imports of nonfat dry milk (NDM) and skim milk powder (SMP) grew 10.5 percent. It is unlikely that Mexican demand for milk powder grew enough to absorb greater domestic production and substantially higher imports. Rather, Mexican milk powder buyers are well-stocked and patient,” according to Sharp.

 She adds that “The strong dollar and weak peso encourage continued inaction. Global milk powder inventories have grown as well, offering end users the opportunity to diversify their sourcing should they find it advantageous. Mexico’s tariff structure allows for up to 80,000 metric tons of NDM or SMP imports tariff-free each year from WTO members, which include Europe, New Zealand, and Argentina. End users at home and abroad have been well-served to sit on the sidelines and threaten to move their business elsewhere,” she says, “But cheap product will likely coax some of them back to the market eventually.”

 Back home; USDA data shows American cheese demand in January was down 6.2 percent from December and down 1.8 percent from a year ago. The “other” cheese category was down 3.3 percent from December but up 5.3 percent from 2016. Total cheese disappearance was down 4.4 percent from December but 2.6 percent above a year ago.

 Looking at 2016 totals, American cheese use was up 1.5 percent from 2015 and other than American cheese use was up 3.1 percent, putting total cheese use 2.5 percent higher than the previous year. FC Stone called the data “okay, but solid for lack of a better descriptor.”

 U.S. cheese exports have suffered as U.S. prices made Uncle Sam uncompetitive. The DDR says cheese exports accounted for 7.1 percent of U.S. cheese output in 2014, 6 percent in 2015, and 5.2 percent in 2016.

 “That’s an impressive testament to domestic demand for cheese,” the DDR stated, “that the U.S. market continued to command a premium through much of 2015 and 2016 even as exports waned and production climbed.”

 Falling prices in Chicago will hopefully get U.S. cheese sailing again. The March 10 Dairy and Food Market Analyst (DFMA) points out that “Historically, CWT-assisted sales have accounted for more than half of all U.S. American cheese exports, at times, as much as 75 percent.”

The DFMA also reports that, while the Canadian industry is “positioning to block imports of U.S. origin dairy products, Canadian farmers are filling the gap by purchasing U.S. origin cows. During January, 5,771 head of U.S. origin herd replacements were sent to Canada, which was the largest monthly trade statistic in several years. This is an ongoing trend,” the DFMA says. “We continue to hear anecdotal reports of cattle sales from our dairy farmer network.” 

 January domestic butter disappearance fell sharply in January from December and was 14.7 percent below January 2016. Exports, on the other hand, were up 126 percent, thanks largely to Canada. 

 America’s taste for butter is growing. As previously reported, Burger King has joined McDonalds in turning away from margarine in their breakfast offerings and reports are mounting of other restaurants making the switch. Bloomberg, citing USDA data, reports that Americans are expected to eat 8 percent more butter this year than last and “Hipsters” are even dropping it into cocktails and coffee.

 Unfortunately, fluid milk consumption slipped some in the first month of 2017. Packaged fluid sales totaled 4.26 billion pounds, down 0.8 percent from January 2016, according to USDA.

Conventional product sales totaled 4.03 billion pounds, down 1.1 percent from a year ago; organic products, at 228 million pounds, were up 4.7 percent. Organic represented about 5.4 percent of total sales for the month.

Whole milk sales totaled 1.26 billion pounds in January, up 3.5 percent from a year ago and made up 29.6 percent of total fluid sales in the month. January skim milk sales were down 11.9 percent from a year ago.

 The figures represent consumption of fluid milk products in Federal milk order marketing areas and California, which account for approximately 92 percent of total fluid milk sales in the U.S.

Speaking of fluid milk; California’s April Class I milk price is $16.76 per cwt. for the north and $17.04 for the south, down $1.86 and $1.85 per cwt. respectively from March but $1.50 per cwt. and $1.51 above April 2016. They are the lowest Class I prices since November 2016.

 The northern four-month average now sits at $18.07, up from $15.88 at this time a year ago and compares to $17.54 in 2015. The southern average, now at $18.34, is up from $16.15 a year ago and $17.82 in 2015. The April Federal Order Class I base milk price is announced by the USDA on March 22.

 As it always does, USDA’s monthly Livestock, Dairy, and Poultry Outlook, issued March 15, echoed dairy projections contained in the March 9 World Agricultural Supply and Demand Estimates report.

 The Outlook reported that U.S. milk cow numbers climbed to 9.36 million head in January, 6,000 more than December 2016 and 56,000 more than January 2016. Yield per cow averaged 1,937 pounds, 35 pounds above January 2016.   

Feed price forecasts for corn and soybean meal for 2016/17 are $3.20-$3.60 per bushel and $310-$340 per short ton, both unchanged from last month’s forecasts. The alfalfa hay price decreased from $129 per short ton in December to $128 in January; $13 lower than January 2016.

 Based on recent data, the 2017 forecast for milk cows is now 9.38 million head, an increase of 10,000 head from the previous forecast. Milk per cow is forecast 10 pounds lower than last month’s forecast, at 23,185 pounds for the year. These changes result in a milk production forecast for 2017 of 217.5 billion pounds, 100 million pounds higher than last month’s forecast.

 Looking globally, the European Union (EU) announced that nearly 44 000 farmers from across the EU have applied for support for agreeing to voluntarily reduce their production of milk in the last quarter of 2016.

 “This EU milk production reduction scheme, launched last summer and financed with €150 million, was one of the flagship measures decided by the European Commission to face the milk crisis,” an EU press release stated, and “contributed to the rising trend in EU milk prices over the last few months, balancing the markets.” 

 Meanwhile; farm milk production continues to trend higher throughout the U.S., according to the USDA’s weekly update. “Most regions are generating higher volumes of milk that they struggle to utilize.”

 “Some plant managers in the Mid-Atlantic say that milk receipts are so abundant that it gives the feel of May. Midwest contacts believe that milk output will exponentially increase from mid-March through May. Arizona milk volumes are expected to reach their flush levels within the next three weeks. Milk yields are so high in New Mexico that farmers are selling some milk to calf farms and looking for spot sale prospects to avoid discarding their milk,” the report stated.



Email me when people comment –

You need to be a member of Dairy Business & HolsteinWorld to add comments!

Join Dairy Business & HolsteinWorld