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@example.com or by phone 360.201.4033.
March cheese prices went out like a lion. CME cheese saw a big move to the upside Thursday and Friday, despite a fair amount of product finding its way to Chicago but driven in part by demand for fresh cheese and anticipated increasing exports.
The Cheddar blocks marched to $1.52 per pound the last Friday of the month, 8 cents higher on the week, 5 cents above a year ago, and 3 cents above where it was on March 1. The barrels finished at $1.47, up 8 cents on the week, 1 1/2-cents above a year ago, and a half-cent above its March 1 price. Nineteen cars of block traded hands on the week and 38 of barrel.
The dairy market was looking for some direction this week as there was only one USDA report issued that it regularly monitors, namely the Ag Prices report. Demand for barrel cheese is expected to increase as cheeseburgers find their way back to the barbecue, but traders were also anticipating Friday afternoon's USDA Prospective Plantings report, in view of the higher feed prices noted in the Ag Prices report, and were anticipating the April 4 Global Dairy Trade auction.
Milk continues to be available to cheesemakers in the Midwest, according to Dairy Market News (DMN). Reports from some point to an inability to take on any extra spot milk. Spot milk prices have been reported from $1 to $4 under Class. Cheese production, except for some plant updates/maintenance, has been active. Reports on domestic demand range from steady to increasing.
Whey and lactose interest, both domestically and internationally, is also trending up for Midwestern cheesemakers, according to DMN. Inventory reports vary for cheese. Some producers are comfortable with current stocks, while others have started to sell discounted spot cheese in order to maintain inventory levels. The market tone is "uncertain."
Western cheese output also continues to be active. Milk volumes are plentiful and clearing into cheese vats. Some contacts believe that the spring flush is right around the corner. A few cheese plants seem to be running below capacity, says DMN, but for the most part, they are operating at or near full capacity.
Cheese is moving well through contracts, but any additional demand is light. Orders for processed cheese are slower and some market participants are hoping for favorable spring weather to prompt the summer grilling season. Barrel cheese supplies are abundant, somewhat due to additional manufacturing plants coming on line in other regions. Contacts suggest that warehouses are also getting filled, and available storage space is hard to find. Block cheese inventories are termed ample.
FC Stone's March 30 Early Morning Update echoed that, stating "New barrel capacity is hitting the market and that is evident in the sharp rise in the latest Ag Marketing Service (AMS) volumes. The past 4 weeks AMS barrel cheese volumes have been above 13 million pounds per week whereas the last few years the volumes have been confined to roughly 9-11 million pounds per week."
Spot butter saw a Friday finish at $2.1075 per pound, up a penny on the week, 14 3/4-cents above a year ago, but down 12 1/2-cents from its March 1 perch. Six cars were sold on the week at the CME.
Butter production is active in the Central region of the country, according to DMN. Cream is still available to butter producers and some continue to churn cream, then sell and or store the butter, in lieu of selling spot cream.
Butter demand varies. Some producers report that they are in the peak of spring holiday demand while others still expect stronger demand to come. Reports on butter stocks point to a steadily growing availability and the butter market tone is generally steady.
Western butter makers also have access to plenty of cream, according to DMN, and are actively churning it into butter. However, as the spring holidays and summer approaches, more cream is getting used for ice cream and other Class II dairy products. Additional uses for the cream are mostly welcomed by butter manufacturers who are looking for ways to clear the excess cream. Butter demand is termed steady, but many end users are hesitant to take on any extra loads to put into warehouse as inventories are long.
DMN's weekly cold storage data showed March 27 cheese stocks grew 10.5 million pounds or 12.1 percent from March 1 while the butter inventory was up 4.8 million pounds or 23.9 percent.
Cash Grade A nonfat dry milk closed Friday at 80 cents per pound, down 2 cents on the week but 8 1/2-cents above a year ago, with three cars sold on the week.
Higher corn, soybean, and alfalfa hay prices and a lower All-Milk price served to pull the latest milk feed price ratio lower for the second month in a row. The February ratio, at 2.61, is down from 2.69 in January, but is up from 2.18 in February 2016, according to the Agriculture Department's latest Ag Prices report.
The index is based on the current milk price in relationship to feed prices for a dairy ration consisting of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. In other words, one pound of milk today purchases 2.61 pounds of dairy feed containing that blend.
The February U.S. average All-Milk price was $18.50 per hundredweight (cwt.), down 40 cents from January but is $2.80 above February 2016.
Florida scored the highest, at $22.80 per cwt. New Mexico had the lowest, at $17.10, down 80 cents from January but $2.50 above a year ago. Arizona was second lowest, with $17.20. California wasn't much above that, at $17.44, down a dime from January but $3.12 above a year ago, and $1.56 below Wisconsin. The Badger State's All Milk average was $19.00 per cwt., down 30 cents from January but $2.90 above a year ago.
February corn averaged $3.44 per bushel in the U.S., up 4 cents from January, following a 7-cent increase in January from December but is 14 cents per bushel below February 2016. Soybeans averaged $9.86 per bushel, up 15 cents from January, following a 7-cent increase in January, and is $1.35 per bushel above February 2016. Alfalfa hay averaged $129 per ton, up $1 from January but $8 per ton below a year ago.
Looking at the cow side of the ledger; the report shows the February cull price for beef and dairy cows combined averaged $64.90 per cwt., up 90 cents from January but $12.60 per cwt. below February 2016, and $6.70 below the 2011 base average of $71.60 per cwt.
The March 30 Daily Dairy Report says the Margin Protection Program's feed cost formula shows that dairy producers spent $7.92 on feed, on average, to produce 100 pounds of milk in February, up 8 cents from January, but historically on the low side of monthly average feed costs. The January-February MPP margin averaged $10.82, exceeding the $8 per cwt. maximum coverage level.
Checking the demand side of things, the March 24 Dairy and Food Market Analyst (DFMA) reports that restaurant demand "continues to moderate." "Foodservice sales rose by 4.2 percent year over year in February, according to Census Bureau data," the DFMA stated. "This growth rate was below last year's average increase of 5.9 percent. Limited service sales (the cheese-friendly side of the business) were up 5.7 percent in January (latest data available), which was below the 6.1 percent growth rate in all of 2016."
Why the slowdown, the DFMA asked. "For one, gasoline prices have rallied and were up 31 percent year over year in February. With fewer dollars left in the checkbook, consumers made fewer trips out to eat."
The February Consumer Price Index (CPI) for all food was 248.8, no change from a year ago, according to the USDA. The dairy products index was 220.6, up 0.4 percent from a year ago. Fresh whole milk was up 0.7 percent; cheese was down 0.5 percent; and butter was down 1.4 percent.
Looking globally; Cooperatives Working Together (CWT) accepted 21 requests for export assistance the last week of March from member cooperatives that had contracts to sell 2.381 million pounds of cheese plus 52,360 pounds of butter to customers in Asia and Oceania.
The product has been contracted for delivery through June and raised CWT's 2017 sales to 21.483 million pounds of American-type cheeses and 1.427 million pounds of butter (82 percent milkfat) to 12 countries on four continents.
Lots of eyes are on exports. FC Stone's March 29 Early Morning Update made the point that "US prices have been lower than Oceania for three consecutive months. We haven't seen that since the first quarter of 2015 and we saw a subsequent spike in exports at that time, so a big jump in exports coming from the models makes sense when you look at the history. We have total cheese exports for 2017 up 27 percent from 2016, coming in just shy of the record high in 2014."
One factor that affects exports is currency. The Update adds that; "Although the US dollar is still strong, the currency is going through a period of cooling off and that may help exports if that continues in Second Quarter."
One other trade note; the Global Dairy Trade's (GDT) Quarterly report shows that the GDT Price Index has risen 55 percent the past 12 months. Anhydrous milkfat and butter showed the biggest gains, up 94 percent and 78 percent respectively.
Speaking of the GDT, Fonterra released its offer volumes for next week's event, according to FC Stone. "A total of 11,700 metric tons of whole milk powder WMP will be offered for both April events, down 20 percent from the last GDT. 5,360 MT of New Zealand origin skim milk powder will be offered which is up nearly 50 percent from the last auction. The market has been concerned if the rise in volumes have been entirely reflective of the increased NZ milk production."
"Fonterra's seasonal milk production forecast was initially close to down 7 percent although is now pointing towards being down 3 percent for the season. The last few GDT product offering forecast increases are thought to be accurate given the better milk production," FC Stone concludes.
DMN reports that dairy producers in Australia continue to benefit from good pasture conditions which has slowed interest in purchasing hay. Also benefitting producers is decreasing prices for water. But, concerns lie ahead associated with expectations of autumn being hotter and drier than desired. For now, however, cow culling rates have slowed. Dairy Australia reported February milk production was down 10 percent from February 2016.
New Zealand's February milk production totaled 1.91 million metric tons, down from 2.41 million MT in January and down from 1.97 million a year ago.
DMN reported that a dairy processor from China is now expanding a processing plant in New Zealand. The addition, will include UHT capacity, an infant formula canning line, blending facilities, and a whole milk powder dryer. The company says it's actively working with farmers in the district to augment its milk supply to meet its growing production needs.