DairyBusiness Update: August 15, 2014Print
$2 Cheese at Least Through End of August
Incredible cash prices are being seen in Chicago and continue to defy world market levels, with block cheese up 6 cents Thursday to the highest level since April 28, and barrels up 3 1/2-cents. Butter came back to life this week with a vengeance, skyrocketing 16 cents Thursday, to $2.66 per pound, a new high for 2014 beating late July’s $2.62, and may pound on the door of the all time record of $2.81 in September 1998.
FC Stone dairy broker Dave Kurzawski said in Friday’s DairyLine that domestic demand for cheese and butter is still very strong and may continue for some time. “I don’t know where the top of these markets will be,” he admitted, “I don’t know if anybody can answer that question, but what has happened here is that there remains a strong demand for fat and demand for butter.” Cream demand remains strong as well, he said, although cream demand has ticked down a little but “nothing too worrisome from the standpoint of the market bulls.”
Cheese has “chopped sideways, around the $2 level for several months now,” Kurzawski explained, “And now we’re starting to break back to the upside and all the bearish news globally has yet to translate into anything here domestically and so from that standpoint, if there’s still tightness the market might have to go up into a price where they’ll bring some excess inventory to the exchange.” Things are stronger than most people expect, he said, and “No one knows how long it will last but I think we will have a $2 cheese market at least through the end of August.”
The “bearish” news would appear to be the threat of rising milk production and Kurzawski says globally there’s no doubt about that and things will be changing in that regard next year in Europe and there’s concern about good weather in Australia and New Zealand as the El Niño scare “loses its steam,” but “Domestically here we have yet to see any of these real high prices that producers are receiving really translate into much of a big milk production situation in 2014 and we’ll probably see about a 1 1/2 percent increase and that’s just not enough at this point in time,” he concluded.
Milk Price Seeing Double Peak
There has been a double peak in farm level milk prices and National Milk’s Chris Galen talked about it in Thursday’s DairyLine. Milk prices reached a record high earlier in the spring before dipping back down, but then prices went back up in July. That’s going to give us stronger prices in August, Galen said.
This is despite some of the continued overall weakness in world markets, Galen said, and the European Union is currently shut out of Russia as they put sanctions on Europe’s export of dairy products.
“That means there’s more cheese trying to find a home in other markets because it can’t be sold now in Russia,” Galen reported. The U.S. exported 16.5% of its total milk solids during the first half of 2014, according to Galen, an increase of 2% from last year and all of the major categories including cheese and butter were well over last year’s level.
“This is one of the reasons why we’re seeing that double peak in prices,” Galen explained. “Even though world prices are sagging now, the combination of our strong exports and internal demand and slower milk production means we will see above average prices for the remainder of the year.”
One of the big questions why prices haven’t dropped more is related to slower milk production. “You would think that with these record high prices that more cows and more milk per cow would have been more evident in the latest milk production report, but it’s been fairly slow going,” he said.
June milk cow numbers were raised only slightly from a year ago, Galen said, and for the most part milk production is growing but it hasn’t been coming on in torrents yet. Because of that, we are not exceeding demand.
More details are in National Milk’s August issue of the Dairy Market Report which was issued today and is available at www.nmpf.org.
Russia Had Already Shut Out U.S. Dairy
Russia announced last week a ban on agricultural imports from the United States, Canada, the European Union, Australia and Norway. The ban, effective August 7, is set to run for at least one year and is in direct response to the economic sanctions placed on Russia by these countries. The U.S. Department of Agriculture’s Foreign Agricultural Service (FAS) released a report with the unofficial translation of the decree, which includes the products affected by the ban.
The International Dairy Foods Associations website points out that although dairy is on the list, U.S. dairy exports have been shut out of the Russian market since September 2010 due to failed attempts by the two countries to reach an agreement on a dairy certificate and a list of approved facilities.
For more information, contact Beth Hughes, IDFA director of international affairs, at email@example.com.
Dairy Farmer’s Share Varies
The Daily Dairy Report (DDR) says the farm value of whole milk and butter represent about 50% of the retail costs, while the farm share of retail Cheddar cheese and ice cream costs were 33% and 16%, respectively in 2013, according to recently released data from USDA’s Economic Research Service (ERS). ERS compares what consumers pay for food with prices received by farmers. The food costs are derived from sales that occur through retail stores, including supermarkets and supercenters, as reported by the Bureau of Labor Statistics.
Farm values for dairy products are based on minimum Federal Order prices reported by USDA and do not account for over-order premiums. In 2013, USDA estimates that dairy producers received one-third the retail cost of dairy products included in the milk and dairy basket. Since 2000, the farm value share of the retail dairy basket has ranged from a low of 24% in 2009 to a high of 34% in 2011. Dairy farmers receive the highest retail share for fluid milk and butter.
The DDR concludes that, compared to other commodity groups, dairy farmers fair equally well or better in capturing their share of the retail pie.
California Six-Month Milk Output Up 2.9%
The California Department of Food and Agriculture released its California Dairy Statistic and Trends Mid Year Review this afternoon. The report shows that, from January to June 2014, California recorded a 2.9 percent overall increase in milk production in comparison to the total milk production from January to June 2013. Additionally, in the first six months of 2014, California reported: total Nonfat Dry Milk (for human consumption) increased 9.2 percent; total Other-Dry Milk Products decreased 2.2 percent; total Butter production increased 0.4 percent; total Cheese production increased 6.2 percent; and Class 1 Sales of Fluid Milk (including half-and-half) decreased 2.9 percent when compared to the same period in 2013.
From January to March 2014, the average mailbox milk price paid to California producers was $22.69/cwt. (a $5.24/cwt. increase from $17.45/cwt. for the first quarter in 2013).
The top ten counties accounted for 95% of California’s total milk production and 20% of the nation’s total milk production. The milk production of Tulare, Merced, Kings, Stanislaus, and Kern counties accounted for 15% of the nation’s total milk production.
Read more at: http://www.cdfa.ca.gov/dairy/pdf/Annual/2014/MidYear2014.pdf.
Detlefsen Joins NMPF Regulatory Affairs Department
Clay A. Detlefsen, an attorney and long-time industry specialist in dairy regulation and policy issues, will join the National Milk Producers Federation as senior vice president for regulatory and environmental affairs, the organization announced today. Detlefsen, who worked for the International Dairy Foods Association for a quarter-century, will also focus on legal issues as NMPF’s staff counsel after he starts on Aug. 18.
NMPF President and Chief Executive Officer Jim Mulhern praised Detlefsen for his knowledge of issues including FDA inspections, food safety and defense, workplace safety and, in particular, sustainability and the environment.
“Clay is already recognized as a trusted voice on many issues facing our industry,” Mulhern said. “He will enhance our existing resources on many fronts, and, most important, his addition will enable us to increase our focus on the environmental challenges and opportunities that dairy farmers and their cooperatives are facing.”
Detlefsen will be working with NMPF’s existing regulatory staff, including Vice President of Sustainability and Scientific Affairs, Jamie Jonker; Vice President of Dairy Foods & Nutrition, Beth Briczinski; and Vice President of Animal Care, Betsy Flores.
Detlefsen joined IDFA, which represents dairy processing companies, in 1990. He was named vice president for regulatory affairs in 2002. In addition to leading the organization’s work on sustainability and environmental issues for the last several years, Detlefsen has been deeply involved in the dairy industry’s work on the landmark Food Safety Modernization Act, the most sweeping reform of food safety laws in more than 70 years -- much of that in conjunction with NMPF. Since 2001, Detlefsen also has been a leading food industry adviser on protecting the safety and security of food processing plants and distribution systems from intentional adulteration and terrorism.
A resident of Burtonsville, Maryland, Detlefsen has a bachelor’s degree in microbiology and MBA in finance from the University of Maryland, and a law degree from the University of Baltimore. He will be reachable at firstname.lastname@example.org.
Mielke Market Daily / Week’s End Review
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update Associate Editor Lee Mielke)
Cash cheese moved higher, butter took a breather today at the Chicago Mercantile Exchange. The 40lb. Cheddar blocks were up 3¢, the 4th day of gain after dropping 1¢ on Monday, and closed the day and the week at $2.22/lb. Four cars found new homes this morning, the first three at $2.23/lb. and the last at $2.22/lb. A bid at $2.21/lb. went nowhere nor did an offer at $2.23/lb. An unfilled bid took the 500lb. Cheddar barrels up another 1.5¢, to $2.21lb., the fifth day of gain for the barrels, and 1¢ below the blocks.
This was the third week of gain for the spot cheese. The blocks are up 12¢ on the week, 44.25¢ above a year ago, and the highest they have been since April 22, 2014. The barrels are up 8.75¢ on the week and 44.5¢ above a year ago. Fifteen cars of block traded hands on the week and only two of barrel. The NDPSR-surveyed U.S. average block price was $2.0156/lb., up 0.5¢ from the previous week, and the barrels averaged $2.0443/lb., down 2.8¢.
Class III futures weren’t buying it. Prices reversed gears. Sept. -6¢, Oct. -14¢, Nov. -14¢ & Dec. -19¢.
The hot butter market cooled its heels a bit today, following yesterday’s 16¢ blastoff, and finished the day and the week at $2.66/lb. Another 13 carloads were sold this morning, a repeat of yesterday, with the first selling at yesterday’s close, two more at $2.6650/lb., and 10 more after that, at yesterday’s $2.66/lb. An offer at $2.66/lb. was left for Monday.
Cash butter woke up this second week of August, after being in a holding pattern all last week and plunging 19¢ the week before that. It’s up 26¢ this week and an unbelievable $1.29/lb. above a year ago when the spot price hit the bottom for the year at $1.37/lb. An astounding 59 carloads exchanged hands this week, up from 37 last week. Eyes will be watching next week to see if the spot nears the record high $2.81/lb. set in September 1998. The NDPSR butter average reversed three weeks of gain and dropped 4.8¢, to $2.4807/lb.
FC Stone risk management consultant Derek Nelson wrote in yesterday’s Insider Closing Bell: "Bullish sentiment (on butter) will continue in the near term as demand and a lacking of supply, spur market participants to compete for available product."
The daily drop continued today in the cash Grade A nonfat dry milk, down 2.25¢ this morning, and closed the day and the week at $1.3975/lb. Four cars found new homes today, the first two at $1.40/lb. and the next two at $1.3975/lb. A bid at $1.35/lb. was not filled.
The powder is down 14.25¢ on the week and down 25.25¢ in the past 10 consecutive sessions. This price has not seen this low a level since August 1, 2012. Five cars were sold on the week. NDPSR powder averaged $1.7958/lb., down 4.6¢, and dry whey averaged 69.71¢/lb., up 0.4¢.
Today’s Market Closing Prices
Butter: Unchanged, at $2.66/lb.
Cheddar blocks: Up 3¢, to $2.22/lb.
Cheddar barrels: Up 1.5¢, to $2.21/lb.
Grade A nonfat dry milk: Down 2.25¢, to $1.3975/lb.
Class III milk (prelim.): Aug. $22.16/cwt., -1¢; Sept. $22.64, -6¢, Oct. $21.10, -14¢; Nov. $19.82, -14¢; & Dec. $19.03, -19¢. Based on today’s CME settlements, the Fourth Quarter 2014 average now stands at $19.98, -16¢ from Thursday. The First Quarter 2015 average is now at $18.13, -3¢ from Thursday. The Second Quarter 2015 average today stands at $17.95, -1¢ from Thursday.
Next week will have plenty for the markets to feed from. The Agriculture Department issues its monthly Livestock, Dairy, and Poultry Outlook on Monday, along with its weekly Crop Progress report. The Global Dairy Trade auction is Tuesday and USDA issues its preliminary July Milk Production report Tuesday afternoon. USDA announces the September Federal order Class I base milk price Wednesday afternoon as well as the weekly National Dairy Products Sales Report. The monthly Livestock Slaughter report is out Thursday and preliminary data from the July Cold Storage report is issued Friday afternoon. As always, we will have complete details right here.
Monday on DairyLine:
DMI's Tom Gallagher updates us on the biogas roadmap.
Mischa Popoff tells us about urban activists.
This Week in DairyBusiness Weekly:
- Improve performance & increase returns on your dairy
- German dairy producers plan for quota removal
- Milk markets update
- Krull Farms
- The basics of a qualified personal residence trust
- Scenes from the show & sale ring
- Council on Dairy Cattle Breeding meets
- Show, sale & event calendar
- Industry briefs
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