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DairyBusiness Update: August 20, 2014


September FO Class I Milk Price Slips 24 Cents
The Agriculture Department announced the September Federal order Class I base milk price this afternoon at $23.63 per hundredweight, down 24 cents from October but $ 4.47 above September 2013, and equates to about $2.03 per gallon..
   That puts the 2014 Class I average at $23.18, up from $18.48 at this time a year ago, $16.50 in 2012, and $19.23 in 2011.
   The two-week, NDPSR-surveyed butter price used in calculating the Class I value averaged $2.4319 per pound, up 9.4 cents from August. Nonfat dry milk averaged $1.8020, down 7.4 cents. Cheese averaged $2.0666, up 2.2 cents, and dry whey averaged 69.26 cents per pound, up a half cent.

July Milk Production Report is BEARISH
   That’s the take away from HighGround Dairy’s Eric Meyer. Meyer says “Extremely high milk prices during 2014 and declining feed costs would generate income-over-feed margins not seen by the US dairy farmers since 2007. But during the first half of this year, milk production growth has been muted as it has taken time for the nation’s dairymen to recover from a challenging past five years and “getting whole” took higher precedent over producing more milk. UNTIL NOW.
   In HighGround’s view, year-over-year (YOY) US milk production growth in July came in VERY BEARISH versus expectations. USDA’s data clearly shows that strong margins have (and will continue to) build up the US milking herd but has also led to high quality feeding practices. And while monthly herd growth was a bit below the recent trend, we were blown away by the YOY milk-per-cow (MPC) percentage increases across the country.
   Of the top 10 producing states, Michigan led the way with 5.5 per cent MPC growth but Wisconsin and New York showed very positive momentum as well (+3.6, +4.0 per cent, respectively). Most surprising in this report was drought-ridden California posting a 4.5 per cent increase in MPC from last July. The summer has been somewhat mild across the country which has assisted in these gains but even in a state with high priced feed and forage, it is impressive what near-record profits can buy.
   And on top of this bearish news, USDA even revised June’s milk production UP 50 million pounds (0.3 per cent) which is the largest revision we have seen in recent memory. August has seen some heat across parts of the country and will be compared against a very mild 2013.
   HighGround anticipates the nation’s dairy farmers will continue to grow the dairy herd through at least the remainder of 2014 if not deep into next year and well-above  average production growth will likely be the norm (and not the exception) over the next six to nine months. The “wall” of milk that has been expected for a while has finally arrived.”
   However, no one should expect US milk prices to plummet immediately. There is still strong demand in this country for cheese and butter and will likely keep prices at elevated levels for the next 2-3 months. Buyers should remain steadfast with their hedge programs in to early 2015 but not take an aggressive stance given the fundamentals.
   And it is our continued view that dairymen and other sellers should become much more proactive nailing down or protecting income-over-feed margins during the fourth quarter this year and at least into the first half of 2015 if not beyond.
   For more of Meyer’s analysis, write him at ericm@highgroundtrading.com.

Global Dairy Trade Has Bright Spots
   Whole milk powder finally found support at this week’s auction after a challenging six weeks where WMP lost nearly 29% of its value. But the increases were nominal and the forward curve flattened further with winning prices below $2,900MT through next February, warns HighGround Dairy’s Eric Meyer.
   Are we expecting prices to make a sharp recovery any time soon with projected increases in offer volumes? No, answers Meyer. HighGround’s bearish view of the global market continues as we believe it will be extremely difficult for demand to overrun the wave of milk heading directly for dairy buyers.
   There were some bright spots in this auction that should be mentioned. WMP did see an increase, the sharpest percentage boost in the WMP Price Index (at just 3.4 per cent) in over a year. That’s pretty hard to believe!
   Butterfat prices have found support in both GDT markets which makes sense as New Zealand is likely the only player with competitively priced product. The US is outrageously high and while Dutch Dairy Board quotations have fallen more than 20 per cent since the beginning of 2014, is still well above NZ prices. This gives us a bit more confidence that butterfat could see more nominal gains in upcoming trading events.
   However, SMP and cheddar cheese prices have both fallen sharply over the past month and have the potential to get worse in the near term. While the SMP premium to WMP has eroded to nearly zero after making new two-year highs at the last auction, the bid in butterfat may prompt more SMP production shortly after the seasonal peak to get at the cream as it will likely carry a better return for Fonterra’s farmer shareholders.    
   To read Meyer’s complete analysis, write him at ericm@highgroundtrading.com.

Northeast Butter & Cheese in Balance
   Northeast butter production is steady, with sufficient cream volumes sourcing current butter output, according to USDA’s Dairy Market News. Ongoing maintenance activities are preventing some plants from churning.  Several butter manufacturers are primarily selling cream volumes into contract and spot sales. Inventories levels are unclear; however, some contacts advise lower than normal supplies. Domestic butter demand is good with heightened interest expected into the fall season. Interest is sluggish in the export market, due to lower international prices.
   Slightly heavy milk supplies are benefitting a stream of food service orders, as some plants initiate 6-7 day production schedules to meet the demand. Still, milk supply levels are experiencing some falloffs with the re-openings of schools. Cheese stocks are primarily adequate. Most manufacturers are comfortable with inventory on hand. Some buyers who are contemplating purchases beyond their immediate needs are deterred by the current price trend.

Lagging NDPSR Prices: Cheese & Powder Up, Butter & Whey Down
   The latest Agricultural Marketing Service’s National Dairy Products Sales Report (NDPSR), released this afternoon, shows the U.S. average block Cheddar cheese price at $2.0397/lb., up 2.4¢ from the week before, while the barrels averaged $2.1175, up 7.3¢. Butter lost 5.3¢, after dropping 4.8¢, the week before, and fell to $2.4143/lb. Nonfat dry milk averaged $1.8118/lb., up 2¢, and dry whey averaged 68.84¢/lb., down 0.9¢. These prices are used in determining Federal order Class milk prices.

California Powder Price Sheds 2.35 Cents
   The California Department of Food and Agriculture announced its latest surveyed nonfat dry milk prices at $1.7551/lb. for the week ending August 15, on sales of 14.44 million lbs. The price was down from $1.7786/lb. the week before, on sales of 9.68 million lbs.

Wisconsin’s DairyBusiness Association Names New Leader
   The Wisconsin Dairy Business Association (DBA) has named Timothy J. Trotter as its new Executive Director of Business Affairs.
   Trotter, who most recently served as manager of strategic planning for DuPage County, Ill., brings more than 23 years of agriculture and leadership experience to the role. He will assume the post September 1st.
   "Tim is an ideal fit for our organization," said Jerry Meissner, president of the DBA Board of Directors. "His background in agriculture is extensive, and his leadership skills are surpassed only by his passion for the industry. He understands the issues underpinning environmental sustainability, responsibility and economic viability."
   Trotter previously served as president and chairman of the board for the National Corn Growers Association, based in St. Louis, Mo., as well as the same positions for the Association for Strategic Planning in Princeton, N.J. Trotter also will draw upon his experiences as the chief executive officer for Farmers Premium Produce, as well as the owner of Trotter Aker Farm, both based in Illinois.
   Trotter will work alongside DBA Director of Dairy Policy Laurie Fischer to promote the growth and success of all Wisconsin dairy farms by actively encouraging the growth and modernization of all types of farming: large or small, traditional or modern.
The Dairy Business Association of Wisconsin is a statewide organization of dairy producers, vendors, allied industry partners, and professionals actively working to assure that dairy producers, large and small, remain an active, thriving part of Wisconsin's economy, communities, and food chain. DBA is dedicated to being proactive in helping to create and protect consistent water, environmental and waste management regulation.
   To learn more about the DBA, visit www.widba.com.

Mielke Market Daily 
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update Associate Editor Lee Mielke)
   Cash traders are weighing yesterday’s July Milk Production report, which showed output in the 50 states up a whopping 3.9%, as well as the 7.9% drop in GDT Cheddar cheese Tuesday………and jumped CME cheese prices anyway!!! The first sale of block took the price to $2.23/lb., second load sold at $2.2275/lb. and the third at $2.2250/lb., but an unfilled bid took it to today’s close of $2.25/lb., up 4¢ on the day and the highest it has been since April 21, 2014. An unfilled bid rolled the Cheddar barrels to $2.2550/lb., up 4.5¢ on the session, the highest it has been since April 17, 2014, and 0.5¢ above the blocks.
   Class III futures ticked a little higher in the front months but dropped Dec.-2nd Quarter 2015. The Sept. contract was up 29¢, Oct. +13¢, Nov. +7¢, & Dec. -11¢.
   Sales took the cash Double A butter higher as well, and there were nine of them. The first sold at $2.67/lb. and the price kept inching higher until it hit $2.70/lb., up 4¢ from yesterday, and just 11¢ away from the September 1998 record of $2.81/lb. An offer at $2.70/lb. this morning was left on the board.
   And, yes, the cash powder saw its 13th session of loss, as an offer took it down to $1.3475/lb., down another 1.75¢. It has plunged 30.25¢ in those 13 sessions. A bid today at $1.33/lb. got no taker. The Grade A price hasn’t been this low since July 19, 2012 and to think that, on March 31, 2014, it was above $2/lb.

Today’s Market Closing Prices 
Butter: Up 4¢, to $2.70/lb.
Cheddar blocks: Up 4¢, to $2.25/lb.   
Cheddar barrels: Up 4.5¢, to $2.2550/lb.  
Grade A nonfat dry milk: Down 1.75¢, to $1.3475/lb.  
Class III milk (prelim.): Aug. $22.20/cwt., +2¢; Sept. $23.14, +29¢, Oct. $21.59, +13¢; Nov. $20.08, +7¢; & Dec. $19.10, -11¢. Based on today’s CME settlements, the Fourth Quarter 2014 average now stands at $20.26, +3¢ from Tuesday. The First Quarter 2015 average is now at $18.08, -10¢ from Tuesday. The Second Quarter 2015 average today stands at $17.91, -14¢ from Tuesday.

Looking ahead:
   The Agriculture Department releases its monthly Livestock Slaughter report on Thursday and preliminary data from the July Cold Storage report is out Friday afternoon.

Thursday on DairyLine:
   National Milk’s Chris Galen has his weekly Capitol Hill Update.
   Dr. Tom Earlewine tells us the importance of feeding your calves three times a day.


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