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DairyBusiness Update: August 22, 2014

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Butter Does It!
   Cash butter set a new record high this morning at the Chicago Mercantile Exchange, hitting $2.8225 per pound, a whopping $1.4275 per pound above a year ago, and topped the all time record high of $2.81per pound in September 1998 by 1 1/4-cents. Read complete details below in our Mielke Market Daily report.

July Cold Storage: Butter Down 42%
   USDA provided some insight into what’s behind the cash dairy markets these days. July butter stocks, as of July 31, totaled 170.2 million pounds, according to the latest Cold Storage report issued this afternoon, down 15.8 million pounds or 9% from June and 125.6 million pounds or 42% below July 2013.
   American type cheese, at 660.4 million pounds, was up 5.2 million pounds or 1% from June, but 41.6 million pounds or 6% below a year ago. The total cheese inventory stood at 1.06 billion pounds, virtually unchanged from June, but 90.6 million pounds or 8% below a year ago. June revisions were minor from last month’s report but were a bit lower in all three categories.
   FC Stone’s Chris Hildebrand wrote in this morning’s Insider Opening Bell that “Cold Storage numbers this afternoon will set the tone for the trade next week."

The Sky is NOT Falling……Yet
   That’s the takeaway from my discussion over the big increase in July milk production in Friday’s DairyLine with Jerry Dryer, editor of the Dairy and Food Market Analyst. I asked if “Chicken little” was right.
   He admitted that U.S. dairy cows certainly did make a lot more milk in July due to ideal weather and an improved feed supply but he’s not convinced the sky is falling just yet. He pointed to trading at the Chicago Mercantile Exchange since the Milk Production report came out and, as of Thursday morning when we recorded our chat, he reported that all of the Class III futures were “green, the cheese price keeps ticking up, the butter price keeps ticking up so, given the demand situation and the inventory situation, the sky isn’t going to fall immediately.”
   Prices will fall, Dryer admits, but he doesn’t “see the sky falling.” He predicts that the fall will come in early Fourth Quarter, “simply because inventories are as low as they are, particularly on the butter side, and we’re even pulling pretty hard on cheese right now, the holiday season is coming at us, and the rubber doesn’t really hit the road until everything shakes out relative to this Russian ban and European cheese starts seriously seeking a home in world markets.”
   When asked about his stand in the past that the U.S. had not necessarily priced itself out of the world market, he qualified that because he said the U.S. was “the only game in town. We were the only really good source of cheese as the Europeans committed huge volumes to Russia, which effectively took it out of play in many of the markets where we compete, like the Pacific Rim countries, Mexico, even the Middle East and North Africa. But, now with that Russian kickback, we’re going to have to compete with the Europeans. That will change the scene a little bit but we can still be competitive,” he concluded.

China’s Milk Thirst Will Grow
   China’s thirst for imported dairy products will expand over the next five years to equate to New Zealand’s entire annual production, Agrifax senior dairy analyst Susan Kilsby says.
   Though NZ had a foot in the door, being first with a free-trade agreement with China, there would be increased international competition, made tougher by Russia’s ban on Western imports, Kilsby, who spent three weeks in China in June, said. She found China would need to import more dairy produce in coming years than it had so far.
   During her visit Kilsby attended an industry conference and visited farmers, processors, and traders before producing her 60-page China Dairy Report.
   “The gap between demand and supply in China has opened up and is expected to expand further,” she said. China was importing 25% of its dairy needs to fill the gap that had been widening since 2008 but by 2020 it would have to import 30%.
   Read Kilsby’s report at: http://agrihq.co.nz/article/chinas-milk-thirst-will-grow?p=6

Kraft Commits $100 Million Springfield Expansion
   Kraft Foods will invest approximately $100 million to upgraded technology and equipment at its Springfield, Missouri, cheese production facility to produce a new product line, according to Area Development.com.
   Following Kraft’s nearly $50 million capital investment in 2012, this new investment demonstrates the company’s commitment to staying competitive and remaining a legacy employer in Springfield, local chamber of commerce officials said. Kraft Foods manufacturing facility in Springfield recently celebrated 75 years of business.
   Read more at: http://www.areadevelopment.com/newsItems/8-20-2014/Kraft-foods-production-facility-upgrade-springfield-missouri789233.shtml.

Will You Participate?
The Minnesota Milk Producers and University of Minnesota would like to know if dairy producers will participate in the new Margin Protection Program. A survey link from the University of Minnesota was part of their newsletter this week.
   The Margin Protection Program is only weeks away from being implemented. An important question remains unanswered - how much do dairy producers know about this program, and how many plan to participate? University of Minnesota dairy economist, Dr. Marin Bozic is conducting a national survey of dairy producers to gather opinions on the new program. The results will help identify frequent questions and concerns which will be addressed in upcoming MPP workshops.
   The survey takes approximately four minutes to complete. When you finish, you can choose to play an interactive 'choice experiment' and will be eligible to win one $1,000 and three $500 participation awards.
   Details are at: https://umn.qualtrics.com/SE/?SID=SV_etwJRFSb9XGacuh.

HighGround Dairy Adds Staffer
   Curtis Bosma joined HighGround Dairy in June and recently became licensed as a Series 3 broker with the National Futures Association. Bosma was raised on his family’s dairy farm in Tipton, California. In 2007, his family started another dairy farm in Northwest Illinois. Having these two farms in his family has helped Curtis develop an understanding of the economic differences between California and the Midwest for dairy inputs, outputs, and the milk marketing orders.
   Prior to joining HighGround, Curtis interned at a dairy brokerage firm where he assisted traders on the floor of the Chicago Mercantile Exchange. He graduated from Calvin College in May 2014 earning Bachelor of Science degrees in Finance and Economics.
   “We are thrilled to have Curtis on board and most excited about the energy he brings to the team,” says HighGround Dairy’s President, Eric Meyer. “Curtis’s on-farm background provides our group a fresh perspective on the markets and we look forward to him growing the producer side of our business. We share the belief that an ‘educate first, implement/execute later’ strategy is best suited for US dairy farmers and their understanding of price risk management tools.”
   To contact Curtis directly, please call him at 312-870-1185 or email curtisb@highgroundtrading.com.

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 dairy traders were anticipating this afternoon’s July Cold Storage report which came out after trading was completed for the week. And, after shrugging off this week’s bearish July Milk Production report and weighing yesterday’s Livestock Slaughter report, they moved the block Cheddar cheese up another 1.25¢, to $2.2625/lb. Two cars traded hands at that price. A bid at $2.25/lb. went unfilled, and an offer at $2.29/lb. was left on the board. Another unfilled bid took the Cheddar barrels up 0.25¢, to $2.26/lb.
   The blocks are up 4.25¢ on the week and 59.25¢ above a year ago when they dropped almost 11¢. They have gained 29.25¢ in the past four weeks. The barrels are up 5¢ on the week and 61.75¢ above a year ago when they dropped 12.25¢. They have gained 30.75¢ in four weeks. Nine cars of block traded hands this week and no barrel. The ever lagging NDPSR-surveyed U.S. average block price hit $2.0397/lb., up 2.4¢, while the barrels averaged $2.1175/lb., up 7.3¢.
   Class III futures were mixed: Sept. -10¢, Oct. +10¢, Nov. -2¢, & Dec. +3¢.
   The sales kept coming and the sales kept driving the cash butter to a record high $2.8225/lb. this morning, up 6.25¢ on the day. The first sale was at yesterday’s $2.76/lb. but the price again leapfrogged from there. There were no bids or offers.
   After pole vaulting 26¢ last week and adding another 16.25¢ this week, the CME spot butter is a whopping $1.4275/lb. above a year ago and topped the all time record high of $2.81/lb. in September 1998 by 1.25¢. Thirty nine carloads traded hands this week, compared to 59 last week, and 37 the week before that. NDPSR butter averaged $2.4143/lb., down 5.3¢.
   It was session number 15 of the daily drop for the cash powder, losing another 3¢ today on two offers, which pounded the price down to $1.30/lb. A bid at $1.25/lb. went unfilled.
   The Grade A nonfat dry milk price is down 9.75¢ on the week and the lowest it has been since July 19, 2012. It has plunged 35¢ in the past three weeks. NDPSR powder averaged $1.8118/lb., up 2¢, and dry whey averaged 68.84¢/lb., down 0.9¢.

Today’s Market Closing Prices 
Butter: Up 6.25¢, to $2.8225/lb.
Cheddar blocks: Up 1.25¢, to $2.2625/lb.   
Cheddar barrels: Up 0.25¢, to $2.26/lb.  
Grade A nonfat dry milk: Down 3¢, to $1.30/lb.  
Class III milk (prelim.): Aug. $22.23/cwt., Unchanged; Sept. $23.53, -10¢, Oct. $22.44, +10¢; Nov. $20.62, -2¢; & Dec. $19.51, +3¢. Based on today’s CME settlements, the Fourth Quarter 2014 average now stands at $20.86, +4¢ from Thursday. The First Quarter 2015 average is now at $18.22, -2¢ from Thursday. The Second Quarter 2015 average today stands at $17.96, -4¢ from Thursday.

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Looking ahead:
   Next week is a pretty lean week for USDA reports that we regularly monitor. The Agriculture Department issues its weekly Crop Progress report Monday afternoon, the weekly National Dairy Products Sales Report (NDPSR) is out Wednesday afternoon, and the monthly Ag Prices report is out Thursday, which will include the latest milk feed price ratio.

------ 
Monday on DairyLine:
   Idaho dairy exports are on pace for another record year.
   GMO labeling is an issue that many states are dealing with. A former USDA organic
       inspector explains why it's such a bad idea.

http://dairyline.com/monday.mp3

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