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DairyBusiness Update: August 26, 2014


Confused? You’re not Alone
   As someone once told me, “If you’re not confused these days, you’re just not thinking clearly.” Milk prices are higher than expected and even the experts are wondering. Mark Stephenson, Director of Dairy Policy Analysis at the University of Wisconsin-Madison, and Bob Cropp, dairy economics professor emeritus, talk about the dairy markets and last week’s July Milk Production report in their latest video recording. You can view it at: http://dairy.wisc.edu/PubPod/Podcast/Outlook/Index.html.

U.S. Cheese Headed to Asia
   Cooperatives Working Together (CWT) accepted 3 requests for export assistance today to sell 912,714 pounds of Cheddar and Monterey Jack cheese, to customers in Asia. The product will be delivered October 2014 through January 2015.
   Year-to-date, CWT has assisted member cooperatives in selling 83.456 million pounds of cheese, 48.051 million pounds of butter and 19.877 million pounds of whole milk powder to 43 countries on six continents. These sales are the equivalent of 2.062 billion pounds of milk on a milkfat basis, according to CWT.

Whey Proteins Improve Body Composition & Offer Immunity Benefits
   So says Veronique Lagrange, Senior Vice President of Strategy and Insights for the U.S. Dairy Export Council, in the August 8 Cheese Market News. Lagrange writes; Two seemingly divergent nutritional dilemmas can be addressed, in part, through a common dairy solution. Around one-third of U.S. adults—more than 70 million people—are obese, a higher percentage than any other major country in the world, according to research published earlier this year in the British medical journal The Lancet.
   In addition, China, Egypt, Indonesia, Mexico and Russia rank in the top 10 most obese nations. In other words, weight management is not only a major issue here, it is a concern worldwide. At the same time, in Sub-Saharan Africa, an estimated 23.5 million men, women and children are living with HIV. The region accounts for almost 70 percent of the world’s HIV cases, and the disease has had severe and wide-ranging effects on families, healthcare and the economy of the continent.
   Even though weight control and HIV treatment are unrelated public health issues, there is a commonality between them. Two major clinical research studies published this spring indicate whey protein provides distinct and significant health benefits for both: helping people remain fit and lose weight and abdominal fat, and raising the level of success for HIV treatment.
   The first study, an independent meta-analysis funded by the Whey Protein Research Consortium and appearing in the Journal of the American College of Nutrition, reviewed 14 randomized controlled trials. It found that body weight and body fat fell significantly (by 9.2 lbs. and 8.2 lbs., respectively) when whey proteins were used in weight loss and maintenance diets. Researchers also saw a statistically significant increase in lean body mass in studies that included resistance exercise.
   As Dr. Dominik Alexander, the principal investigator, noted: “The results indicate that there is something unique about whey proteins, compared to other protein sources and carbohydrates, when it comes to building lean body mass and maintaining or losing weight.” In other words, we now have evidence that whey proteins are superior to other proteins in achieving this improved body composition goal, and at a most opportune time, when weight problems are more prevalent than ever and consumer interest in protein is rising.
   Read more at http://www.usdec.org/files/PDFs/Aug14_toolkit.pdf.

Slow China Sales Affecting the Market
   China whole and skim milk powder import volumes continued to show year-over-year growth in July but at the slowest pace in nearly a year, according to HighGround Dairy’s Eric Meyer. Meyer reports that total milk powder imports declined for the fourth straight month but China’s seasonal curve tends to follow the New Zealand production season, so this should come as no surprise. However, with sharply lower prices and lack of any major WMP interest on GDT in recent months, it is suggestive that YOY imports may turn negative by October. China may wait until they are able to book January deliveries to take advantage of their tariff discount with New Zealand.
   Read more by contacting Meyer at ericm@highgroundtrading.com.

Milk Pricing Divides Producers and Processors
   The Modesto Bee reports that California dairy cooperative, Western United Dairymen, “Welcomes the effort to reform the system but is concerned about bill provisions that favor processors,” said Michael Marsh, chief executive officer of the Modesto-based group. March told the Bee that “a single farmer could be at a disadvantage in negotiating with a large processor, and the latter could go in and out of the alternative pricing system to suit its needs. We’ve asked that the Legislature include restrictions on the processors’ ability to game the system.”
   As we reported here yesterday and spelled out by California Dairy Campaign Executive Director Lynne McBride in this morning’s DairyLine broadcast, the producer group, California Dairy Campaign, opposes the pricing proposal set forth by California’s Ag Secretary Karen Ross. Read more details and listen to today’s broadcast at www.dairyline.com.

Will Corn Consumption Respond
   That is the question posed by Dr. Darrel Good of the Department of Agricultural and Consumer Economics at the University of Illinois in his latest FarmDoc Daily posting. He writes that “In the newsletter of August 11, the prospects for corn consumption to respond to lower prices during the 2014-15 marketing year and the potential for a subsequent price recovery were discussed. With the start of the new marketing year only a week away, the process of monitoring corn consumption and corn consumption prospects in the three major categories of feed, ethanol, and exports is underway. Not much is yet known about consumption prospects, but we start what will be an ongoing process of updating those expectations.
   In the case of feed and residual use of corn, the USDA's quarterly Grain Stocks reports are the only source of data on actual consumption. The September 1, 2014 corn stocks estimate to be released on September 30 will allow the calculation of the magnitude of feed and residual use of corn for the final quarter of the 2013-14 marketing year and will provide some guidance for potential use during the year ahead. 
   Expectations of feed use for the year will be derived primarily from weekly, monthly, and quarterly USDA reports of livestock and poultry inventories.  Feed use of corn will not receive much support from the beef sector. The liquidation of the cow herd and the smaller calf crops of the past few years mean there are fewer cattle available for feeding and that deficit will continue for an extended period. The USDA reported that for feedlots with capacity of 1000 head or more, there were two percent fewer cattle on feed as of August 1 this year than on August 1 last year. Seven percent fewer cattle were placed on feed during July 2014 than during July 2013.
   The poultry and dairy sectors, however, appear to be experiencing some very modest expansion. The USDA reported that the number of broiler chicks placed for meat production during the two weeks ended August 16 was up two and one percent, respectively, compared to placements of a year earlier. Two weeks do not constitute a trend, so that placements will continue to be followed closely to determine if expansion is actually underway. The average number of layers has been running one to two percent above those of a year ago each month this year.
   The USDA also reported that milk cow numbers in 23 selected states were up about one percent in July. The most uncertainty about livestock production comes from the hog sector. The USDA reported that the June 1 inventory of market hogs was five percent smaller than the inventory of a year earlier, but producers expected to increase the number of sows farrowed by four percent in the June-September quarter.  Production prospects continue to be clouded by the ongoing impact of the PED virus on the number of pigs actually weaned. The USDA's monthly Livestock Slaughter report showed a seven percent year-over-year decline in hog slaughter in July. That decline was partially offset by a five percent increase in average slaughter weight. The USDA's Hogs and Pigs report to be released on September 26 will provide additional information about pork production prospects during the 2014-15 corn marketing year. Since feed consumption of corn includes an unknown and sometimes surprising 'residual" component, only the quarterly stocks estimates will provide a measure of actual disappearance.
   It now appears that domestic ethanol production during the 2013-14 corn marketing year will reach a record 14.15 billion gallons, about 2.5 percent more than produced in 2011-12 and about 10 percent more than produced in 2012-13. Corn consumed for ethanol production during the marketing year just ending will be near 5.13 billion bushels. As indicated two weeks ago, ethanol production and corn consumption during the year ahead should continue to be supported at a high level, with the strength of exports likely to determine whether expansion continues. Export data are revealed monthly, with a lag of about six weeks.
   Sales of U.S. corn for export during the 2014-15 marketing year were reported at 365 million bushels as of August 14. Sales are about 50 million bushels smaller than those of a year ago, but about 60 million bushels larger than the average for the years 2008 through 2012. 
   Last year, China had purchased 117 million bushels of U.S corn, compared to essentially none this year. Sales to unknown destinations are also down about 40 million bushels. On the other hand, sales to Japan and South American destinations are larger than those of a year ago. Total export sales as of August 14 accounted for 21 percent of the USDA's projection of total marketing year exports, about the same as sales of a year earlier. The level of export sales to date is in line with USDA's projection of exports for the year. However, the seasonal pattern of sales varies from year to year so that it is not yet known whether the current level of sales reflects only timing decisions or is indicative of total export potential. 
   There are some early signs that corn consumption during the year ahead will increase modestly in response to lower prices. However, that response is not yet large enough to offset the impact of the market expectation of an even larger corn crop than forecast by USDA two weeks ago.
   Corn prices are expected to stay under some pressure at least through the USDA's September 11 Crop Production report. The size of the corn crop forecast in that report will be important in determining where the low may be in the corn market.

NMC Meets in Belgium
   Ghent, Belgium served as the host site for over 650 milk quality professionals from 51 countries attending the National Mastitis Council (NMC) Regional Meeting. The meeting, held August 4-6, is the first of its kind held outside of North America and was jointly organized with the M-team at Ghent University. 
   Attendees were able to participate in a variety of specialized short courses and practical scientific sessions, participate in an on-farm workshop and visit Milcobel cheese factory. Social activities included an opening reception in the "Aula" of Ghent University and a conference dinner at the historic "Castle of the Count" (Gravensteen) in the city center.
   The main conference program covered a wide variety of topics ranging from the role of antimicrobials in the prevention and cure of mastitis, to updates on emerging pathogens and contagious mastitis, and an overview of milk quality control in the Flemish dairy sector.
   “This year’s meeting was a tremendous success because of hard work, the good name of the National Mastitis Council and great support from the industry,” says Sarne De Vliegher, the 2014 NMC regional meeting program chair and associate professor, Faculty of Veterinary Medicine, Ghent University. “Attendees were able to take in some interesting seminars and short courses, while also being entertained by all that the international venue had to offer.”
   A diverse group of veterinarians, dairy farm managers and employees, industry and milk plant field staff were in attendance at one of, if not, the largest meetings in NMC history according to NMC president, John Middleton.
   “It was truly a great venue with excellent scientific and technical sessions, and social activities for all,” said Middleton. “As the first meeting outside of North America, the meeting attracted new participants interested in mastitis and milk quality from around the world, particularly Europe, introducing them to NMC.”
   The NMC 54th Annual Meeting will be held Feb. 1-3, 2015 in Memphis, Tennessee. Next year’s regional meeting is scheduled for the end of July in Syracuse, N.Y. For additional information, go to: www.nmconline.org.

Mielke Market Daily 
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update Associate Editor Lee Mielke)
   Cash cheese traders aren’t finished raising prices. The Cheddar blocks jumped 2.5¢ this morning on four sales, and hit $2.29/lb., the highest price since April 7, 2014. The first car sold for $2.2725/lb., the second at $2.2750/lb., and the last two at $2.29/lb. A bid at $2.2825/lb went unfilled and an offer at $2.30/lb. was left standing. Two unfilled bids took the barrels up 4¢, to $2.30/lb., after pausing yesterday with no activity, and are now atop the blocks again by 1¢.
   Class III futures continued to advance: Sept. +32¢, Oct. +44¢, Nov. +36¢, & Dec. +28¢.
   FC Stones Kyle Schrad wrote in this morning’s Insider Opening Bell: “While (milk) production is declining along seasonal lines, the new school year upon us and buyers are looking to replenish their coffers, it is no surprise that Class III has seen a rally. However, the strength and resolve of this recent move may have caught many off guard. Since August 18th the October contract specifically has gained nearly $1.75 cents. The rally undoubtedly has been strong but at this point may be slightly overdone. Class III futures look set to open lower after yesterday's gains but market direction will be determined by spot. Futures look susceptible to a sharp pullback at any sign of spot market weakness," Schrad warned.
   Meanwhile cash butter appears to be in a meltdown, losing 2.5¢ this morning following yesterday’s 4.25¢ descent, and is now trading at $2.7550/lb. Six cars were sold today, with the first five at $2.75/lb., and the sixth at $2.7550/lb. A bid at $2.7527/lb. went nowhere, nor did an offer at $2.7575/lb.
   Schrad called yesterday’s butter’s drop a "chink in the armor."
   It looks like the bleeding in cash powder has stopped. The spot nonfat price was unchanged again today, remaining at $1.30/lb., though five cars traded hands. Four cars went at $1.2975/lb. but a fifth sold at $1.30/lb. A bid at $1.2925/lb. went unfilled.  

Today’s Market Closing Prices 
Butter: Down 2.5¢, to $2.7550/lb.
Cheddar blocks: Up 2.5¢, to $2.29/lb.   
Cheddar barrels: Up 4¢, to $2.30/lb.  
Grade A nonfat dry milk: Unchanged, at $1.30/lb.  
Class III milk (prelim.): Aug. $22.26/cwt., +5¢; Sept. $24.07, +32¢, Oct. $23.19, +44¢; Nov. $21.17, +36¢; & Dec. $19.95, +28¢. Based on today’s CME settlements, the Fourth Quarter 2014 average now stands at $21.44, +36¢ from Monday. The First Quarter 2015 average is now at $18.37, +7¢ from Monday. The Second Quarter 2015 average today stands at $18.06, unchanged from Monday.

Looking ahead:
   The Agriculture Department issues its weekly National Dairy Products Sales Report (NDPSR) tomorrow afternoon. Those are the prices used to calculate Federal order Class milk pricing. The monthly Ag Prices report is out Thursday, which will include the latest milk feed price ratio.

Wednesday on DairyLine:
   Marin Bozic, from the University of Minnesota, talks about his Margin Protection
             Program survey.
   Dr. Nigel Cook is featured in our PDPW "Your Bottom Line" segment.