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DairyBusiness Update: August 6, 2014


Seasonal Butter Orders Poised to Grow
Northeastern butter production is mixed, according to USDA’s Dairy Market News. Butter production showed some decline due to plant maintenance activity. Available cream supplies and increased churning rates led to improved output at other butter plants. Butter manufacturers anticipate cream supplies to grow as Class II demand slows and Class I demand spawns standardized cream offerings. Existing butter inventories for some manufacturers display uncertainty, as seasonal orders show signs of increasing.

Cheese Manufacturers Getting Ready for back to School
   Most Northeast cheese manufacturers are operating heavy production schedules in preparation of the expected demand from food service and pizza makers, with the start of the fall school-term. Cheese plants are improving yields through fortification processes, as solids contents decline at seasonal rates. Inventories are primarily in equilibrium with existing orders. Some cheese manufacturers note incremental increases in current stock levels.

What Happened?
   The losses continue in dramatic fashion on the Global Dairy Trade auction, says HighGround Dairy’s Eric Meyer. Meyer says the world’s dairy farmers and those that make or sell dairy products across the globe must be scratching their heads thinking just six months ago, the world appeared to have an insatiable appetite for all things dairy and prices would remain above average for the foreseeable future. The soft landing hypothesis has been proven wrong.
   As the dust settles from this week’s auction, the GDT Price Index has fallen to two year lows and shed more than 40% of its value over the past six months. For New Zealand dairy farmers, the loss of this perceived income is quite significant.
   Those of us that have been a part of the US dairy industry for a while have gone through this boom and bust cycle a few times over the past 15 years. And after witnessing the 2014 GDT price collapse over the past six months, it appears that a vicious dairy market collapse can and will occur just about anywhere.
  Read Meyer’s hedging tips for dairy producers and global dairy buyers by writing him at www.highgroundtrading.com.

NextGEN Symposium Trains Future Dairy Leaders
   As the dairy foods industry grows, developing new products, incorporating technology-based production techniques and staying in front of changing  consumer trends, there is a very real need to create a strong pool of skilled dairy professionals who are able to grow along with their companies and our industry. The International Dairy Foods Association’s (IDFA) Peggy Armstrong, talked about it in Wednesday’s DairyLine.
   Armstrong reported that IDFA has teamed up with Cornell University to offer leadership development opportunities for our next generation of leaders. Tapping into IDFA's newly-launched NextGEN Dairy Network, IDFA and Cornell will provide a series of trainings for dairy professionals with less than 15 years in the industry. This collaboration will help to strengthen the knowledge, skills and leadership abilities of our industry employees.
   The first offering for our "NextGenners" is a 3-day program October 6th thru the 8th at Cornell University, which is designed to cultivate leadership skills in a way that can drive change within an organization.
   The NextGEN Symposium will feature an overview of the entire dairy supply chain, starting with a close up look at dairy farming.  Participants will visit a family-owned farm to better understand what it takes to produce milk, and will gain insights into the industry from world -renowned professors and economists at Cornell University, as well as top executives in the dairy foods supply chain.  
   The NextGEN Symposium is structured to encourage participants to build their professional networks and develop strong problem-solving skills.
   For more information about the Symposium or the NextGEN Dairy Network, visit IDFA's website at www.idfa.org.

Lagging NDPSR Prices: Butter Soars 11.8 Cents
   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 $2.0109/lb., up 0.3¢ from the week before, while the barrels averaged $2.0726, up 1.2¢. Butter pole vaulted 11.8¢, following a 4.2¢ jump the previous week and 5.6¢ the week before that, and now sits at $2.5313/lb. Nonfat dry milk averaged $1.8412/lb., up 0.4¢, and dry whey averaged 69.29¢/lb., up 0.4¢. These prices are used in determining Federal order Class milk prices.

California Powder Price Up 5.5 Cents
   The California Department of Food and Agriculture announced its latest surveyed nonfat dry milk prices at $1.8438/lb. for the week ending August 1, on sales of 11.25 million lbs. The price was up from $1.7887/lb. the week before, on sales of 13.9 million lbs.

Where’s the Beef?
   Dr. Chris Hurt, of the Department of Agricultural Economics at Purdue University, poses the question in his latest FarmDoc Daily posting. He states; It is getting to be a well repeated story. Beef cow numbers are at their lowest level since 1962. Cattle and feeder cattle prices are at record highs and feed prices have dropped. Beef consumers continue to eat beef and are rewarding the beef industry with very profitable returns. So when are beef producers going to expand the breeding herd and in what regions of the country will that occur?
   To answer those questions we first look at the areas of the country that had the biggest reductions in beef cow numbers due to drought, high feed prices, and financial losses. Since 2007, beef cow numbers dropped by 12 percent totaling 3.8 million head. The biggest declines were in the region with the most cows-the Southern Plains- which accounted for 1.6 million of the decline. Texas, the big beef cow state, had a reduction of 1.4 million head, an astonishing 36 percent of the nation's total decline. That region's expansion opportunities are very mixed due to lingering drought.  About one-third of  Texas remains in the three highest drought categories, D2-D4. Importantly, parts of cow-dense eastern Texas are now out of drought and the National Weather Service is forecasting some continued drought abatement by this fall for the region. In conclusion, lingering drought in the Southern Plains will tend to mean a slow expansion there.
The second most important region for beef cows is the Southeast, which had an 822,000 head beef cow reduction since 2007, or 21 percent of the nation's total. The biggest reductions were in Tennessee and Kentucky and accounted for 59 percent of the region's decline. The Southeast is generally in good shape for pastures as the impacts of the 2012 drought have passed.
   The third most significant beef cow area is the Northern Plains, where beef cow numbers did not drop over the past seven years. This probably means that producers in that region will be expanding numbers with large amounts of grazing land. Lower returns to grain production are expected to bring some conversion of land back to grazing in coming years as well. The Central Plains are the fourth most important area and drought continues to linger in Kansas and parts of Nebraska, slowing their expansion.
   The fifth most important beef cow region is the Western Corn Belt from Minnesota to Missouri. That region had a reduction of 566,000 cows, or 15 percent of the national reduction. Over the last seven years this region has been most dramatically affected by the ethanol boom. Traditionally a low-grain price region, many farmers once talked of "walking" their corn to town in the form of value-added livestock. Now, hauling corn to the local ethanol plant is often the preferred marketing plan. The ethanol impact is much less important in Missouri, where more marginal land is suited to beef cows, so that state is expected to lead the coming expansion for that region.
   The rest of the country has a mixed situation. Severe drought in California and other parts of the West and Pacific Northwest are going to prevent expansion in some of those areas. On the other hand, the Eastern Corn Belt and the Northeast will see some expansion, but these have become relatively minor beef cow regions.
   The latest June Cattle inventory update from USDA does not answer the question of whether expansion is underway, since USDA was not funded to collect mid-year cattle inventory data one year ago. Numbers from January seemed to suggest that heifer retention was up two percent, signally expansion. But, the June inventory was two percent lower than two years-ago, providing inconsistent signals.
   Low slaughter numbers seem to be signaling that heifers are being pulled away from slaughter and toward breeding herd retention. The number of cattle processed this year is down seven percent, a number greater than would have been expected in the absence of expansion. Cow and heifer slaughter have been low as well.
   Finished cattle prices have reached record highs over $160 in recent weeks. In 2013, finished cattle prices averaged about $126. At the start of 2014, forecasts were for prices to average in the mid-$130's. Now, it appears the 2014 yearly average price will be close to $150. The mid-$150s are expected for the remained of the year, with prices dropping to the low-$150s for the first-half of next year.
   When will expansion begin and where will it occur? Clearly the profit incentive has returned more powerfully than expected. Pastures and ranges have returned in some regions and feed is more available. But drought is limiting forages in other significant areas. This means the national beef cow expansion will be slowed and that tight beef supplies will be with the country for several more years.

Mielke Market Daily 
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update Associate Editor Lee Mielke) Cash cheeseheads are ignoring the GDT downfall and the hullabaloo over USDA revising its June Dairy Products report, which resulted in more cheese than originally reported, and took the 40lb. Cheddar blocks up 2¢ this morning, to $2.09/lb., highest level since May 1. Four cars traded hands this morning, the first one $2.08/lb. and the next three at $2.09/lb. There were no bids or offers. An unfilled bid took the 500lb. Cheddar barrels up 0.5¢, to $2.1075/lb., highest price since April 30, and 1.75¢ above the blocks. The Blocks have gained 11.5¢ in the last five sessions and the barrels are up 16¢.
   Class III futures backed off some more in most months.
   Cash butter was unchanged for the third sessions in a row at $2.40/lb., with nine cars exchanging hands. The first car sold at $2.39/lb., the next four cars were at $2.38/lb., but the price slowly inched its way back up to the final sale at $2.40/lb.. A bid at $2.3950/lb. was left on the board.
   Cash nonfat dry milk lost 2¢ this morning, slipping to $1.57/lb., on two trades at that price. A bid at $1.55/lb. went unfilled and an offer at $1.57/lb. went nowhere. The powder has lost 8¢ this week so far.

Today’s Market Closing Prices 
Butter: Unchanged, at $2.40/lb.
Cheddar blocks: Up 2¢, to $2.09/lb.   
Cheddar barrels: Up 0.5¢, to $2.1075/lb.
Grade A nonfat dry milk: Down 2¢, to $1.57/lb.  
Class III milk (prelim.): Aug. $21.64/cwt., +1¢; Sept. $21.55, -+6¢, Oct. $20.65, -13¢; Nov. $19.81, -7¢; & Dec. $19.32, -10¢. Based on today’s CME settlements, the Fourth Quarter 2014 average now stands at $19.93, -10¢ from Tuesday. The First Quarter 2015 average is now at $18.23, -11¢ from Tuesday. The Second Quarter 2015 average today stands at $18.02, -1¢ from Tuesday.
Looking ahead: 
   The California Department of Food and Agriculture announces its September Class I milk prices on Friday. The Federal order Class I base is announced by USDA on August 20. That’s it for the rest of the week as far as USDA reports that we regularly monitor. Next week is pretty lean as well. USDA’s weekly Crop Progress report is out Monday and the monthly World Agricultural Supply and Demand Estimates report is out Tuesday, which will include the Department’s latest milk production estimates and milk price forecasts.
Thursday on DairyLine:
   FDA is revising the nutrition label...National Milk's Chris Galen shares some insight.     
   Penn State's James Dunn provides his monthly dairy outlook.


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