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DairyBusiness Update: July 21, 2014


No Bull in Milk Production Report
The June Milk Production report issued Friday feeds the bears and not the bulls, according to HighGround Dairy’s Eric Meyer. His analysis warns that growth continues in the US as milk production posted its strongest year-over-year gain since last August (10 months). And because last August was an extremely mild month and considered an anomaly, we have to look back to the first half of 2012 since we’ve seen consistent YOY growth above 2%. That’s quite a long time.
   But with prospects of cheaper feed costs after this year’s harvest along with accelerating herd growth, the reality of significant increases in milk production are clearly on the horizon. When putting that fact into global context, there is no way to put a bullish spin on these numbers – this report sets up as bearish versus the current futures market that still shows decent profitability well into 2015 for most of the nation’s dairy farmers.
  Most significant in this report are the growing cow numbers. Over 11,000 head were added in June alone and upward revisions continued into their third straight month. Since the beginning of the year, the US milking herd has grown 66,000 head (+0.8%) in the 23 selected states and 64,000 (+0.7%) throughout the entire US.
Feed prices have moved sharply lower since planting season began and more importantly, versus last year. At this point in 2013, corn prices were over $8.00/bu and soybean meal was well above $500/ton. And as of yesterday’s CBOT settlements, corn has fallen 56% and soybean meal is off 31% versus the corresponding week last year. Given this significant turn and the prospect of a record US grain harvest nearing fruition, we would anticipate herd growth to accelerate and milk per cow to continue growing well into 2015.
   Read Meyer’s complete analysis by writing him at ericm@highgroundtrading.com.

Milk Supply a little Questionable?
   June milk production may have been up 2% from a year ago but current milk production is slowing across much of the country, according to USDA’s weekly update. The combination of hot weather and typical seasonal declines is slowing availability of manufacturing milk. In the Midwest, cooler weather is expected to keep milk volumes closer to steady. Spot loads of milk are available, but are becoming harder to source.  
   Class I demand is sluggish, but negotiations for the new school year are beginning in various parts of the country. Cream demand remains good with ice cream, frozen novelties and cream cheese plants working steady to slower schedules. Some butter/powder plants continue to sell cream at favorable prices. Sales of condensed skim are being made to various Class III manufacturers and are helping to alleviate pressure on drying plants.
   However, FC Stone dairy broker, Dave Kurzawski, warned in his July 21 Insider Opening Bell: "Milk production growth is beginning to happen, but it's not necessarily the 1.9 percent increase that has caught my attention. It is the second month in a row the USDA increased the prior month's production by more than 20 million pounds. A trend may be developing here." 

Corn Crop 54% in Good Condition
   There’s wasn’t much change in the Agriculture Department’s latest Crop Progress report, issued this afternoon which shows that 22% of the nation’s corn is rated in excellent condition, as of the week ending July 20. That’s unchanged from the previous week and compares to17% a year ago. Fifty four percent is rated good, also unchanged from the previous week, and compares to 46% a year ago. The 18 states which comprised 91% of the 2013 crop and their current rating are listed below:

State                               Week Ending  July 20, 2014

                Very poor           Poor          Fair          Good       Excellent  
Colorado       2%                   5%          25%          51%        17%
Illinois           1%                   3%          15%          52%        29%
Indiana         1%                   4%          19%          53%        23%
Iowa             2%                   5%          16%          52%         25%
Kansas         2%                   5%          29%          49%         15%
Kentucky      2%                   5%          18%          54%         21%
Michigan       1%                  4%           14%         59%         22%
Minnesota     2%                  6%           28%         50%         14%
Missouri        -                      1%           13%         53%         33%
Nebraska      2%                  5%           17%         52%         24%
N Carolina    3%                  11%         27%          47%         12%
N Dakota      1%                   4%          16%          59%         20%
Ohio             1%                   4%           20%         52%         23%
Penn.            1%                  3%           15%          47%        34%
S Dakota      2%                   3%          17%          65%         13%
Tennessee   1%                   3%          18%          54%         24%
Texas           -                       5%          33%          47%         15%
Wisconsin    1%                    6%          17%          51%        25%

   The report shows 56% of the corn is silking, up from 34% the previous week and 39% a year ago, and 1% ahead of the five year average.
   Sixty percent of the soybean crop was blooming, as of the week ending July 20, up from 41% the previous week, up from 43% a year ago, and 4% ahead of the five year average. The report shows 16% of the soybean crop is rated as excellent, with 57% rated as good.
   There is 85% of the cotton crop squaring, up from 70% the previous week, up from 76% a year ago, and 3% ahead of the five-year average. The report shows 38% of the cotton is setting bolls, up from 24% the previous week and 26% a year ago, and 1% ahead of the five year average. The report indicates that 12% of the cotton crop is rated in excellent condition and 41% as good.

Cheese Output Slowing, So are Exports
    U.S. cheese production trended lower last week, according to USDA’s Dairy Market News. Hot weather in the West is reducing manufacturing milk volumes. Milk production in the Central and Eastern regions is past peak and reducing seasonally. Because cheese plants are hoping to run at capacity, many are looking for spot surplus milk to keep full production schedules.
   Some plants are looking to available condensed skim supplies to increase vat yields. Domestic demand from retail and processor/packager facilities is mostly steady as they try to acquire inventory.
   Export demand is softer with many of the deliveries from previously negotiated sales. Mozzarella sales have slowed. Stocks of cheese are tightening in the Midwest with barrels tighter than blocks. Western stocks are more readily available as exporting has slowed.

What’s Behind Soaring Butter Price?
The butter market is tight in most regions, with some frozen butter being reworked to meet current interest, reports Dairy Market News. Butter demand is steady into food service accounts as summer travel spurs vacation related fast food and eat-in dining. Sales into industrial accounts are steady.
   Butter production is mostly lower as cream volumes clear into ice cream/frozen novelties production. Some butter/powder plant operators report the current returns on spot cream sales are too good to pass up. However, those operators also note they will have to retain cream volumes in the coming weeks to start rebuilding salted and unsalted bulk and retail inventories before holiday demand arrives.

Dairy Issues Separate EU Ministers
    Ireland’s Farming Life reports that EU Farm Ministers have once again failed to reach an agreement on changes to the current quota system as a strong contingent of 11 countries which included France, UK, Portugal, Hungary, Bulgaria, Cyprus, Romania, Hungary, Slovakia, Slovenia and the Czech Republic, created a blocking minority.
  Germany, Austria and the Netherlands presented a compromise text attempting to reconcile diverging views among delegations, but only garnered the support of Ireland, Poland, Spain, Luxembourg and Latvia.
   Read more at: http://www.farminglife.com/ufu-watch/ministers-fail-to-strike-a-deal-on-dairy-issues-1-6190049.

Teach the “City Slickers”
   The Minnesota Milk Producers Association (MMPA) is launching a new program to educate consumers. Stating in their weekly newsletter, MMPA said: “Government policies and regulations that support agriculture are paramount to protecting and growing Minnesota’s status as a major player in the farm and food production. To help ensure its sustainability, Minnesota Milk is supporting a new coalition called A Greater Minnesota (AGM) which will inform Minnesotans about the issues surrounding farming and food production and the economic impacts to the state.
   This new coalition is launching a campaign to raise awareness – specifically among legislative candidates who can adopt and maintain policies that support a thriving food and agricultural sector. A key component of the campaign is to inform the public about key issues and ask Minnesota voters to encourage legislative candidates to take the 5-Point MN Farm and Food Pledge. The pledge encourages support for all good MN farms (big or small, traditional or organic), environmental stewardship, caring for farm animals, sensible food labeling and food safety.
   Minnesota Milk encourages all Minnesota residents to visit www.farmandfoodmn.org to learn more about agriculture and how they have a vested interest in its vitality. The website is also home to a platform that helps people easily discover candidates for office in their district and offers them a simple on-line tool to urge candidates to support the critical farms and food agenda.

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update Associate Editor Lee Mielke)
   There didn’t seem to be much reaction to Friday’s bearish June Milk Production report in today’s trading at the Chicago Mercantile Exchange, but traders await tomorrow afternoon’s June Cold Storage report. Cheese price remained at Friday’s closings, blocks at $2.0275/lb. and barrels at $2.07/lb.,4.25¢ above the blocks. A bid of block at $2.0275/lb. went unfilled as did a bid of barrel at $2.07/lb. An offer of block at $2.05 got no takers.
   Cash butter topped $2.50/lb., enjoying a third consecutive session of gain, up 6¢ last Thursday, up 3¢ Friday, and up another 3¢ today on 2 unfilled bids. The Double A price now sits at a lofty $2.51/lb. Remember, the record is $2.81/lb. in September 1998.
   FC Stone dairy broker Dave Kurzawski called it in this morning’s Insider Opening Bell, writing that spot butter was poised to challenge the $2.50 mark. "Look for spot butter to continue to underpin the dairy complex in general," he said. "We are approaching the high water mark here, so price behavior at this level is critical. Expect some headwinds to price and potentially a double-top."
   Two uncovered offers took the powder down another 2¢ today, to $1.6750/lb., following a 2¢ loss Friday on 2 offers and 2¢ on Thursday on 2 offers. A bid this morning at $1.66/lb. drew no seller.

Today’s Market Closing Prices 
Butter: Up 3¢, to $2.51/lb.
Cheddar blocks: Unchanged, at $2.0275/lb.   
Cheddar barrels: Unchanged, at $2.07/lb.
Grade A nonfat dry milk: Down 2¢, to $1.6750/lb.
Class III milk (prelim.): July $21.55/cwt., +4¢; Aug. $21.40, +7¢; Sept. $20.42, +9¢, Oct. $19.81, -1¢; Nov. $19.40, -2¢; & Dec. $19.15, -3¢. Based on today’s CME settlements, the Third Quarter 2014 average now stands at $21.12, +6¢ from Friday. The Fourth Quarter average is now at $19.46, -2¢ from Friday. The First Quarter 2015 average is now at $18.21, -5¢ from Friday.


Looking ahead:
   The Agriculture Department issues its preliminary June Cold Storage report tomorrow afternoon. USDA announces the August Federal order Class I base milk price Wednesday afternoon along with the weekly National Dairy Products Sale Report (NDPSR). The monthly Livestock Slaughter report is issued Thursday afternoon.

Tuesday on DairyLine:
   FC Stone dairy economist, Bill Brooks, on the latest market activity.
   Empire Farm Days Manager, Melanie Wickham, previews the big show.