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DairyBusiness Update: July 3, 2014


A HAPPY, SAFE 4th of July to YOU!!!

National Ice Cream Month Began in 1984
 Since 1984, when President Ronald Reagan proclaimed that National Ice Cream Month be celebrated annually, every July has been a focus for greater attention to ice cream in the United States with the 3rd Sunday of July each year being National Ice Cream Day. That according to a posting on Dairy Market News. About 9 percent of all the milk produced by U.S. dairy farmers is used to produce ice cream, contributing significantly to the economic well-being of the nation's dairy industry.
   Read the USDA Standard for Ice Cream

May Dairy Products Report: Where Did the Milk Go? Powder
May 2014 milk production hit 16.9 billion pounds, according to USDA’s preliminary data, up 1.5% compared to a year ago. USDA’s latest Dairy Products report issued this afternoon shows where it went. May 2014 dairy product output, compared to May 2013 and year-to-date (Y-T-D) estimates included:
Total cheese: 964.96 million lbs., up 2.2%; Y-T-D 4.69 billion lbs., up 1.7%. 
Total Italian cheese: 413.69 million lbs., up 5.1%; Y-T-D 2.05 billion lbs., up 4.6%.
Mozzarella: 328.89 million lbs., up 7.1%; Y-T-D 1.63 billion lbs., up 6.7%.
• American: 391.43 million lbs., up 1.0%; Y-T-D 1.87 billion lbs., down 0.2%
Cheddar: 288.34 million lbs., up 2.5%; Y-T-D 1.37 billion lbs., down 0.2%.
• Butter: 164.62 million lbs., up 0.5%; Y-T-D 847.13 million lbs., down 3.6%.
Dry milk powders – Nonfat dry milk, human, 163.62 million lbs., up 8.7%, 
      Y-T-D  764.3 million lbs., up 3.6%; and skim milk powders, 58.2 million lbs., up   
       6.2%, Y-T-D 243.75 million lbs., up 4.5%. 
Dry whey (total): 81.26 million lbs., up 2.0%; Y-T-D 360.62 million lbs., down 14.9%.
Yogurt: 406.93 million lbs., up 0.7%; Y-T-D 2.04 billion lbs., up 3.2%.

Cream for Butter is Tight/Exports Slowing, Imports Up 75%
   Northeast cream supplies for butter manufacturing remain tight, according to Dairy Market News. However, butter production could see a slight increase this week with added cream availability, as the region's ice cream production pauses for the July 4th holiday. Despite additional cream offerings, demand from other buyers could potentially equate to higher margins for some market participants. Butter inventories are mixed. Export demand is showing signs of dropping off.
   Ditto on tight cream supplies in the Midwest, leaving butter churn rates mostly reduced. The market tone is firm. Export interest continues to slow as U.S. prices outpace most international markets. Domestic interest is mixed. Domestic demand for bulk butter is very good, while retail and food service orders are steady to slower.  Inventories of butter are snug.
   Western butter prices remain very strong. The May Cold Storage report shows U.S. stocks of butter are 40% below year ago levels.
   This is helping to fuel demand for butter into the second half of 2014. Buyers are actively looking to acquire stocks in the spot market, but finding limited offerings. 
   Export demand is currently weak as U.S. prices are above international levels.
   Some manufacturers are expressing concern over the possibility of imports moving to the U.S. Butter production is steady to lower as demand for cream tightens supplies available to churns. Some butter manufacturers with sufficient stocks are selling some cream to take advantage of current prices. 
   The Foreign Ag Service reports quota imports of butter for January-May 2014 totaled 6.91 million pounds, up 75% from the same period in 2013.

Cheese Demand Strong, Supplies Building
   Northeast cheese production remains active, according to Dairy Market News. An unanticipated upsurge in orders, this week, has swamped some cheese makers. Most cheese inventories are adequate to increasing.
   Stormy weather in northern Illinois last weekend into early this week, has left some milk unable to be processed after power lines were knocked down. This has sent affected milk to some Wisconsin cheese plants at $2.00 below class price, delivered.    
   Surplus milk availability and pricing had been tightening further north in Wisconsin, so the unexpected influx of additional surplus milk was especially welcome. Some of the milk production decline was seasonal and expected, but some resulted from producers who recently elected to sell some cattle at current beef prices, reduce herd sizes, and expand crop production. 
   Cheese manufacturers describe upper Midwest milk production overall as stable to slightly decreasing. There is plenty of cheese in the manufacturing pipeline, so little immediate impact is expected on manufacturing volumes from current milk production factors. This is especially true due to the expected uptick in milk available to cheese manufacturers over the long 4th of July holiday weekend. Cheese manufacturers will be operating throughout the holiday weekend and most have already secured milk to be able to keep operating. Many packagers and processors will be closed for an extra day or two over the holiday weekend.
   Wholesale cheese prices in the West are higher this week based on weekly CME averages. The wholesale market has experienced short rallies and drops over the past two months, but remains around the $2.00 mark. Cheese production is heavy as milk supplies are at strong levels in much of the West. Some drop-offs are occurring in the southwestern states as high temperatures affect production. 
   The northwest milk production has plateaued, but remains sufficient to keep cheese plants in the area supplied with all the milk they desire.
  Cheese stocks are adequate for current demand. Domestic demand is steady with good retail movement at current prices. Buyers look to build inventories on price breaks, but are mostly in a comfortable supply position. Export demand is slower.

Down Under Update
   Australian producer strategies are in transition as June and the 2013/14 season conclude, reports Dairy Market News. Producers are no longer trying to extend milk production and chasing the higher milk prices with the onset of lower farmgate prices for the new season. 
    Weather has changed from mild conditions to a more normal pattern with colder, wetter weather covering the major dairy producing regions in southeastern Australia.  Dairy commodity stocks are being worked lower with a few extra spot sales occurring as manufacturers adjusted inventories prior to the end of the fiscal year. Overall, dairy commodity trading is fairly light as Middle Eastern countries are observing the Ramadan holiday and Chinese purchases are relatively low. 
   A number of Australian cooperatives have announced their opening milk prices for the 2014/15 production season with prices ranging from $5.80-$6.40 AU$ per kilogram under varied pricing structures. While commodity prices have declined and beginning season farmgate prices are lower, producer margins continue to be supportive of investment and expansion. 
   Some forecasts are calling for a 2% growth in Australian milk production for the 2014/15 season. Many cooperatives are expecting June milk production totals to be above year ago levels. According to Dairy Australia, May 2014 milk production in Australia was 8.2% above May 2013.
   New Zealand's April milk production as reported by DCANZ was 1.29 million tons, up 32.8% from April 2013, but 13.0% lower than two years ago. Current milk production is low with a majority of cows on winter pastures. Weather patterns have turned cold and wet. Recent rains have promoted good pasture growth and producers are looking forward to a good start of the 2014/15 season. 
   Dairy product stocks are being worked lower over the carryover period with some spot sales occurring as manufacturers clean up uncommitted loads at the close of the fiscal year. Negotiations are ongoing for Q4 supplies for a variety of dairy commodities with some manufacturers anxious to get some sales on the books. 
   New season farmgate prices have been announced and, though lower than prices paid at the close of last season, are relatively high, compared to prices paid at the beginning of previous years. 
   A cooperative is shifting production away from whole milk powder for the next few months. The production shift will cause increases in skim milk powder, butter, and AMF production. It may also stimulate some increased buyer interest in the whole milk powder market. Some market analysts see the move as an attempt to offer more SMP to the Asian market and more butter to the U.S. market.

GDT Has “Bearish Shadow”
   Dairy commodity markets have shown some long-awaited signs of moderating from falling prices since February, according to HighGround Dairy’s Eric Meyer’s new New Zealand Dairy Report issued this morning. The last GlobalDairyTrade auction in June showed overall gains for the first time in nine auctions. It is too early to tell whether or not prices have settled at levels that can be sustained in the medium term. The strength of demand in the market will be tested in upcoming auctions as forecast volumes offered only increase from here. However the outlook remains firm with demand in key export markets a question of when not if.
   But Meyer adds the warning: July 1 GDT auction results posted a 4.9% DECREASE in the GDT Price Index, set fresh 16 month lows and are casting a bearish shadow over the recent gain in June.
   The Ministry of Primary Industries forecasts 2.3% milk production growth in the 2014-15 season. The forecast is based on long-term trend growth in cow numbers and milk yield per cow. Fonterra forecasts a similar rate of growth of 2%. Compared to the average growth rate for the last five seasons of 6%, both forecasts appear modest.
   For more information, write Meyer at: dairy@highgroundtrading.com.

Southeast Coast Awaits “Arthur”
   The New York Times reports that the first named storm of the year’s Atlantic hurricane season became Hurricane Arthur on Thursday as it approached the North Carolina coast and threatened to upend the Independence Day holiday plans of thousands of residents and visitors.
   The National Hurricane Center in Miami said in an advisory Thursday that the storm, which has been over the Atlantic for days since developing off Florida’s east coast, had maximum sustained winds of 75 miles an hour, just above the threshold necessary for it to be classified as a Category 1 hurricane. The storm is about 340 miles southwest of Cape Hatteras, N.C., and forecasters said they expected it to head for North Carolina overnight.
   The storm’s wind speeds are expected to rise slightly as it makes its way toward land, but forecasting models showed the storm’s center will probably remain just offshore. If the storm were to make landfall as a Category One storm, it would be the first hurricane to strike the United States since Hurricane Isaac in 2012. (Hurricane Sandy, which slammed into the East Coast later in 2012, technically made landfall as a post-tropical cyclone.)
   Read more at http://www.nytimes.com/2014/07/04/us/arthur.html?_r=1#

Deputy Ag Secretary Headed to China
   The U.S. Department of Agriculture (USDA) announced today that Deputy Secretary Krysta Harden will travel to Beijing and Guangzhou, China, July 7-12.
   While in China, the deputy secretary will lead the USDA delegation at the U.S.–China Strategic and Economic Dialogue. The Dialogue will bring together high-level officials and discuss the challenges and opportunities that both countries face on a wide range of bilateral, regional and global areas of immediate and long-term economic and strategic interest. The U.S. delegation will be led by Secretary of State John Kerry and Secretary of the Treasury Jacob Lew.
   Along with participating in the Strategic and Economic Dialogue, Harden will have additional meetings with high-level Chinese officials while in Beijing. In Guangzhou, she will meet with Chinese importers of American agricultural products and visit facilities that handle American products, including a soybean crushing facility and a denim factory.

NMPF Offers Dairy Safety Net Recommendations
   The National Milk Producers Federation (NMPF) has made a series of recommendations to the Agriculture Department on how to implement the new dairy safety net included in the 2014 farm bill. The recommendations cover issues that are either unclear in the legislation or were left up to USDA to decide. The issues include such things as the timing of enrollment, the timing and structure of premium payments, and the treatment of farms with changing ownership structures. 
   The new safety net, called the Margin Protection Program (MPP), is required to be established by September 1. It replaces p rice supports, MILC payments and other, less effective federal programs. It will help protect against the type of catastrophic equity loss that many dairy farmers experienced in 2009 and again in 2012.  NMPF is pleased with its discussions with the Agriculture Department on MPP to date. 
    In order to help dairy farmers understand the new Margin Protection Program, NMPF is providing a set of data examining how the MPP margin has varied over time, dating back to 2007, up until the current month for which data is available. 
   This set of tables listing feed and milk prices is available below to download in Excel as well as PDF.  It will be updated by NMPF every two months going forward, using the same calculations that the USDA is expected to use as the program is implemented later in 2014.

NMPF/REAL Seal Contrasts the Imitations
   Just in time for summer, the REAL® Seal debuted a beach-motif YouTube video contrasting the nutrition in real dairy products versus with imitations made from vegetables and nuts. DairyUS, the animated version of the REAL® Seal logo, reminds viewers that, unlike the imitators, real dairy products are packed with vitamins, minerals and protein. 
   “Look for the REAL® Seal if you want the real deal,” he advises. In July, the REAL® Seal Facebook page is leveraging National Ice Cream Month and asking food bloggers to create recipes around the theme “We all scream for ice cream!”

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)
   The markets are closed tomorrow for the 4th of July holiday, thus we will not have our report tomorrow and bring you our Week’s End Review today.
   Cheddar blocks inched 0.5¢ lower this morning, the 5th consecutive session of loss, and closed the day and the week at $1.9675/lb.. Eight cars were sold, the first 5 at yesterday’s $1.9725/lb. but the price slipped from there, with the final sale at $1.9675/lb. An offer at $1.9725/lb. was left on the board. The Cheddar barrels held at $1.9850, with 1 car exchanging hands and a bid at that price going unfilled.
   The blocks are down 5.25¢ on the week but still 30.25¢ above a year ago. The barrels are down 2.5¢ on the week, 31.5¢ above a year ago, and 1.75¢ above the blocks. Twenty six cars of block traded hands on the week and three of barrel. The NDPSR-surveyed U.S. average block price hit $2.0388/lb., up 0.7¢, and the barrels averaged $2.0165/lb., up 0.3¢.
      FC Stone risk management consultant, Ryan Cox, wrote in this morning’s Insider Opening Bell that the inverted block/barrel spread “seems to cement the idea that we'll remain below the pivotal two dollar mark for some time to come, although we are not anticipating any eminent price collapse in cheese."
   Spot butter also continued its descent, with 7 trades occurring at $2.35/lb., down another 5¢, but an unfilled bid brought it back up to $2.39/lb., down 1¢ on the day.
   You’ll recall butter skyrocketed 11¢ Monday, then shifted into reverse and gave it all back, closing unchanged on the week but  86.5¢ above a year ago. Nineteen cars were sold this week. NDPSR butter averaged $2.2095/lb., up 3.5¢.
   Cash powder inched up 0.25¢ today, on 2 trades, to $1.7725/lb. A bid at that price went unfilled. The powder is down 3.5¢ on the week, with four carloads finding new homes this week.

Today’s Market Closing Prices 
Butter: Down 1¢, to $2.39/lb.
Cheddar blocks: Down 0.5¢, to $1.9725/lb.
Cheddar barrels: Unchanged, at $1.9850/lb.
Grade A nonfat dry milk: Up 0.25¢, to $1.7725/lb.
Class III milk (prelim.): July $21.38/cwt., +13¢; Aug. $20.58, +20¢; & Sept. $20.32, +9¢. Based on today’s CME settlements, the Third Quarter 2014 average now stands at $20.76, +14¢ from Wednesday. The Fourth Quarter average is now at $19.85, +3¢ from Wednesday. The First Quarter 2015 average is now at $18.42, +6¢ from Wednesday.

Looking ahead:
   Looking to next week, the Agriculture Department releases its weekly Crop Report on Monday. Thursday, the California Department of Food and Agriculture announces its August Class I milk prices. Wednesday USDA issues its National Dairy Products Sales Report prices. The monthly Crop Production report and the monthly World Agricultural Supply and Demand Estimates (WASDE) report are both issued Friday. The WASDE will include the latest projections for 2014 and 2015 milk production and milk prices.

Friday on DairyLine:
   Jerry Dryer, editor of the Dairy and Food Market Analyst, talks about the dairy markets and the fall in cheese and
          butter prices..
   Dr. Mike Hutjens discusses fecal starch analysis in his weekly “Feed Facts” program.    


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