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DairyBusiness Update: July 30, 2014


July FO Benchmark Milk Price Up 24 Cents
The Agriculture Department announced the July Federal order Class III benchmark milk price today at $21.60 per hundredweight, up 24 cents from June,  $4.22 above July 2013, and equates to about $1.86 per gallon. Class III futures portend a turnaround in August. The August contract settled today at $21.38; September, $21.30; October, $20.41; November, $19.67; and December at $19.25, portending a 2014 average of $21.64 per cwt., up from $17.99 in 2013 and $17.44 in 2012.
  The July Class IV price is a record high $23.78/cwt., up 65 cents from June and $4.88 above a year ago. The Class IV seven month average stands at $23.19, up from $18.27 at this time a year ago and $14.84 in 2012. The Class III average now stands at $22.52, up from $17.69 a year ago and $16.01 in 2012.
   The four-week, NDPSR-surveyed cheese price average used in calculating today’s prices averaged $2.0482 per pound, up 1.2 cents from June. Butter averaged $2.3473, up 16 cents. Nonfat dry milk averaged $1.8617, down fractionally, and dry whey averaged 68.9 cents per pound, up 1 cent. California’s comparable 4a and 4b milk prices are scheduled to be announced Friday.

Dairy Expansion in the Making?
   The cattle herd is still shrinking but more heifers are being retained, according to USDA’s latest data. Cattle supplies remain tight, but a possible expansion is on the horizon. That’s the gist of two cattle reports released by USDA Friday.
   The number of cattle in calves was 95 million head, the lowest number since the series began back in 1973, according to USDA livestock analyst Shayle Shagam in Monday’s DairyLine.
   It’s not possible to make comparisons to 2013 numbers because of last year’s sequester, there was no July 1 Cattle Inventory report. However, numbers were down about three percent from two years ago.
   Heifers being kept for beef-cow replacement are at 4.1 million head for July, down two percent from 2012. The number of heifers being kept for milk cow replacements was 3.9 million head, down about five percent from 2012.
   The calf crop was 33.6 million head, which was down about two percent from 2012. It’s also the lowest calf crop since 1948.

Korea Trade Pact Beneficial, However it’s More Complicated than That
   The U.S. dairy industry told the Senate Finance Committee’s trade subcommittee Tuesday that the 2010 U.S.-Korea Free Trade Agreement has further strengthened U.S. dairy exports to the Korean market, even though it is not yet fully implemented.
   At the same time, Shawna Morris, vice president for trade for the National Milk Producers Federation (NMPF) and the U.S. Dairy Export Council (USDEC), said a new and growing type of trade barrier involving common food names has emerged that is restricting access to the Korean market for key U.S. cheeses.
   “(Korea’s restrictions on the use of several common cheese names) are the direct result of their separate free trade agreement with the European Union,” Morris testified. “In a nutshell, the European Union has been leaning on countries around the world to block imports of products by confiscating common food names and reserving them exclusively for cheese producers in their member countries.”
   The U.S.-Korea free trade agreement eliminated nearly all Korean tariffs on America’s dairy exports. Morris said even though the agreement has only been in place since 2012, and its full impact is still years away, U.S. dairy exports to Korea in 2013 more than doubled the average of the three previous years.
   Morris said the Korea FTA’s dairy provisions could be a good model for the Pacific trade liberalization agreement now being negotiated with Japan, Canada and eight other countries. “We hope that Trans-Pacific Partnership will result in an agreement that we can support as robustly as we have supported the Korea-U.S. Free Trade Agreement,” she testified.
   Despite the positives under the U.S.-Korea FTA, Morris said, a separate 2011 Korea-European Union free trade agreement is abusing geographical indications regulations to inappropriately restrict U.S. access to the Korean market for gorgonzola, feta, asiago and fontina cheese.
   “Since approval of the EU-Korea FTA, the EU has expanded around the world the model it first developed in that agreement,” Morris said. “EU pressure has resulted in similar restrictions in Central America, Peru, Colombia and most recently in South Africa. Canada has also agreed to restrict cheese names. And we understand the EU is pursuing similar objectives in Singapore, Japan, the Philippines, Malaysia and Vietnam, as well as China.”
   Moreover, Morris said, it is clear the Europeans want to impose cheese name restrictions on the United States through the planned Trans-Atlantic trade agreement, which is also currently being negotiated. That is “entirely unacceptable,” she said, adding that the U.S. dairy industry, together with other food industries and many members of Congress, want already-imposed GI restrictions rolled back instead.
   “Our negotiators should only come to an agreement on Geographical Indications with the EU if it simultaneously rejects restrictions in the U.S. market on common names, addresses the trade barriers erected against U.S. exports to third-country markets, and restores access to the EU for key U.S. exports such as parmesan and feta,” Morris said.
   Morris’ complete testimony is available here. National Milk’s Chris Galen discusses the topic on tomorrow’s DairyLine broadcast.

Northeast Butter Stocks Low, Output Varies/Cheese Output Steady
   Northeast butter production varies, as some buttermakers clear available cream supplies to other dairy manufacturing venues, according to USDA’s Dairy Market News.  Inventories, which are substantially lower than last year's levels are available for obligations. Domestic demand is moderate.
   Cheese output is steady. Available milk supplies continue to spur 7-day productions schedules for cheddar makers. Good cheese demand from travel resorts are benefitting food service transactions.

Lagging NDPSR Prices: Butter  Up 4.2 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 $2.0083/lb., down 0.1¢ from the week before, while the barrels averaged $2.0606, up 2.5¢. Butter was up 4.2¢, following a 5.6¢ jump the previous week, and hit $2.4109/lb. Nonfat dry milk averaged $1.8371/lb., down 3.2¢, and dry whey averaged 68.86¢/lb., up 0.2¢. These prices are used in determining Federal order Class milk prices.

California Powder Price Slips but Sales Up
   The California Department of Food and Agriculture announced its latest surveyed nonfat dry milk prices at $1.7887/lb. for the week ending July 25, on sales of 13.97 million lbs. The price was down from $1.8109/lb. the week before, on sales of 11.12 million lbs.

Breakfast Trends Are Changing
   Such is the message from a Kellogg’s sponsored blog posting on the International Dairy Foods Association website that has implications for the dairy industry, particularly with respect to fluid milk.
   Morning is when millions of people eat away from home. But today, how A.M. consumers make their morning food choices and purchases is dramatically different than how they’ve previously decided what to eat. Now there are a myriad of variables that affect how people choose their first meal. These include:
   An unlimited variety of foods available in the morning, at quick-serve restaurants, convenience stores, coffee shops and more.
   More finely segmented demographic groups including employed vs. retired, urban vs. suburban, stay-at-homes vs. business travelers.
   Changing attitudes about the definition of morning “meals.” A relaxing sit-down breakfast could be considered a meal to one, while a protein bar and cup of coffee is an equally satisfying option for someone else.
   Because eating behaviors have such a large effect on the foodservice industry, Kellogg’s examined what motivates those who eat away from home in the morning. The resulting “Away From Home A.M. Segmentation Study” provides a ground-breaking analysis of the ever-changing morning food and beverage consumer. It takes a look at when, where and what people eat for breakfast and why they make these choices.
   Not only does the study uncover detailed profiles and comprehensive demographic breakdowns of the diverse and unique types of morning consumers, but it also reveals their evolving attitudes about food choices made away from home. Breaking consumers’ habits into five distinct segments can help operators assess their current breakfast menu and identify opportunities to build incremental sales by balancing out their offerings to meet the needs of the segments they want to reach.
   For example, 15% of consumers bundle a salty snack and soda during the AM hours, with about half of those consumers choosing this bundle early in the morning. Understanding these and other trends can help users better reach their target customers.
Source: Kellogg’s AM Segmentation Study, 2013. To find out how more about this revolutionary study, and how its detailed findings can benefit your business, click here for more information.

Mielke Market Daily 
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update Associate Editor Lee Mielke)
   The Cheddar blocks stopped knocking on the $2 door today as a sale took them in the other direction. The first two sales were at $1.99/lb., up a penny from yesterday, but the third and final sale was at $1.9750/lb., down 0.5¢. The barrels were unchanged again, steady at $1.9475/lb., with a bid at $1.94/lb. going unfilled.     
   Class III futures prices headed down.
   FC Stone senior dairy broker, Dave Kurzawski, wrote in this morning’s Insider Opening Bell: "Demand for cheese is still good in the country, but that seems to be more an argument for holding cheese prices steady here in the high $1.90's than creating a rip-roaring rally for spot prices."
   Cash butter continued its meltdown, dropping 5.5¢, to $2.47/lb. Two cars traded hands, the first at $2.50/lb. and the second at $2.48/lb. A bid at $2.46/lb. went unfilled but an uncovered offer took it down to $2.47/lb. The spot butter has lost 15¢ in four sessions. 
   Kurzawski says "There is butter for sale at the exchange this week again, but that's not the surprising part. The surprise is that there are ample multiple buyers bidding for $2.50 plus butter. We have not worked thru all the tightness in butter just yet." He adds that nonfat dry milk “seems to have found temporary equilibrium where it's currently trading.”
   Cash Grade A powder remained at $1.6750/lb. for the seventh consecutive session, with no activity today.  

Today’s Market Closing Prices 

Butter: Down 5.5¢, to $2.47/lb.
Cheddar blocks: Down 0.5¢, to $1.9750/lb.   
Cheddar barrels: Unchanged, at $1.9475/lb.
Grade A nonfat dry milk: Unchanged, at $1.6750/lb.  
Class III milk (prelim.): Aug. $21.38/cwt., -24¢; Sept. $21.30, -8¢, Oct. $20.41, -5¢; Nov. $19.67, -7¢; & Dec. $19.25, -8¢. Based on today’s CME settlements, the Fourth Quarter 2014 average now stands at $19.78, -6¢ from Tuesday. The First Quarter 2015 average is now at $18.31, +1¢ from Tuesday. The Second Quarter 2015 average today stands at $18.05, -1¢ from Tuesday.


Looking ahead:
   The California Department of Food and Agriculture will announce its Class 4a and 4b milk prices Friday and USDA issues its monthly Dairy Products report.

Thursday on DairyLine:
   National Milk's Chris Galen reports that the trade pact with Korea is beneficial, but restricted thanks to the European
   The "Silage Man" Keith Bolsen checks in with his monthly 'Silage Solutions'  segment.


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