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DairyBusiness Update: March 24, 2014


September Fluid Sales Down 1.2%
January 2014 packaged fluid milk sales totaled 4.54 billion lbs., down 0.5% from January 2013. (Sales were not adjusted for calendar considerations).

January sales of conventional products, at 4.34 billion lbs., were down 1.1%; organic products, at 197 million lbs., were up 13.5%. Organic represented about 4.3% of total sales for the month.

Source: Dairy Market News

Friday Cold Storage Report: Reading Between the Lines
   Lack of considerable milk production growth, strong exports and most important - HIGH dairy commodity prices led to February’s cheese and butter inventories falling below the previous year, says High Ground Dairy’s Eric Meyer. Most striking in this report, says Meyer, were the cheese inventory declines between January and February, a fairly rare occurrence, and while he finds it difficult to call this report bullish, he does believe that “lower inventories today have the potential to keep cheese and butter prices well above average throughout much of 2014.”
   He adds that butter manufacturers and end-users may be nervous about having enough butter later this year and may be storing it away now. Regarding cheese, Meyer warns that seasonal increases in milk production in the near future may send cheese prices sharply lower from current all-time highs, but he speculates that the lack of a normal inventory build during the first half of the year may keep prices high throughout most of the year. To read his full analysis, e-mail Eric at: ericm@highgroundtrading.com

Milk Production Growth Will Determine How Good 2014 Is
   That’s the basic message from Dairy Management Incorporated’s latest Dairy Market Report. “The dominant feature of the U.S. dairy landscape in the early months of 2014 is clearly the record price levels for milk and some key dairy products that determine the milk price,” the report says. The basic driver of the extraordinary current price situation, which is global, not just domestic, is the normal working out of the forces of supply and demand. Demand for dairy products grew strongly in 2013, particularly in the dairy importing countries in east and Southeast Asia, led by China. At the same time, total milk production by the world’s major dairy-exporting countries, including the United States, was hardly up at all.
   International dairy product demand growth will likely be more moderate this year compared with last, the report warns, but the key to this year’s outlook will remain the rate at which milk production will increase in the world’s largest exporting countries. 
   Read more at: http://www.nmpf.org/files/file/DMR-March-2014.pdf.

High Prices Not Deterring Block Cheese Sales But Supplies Limited
   Cheese production continues to build across the country as increased amounts of milk become available for manufacturing, according to USDA’s Dairy Market News (DMN). The seasonally expected increases are still falling short of meeting demand. Manufacturers are increasingly turning to NDM and condensed skim to increase vat yields.
   Despite block prices reaching new record price levels at the CME Group, demand continues to be strong. Both domestic and export buyers are filling most contract orders, but are finding it difficult to access additional spot loads of blocks. Barrel stocks are in a better position. Demand for barrels is being tempered by current high prices.

U.S. Butter Still Very Competitive Globally
   Butter prices are strengthening on the U.S. price advantage over most global markets, fostering active export orders, according to DMN. The market tone is mostly firm as supplies are light to moderate and overall demand is improving. Many butter churn operators are running at steady churn rates with adequate cream supplies available, while a few experienced tighter cream conditions resulting in reduced production levels. Butter makers’ focus varies amongst the regions between 80% and 82% based on plant location, manufacturing capabilities, and orders left to fill. Some butter manufacturers are busy finishing export sales before transitioning to holiday commitments with a few already finished with Easter orders.

Cheese Demand Predicted to Grow 7.3%
   The demand for cheese is expected to grow at a compound annual growth rate (CAGR) of 7.3% in terms of revenue from 2013-19, and the market was valued at $72.45 billion in 2012 and is expected to reach $118.44 billion by 2019. According to a new market report, published by Transparency Market Research titled "Cheese (American, Italian, Hard, Soft, Fresh and Others) Market - Global Industry Analysis, Size, Share, Growth, Trends and Forecast, 2013-2019." 
   The global cheese market witnessed growth in recent years due to a growing fast food industry. In addition, the high nutritional value is another factor contributing toward market growth. The perishable nature of cheese and stringent government regulations are the major growth barriers to the market. However, product innovation provides a huge opportunity for the market players.
   In 2012, the global cheese market by product type was dominated by Italian cheese which accounted for 40.5% of the overall share, followed by other types of cheese that accounted for 27.7% of the market share, respectively. Soft cheese which contains considerable quantity of vitamin D and calcium which are good for keeping bones healthy is expected to grow at a CAGR of 7.2% from 2013-19. Fresh cheese due to their nutritional qualities, unique taste and increasing health consciousness among people is expected to grow at a rate of 7.0% from 2013-19.
   Europe dominated the global cheese market and accounted for over 38.8% of the global demand in 2012, followed by North America which accounted for 32.7% share for the same year. However, in the future, Asia Pacific is expected to be the fastest growing market with an estimated CAGR of 7.9% from 2013-19. Economies such as Japan, India and China are expected to be the major contributors to this growth. Increasing consumer preference toward cheesy cuisine, rising disposable income and population are the major factors contributing to the growth of cheese in this region.
   At a regional level, the U.S. is the largest market followed by France. The U.S. market is expected to grow at a CAGR of 7.5% from 2013-19. Increasing snacking habits of consumers and rise in more cheesy ethnic cuisines such as Mexican and Italian are the major factors contributing to the market growth in this region. Economies such as Brazil, Italy and Argentina also present huge market opportunities.

China and the Netherlands Sign Dairy Agreement
   The Republic reports that China and the Netherlands signed a trade pact Sunday pledging Dutch dairy expertise to help Chinese producers boost the quality and quantity of their milk. The deal signed at a ceremony at Prime Minister Mark Rutte's official residence in The Hague is another step by China to rehabilitate the reputation of its dairy industry in the aftermath of tainted milk product scandals.
   It was part of a raft of deals and memoranda of understanding inked on the second day of a state visit by Chinese President Xi Jinping, who is in the Netherlands with a large trade delegation.
   In 2008, some Chinese milk brands were found to be tainted with the chemical melamine, which can cause kidney damage and other injuries. Some suppliers added it to fool protein tests on watered-down supplies.
   Imported milk products like baby formula still have a reputation for safety in China and command far higher prices than local brands.
   The Dutch government said in a statement that experts will help China increase its annual milk production to 40 billion kilograms (88 billion pounds) in coming years.
   Read more at http://www.therepublic.com/w/EU--Netherlands-China.

California 4th Quarter Costs Mostly Lower than 2012
   The California Department of Food and Agriculture’s (CDFA) 2013 4th Quarter Cost of Production Comparison shows total feed costs were down 5.6% from 4th Quarter 2012, down 8.1% on a per hundredweight (cwt.) basis. Hired labor was up 3.7%, (+1.1%/cwt.); total herd replacement costs were down 11.9% (-14.4%/cwt.); and total operating costs were up 1.67% (-1%/cwt.) Total milk marketing costs were up 1.8% (-0.9%/cwt.) Total cost per cow per month was down 3.9% (-6.4%/cwt.), and total costs and allowances per cwt. were down 5.3% from 2013.
   For complete details, log on to: http://www.cdfa.ca.gov/dairy/dairycop_annual.html.

Stop Blaming Dairy Farmers
Wisconsin-based Dairy Business Association (DBA), in an editorial column today, asks why dairy farmers are being blamed for water supply challenges. “Who really uses the water resources in Wisconsin?” the DBA asks, and stated that the Milwaukee Journal Sentinel recently reported on the 61st annual conference of the Wisconsin Land and Water Conservation Association, and gave the facts on who uses the most water in Wisconsin.   
   Robert Smail of the Department of Natural Resources estimated that Wisconsin's entire dairy sector used 16 billion gallons of water over the course of 2012. That is less than 5% of the total 292 billion gallons of water used statewide, and that percentage grows even smaller if one factors in the additional 50-75 billion gallons the DNR believes goes unreported statewide. Let's not forget that in 2012, Wisconsin was in the midst of a terrible drought, and these numbers represent something close to a "worst case scenario" for dairy farmers.
    There are no more conscientious environmentalists than dairy farmers, and if they can find a way to conserve water, they do. Let the facts speak for themselves: at less than 5% of the water used statewide, dairy farms' consumption of the state's water resources is insignificant. Why are we being blamed for every water supply challenge? Instead of blaming farmers, we should ask why this issue is being used to entice new regulations to prevent the $26.5 billion dollar industry from growing.

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   Cash dairy traders, after contemplating Friday’s February Cold Storage report over the weekend, took the block Cheddar cheese to another new record high, $2.4325/lb., on an unfilled bid. The barrels jumped 6.75¢, to $2.3775/lb. on 9 trades, putting the spread closer to normal at 5.5¢. The 1st sale was at $2.32/lb., 2nd at $2.3175/lb., and they kept climbing, hitting $2.3825/lb., before backing down.
   FC Stone risk management consultant, Chris Hildebrand, viewed Friday’s Cold Storage report as bullish for both cheese and butter,  
   Class III futures for April & May were up 56¢ & 35¢ respectively but headed down from there.
   Butter jumped 2.5¢, to $1.9450/lb., the 4th consecutive session of gain. Two cars found new homes at that price but an offer at $1.95/lb. was left on the board.
   An uncovered offer took the Grade A nonfat dry milk down 3.5¢, to $2.0150/lb., after gaining a penny on Friday and holding at $2.04/lb. for 10 consecutive sessions prior to that.

Today’s Market Closing Prices:
Butter: Up 2.5¢, to $1.9450/lb.
Cheddar blocks: Up 0.5¢, to $2.4325/lb.
Cheddar barrels: Up 6.75¢, to $2.3775/lb.
Grade A nonfat dry milk: Down 3.5¢, to $2.0150/lb.
Class III milk: Mar. $23.28, -1¢; Apr. $24.09, +56¢; May $22.09, +35¢; & Jun. $20.85, -2¢. Based on today’s CME settlements, the Second Quarter 2014 average now stands at $22.34, +29¢ from Friday. The 2nd half average is now at $19.58, -9¢ from Friday.
Looking ahead:
   The Agriculture Department issues its monthly U.S. Dairy Situation at a Glance report on Wednesday. It will include the latest dairy product commercial disappearance data. The monthly Ag Prices report is out Friday afternoon, detailing the latest milk feed price ratio.
Tuesday on DairyLine:
   FC Stone's Bill Brooks on the surging cheese prices
   BouMatic's Denise Behnke wraps up her SmartDairy series.