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DairyBusiness Update: May 16, 2014

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 March Fluid Milk Sales Down 2.0%
  
March 2014 packaged fluid milk sales totaled 4.30 billion lbs., down 2.0% from March 2013. (Sales were not adjusted for calendar considerations as in previous monthly reports).
  
March sales of conventional products, at 4.09 billion lbs., were down 2.7% from a year ago; organic products, at 212 million lbs., were up 14.3% Organic represented about 5.2% of total sales for the month.
  
January-March 2014 total packaged fluid milk sales, at 12.89 billion lbs., were down 1.5% from the same period a year earlier. Year-to-date sales of conventional products, at 12.27 billion lbs., were down 2.2%; organic products, at 623 million lbs., were up 15.6%. Organic represented about 5.1% of total sales.

Source: Dairy Market News

Cheese Could Lose Another 5-10¢/Butter Will Stay “Lofty”
   The cash block cheese price fell below $2/lb. this week, first time since December 19, 2013, and now even butter may get caught up in the down draft. After reaching the highest level since May 2011, butter dropped Wednesday but was unchanged Thursday. What’s behind the fall and how low will prices go?
   FC Stone dairy broker Dave Kurzawski, said in Friday’s DairyLine that the market is “Still trying to figure itself out or trying to fix some of the problems that we had earlier in the year as far as being able to supply the world.”
   “Demand has dropped,” he said, “Courtesy in part to weaker prices internationally and it’s starting to spread into the U.S. market.” “That’s the concern, going forward,” he said, although he still believes there’s “good underpinning demand that we have to work through.”
   How low will cheese prices go? Kurzawski looks for “equilibrium within the next 5 to 10 cents to the downside potentially.” “But, as we get into the hot weather in the next 30-60 days, that will become more of the talk of the town and if that happens it’s going to be hard for this market to fall off a tremendous amount from where we currently are.”          Kurzawski doesn’t see a whole lot more down side for the short term, in other words the next several months, “but as we go into the latter part of the year, depending on how New Zealand and Australia start back up their season and how European milk production and sales go, things could slow down more as we close out 2014.”
  Will ice cream sales prop up the butter price? Kurzawski said ice cream sales have been really strong so far this year and has been a good boom for butterfat demand. He said a lot of people were caught off guard coming out of the Easter holiday expecting to see cream demand drop off but that hasn’t happened yet.
   “And, since we haven’t seen a real heavy flush of milk production in the Midwest, the Upper Midwest in particular, it remains to be seen if that milk goes into butter production or cream production. Going forward, butter prices in particular, are going to stay lofty for longer than I think people can see at this point,” he concluded.

High Butter Price Has Consequences/Ice Cream to the Rescue?
   The U.S. butter price disadvantage to most global markets has caused a few international buyers to back off orders, according to USDA’s Dairy Market News (DMN). The undertone is mixed. Slower domestic print sales have caused some churn operators to shift production from consumer to bulk supplies. Some manufacturers noted meeting prior export order obligations and began Q3 contract negotiations.  Production levels are mostly steady with a few plants churning at slower rates.  Inventories are light as some butter makers play catch up on lost rebuilding time in previous weeks. 
   Western butter production is uneven. Increased ice cream demand is pulling more cream supplies away from churns. Some manufacturers with increasing milk supplies are able to keep up production levels, but are having a difficult time building inventories.  Export demand is weaker as U.S. prices are no longer as competitive. Domestic demand for retail is steady and bulk sales are good as end users look to acquire additional supplies. Butter stocks are tighter than is typical for this time of year.

More Milk is Entering the Vat, Anticipation is for Even More
   Milk availability varies within the Midwest, according to Dairy Market News. In much of the Midwest, milk supplies are long and milk is readily available for cheese making.  Plants looking for extra milk can generally find it, ranging from $3.00 under Class to $1.00 over, depending on location and timing. Expectations are for strong milk availability in coming weeks, comforting both to plant officials and customers. 
   The first cutting of hay may commence soon in some of Southern Wisconsin, which is also taken as a good sign for milk production in the near future. In contrast, some plants in northern reaches of Wisconsin have experienced daily milk intakes dropping from levels two week ago, with little surplus milk availability. Plants in that area are scraping by to meet sales commitments and are unable to handle inquiries for additional cheese.       
   Mozzarella demand has been strong and buyers are readily taking what is manufactured. Cheddar interest has increased, especially with prices declining. There are varied plant experiences as to buyers appearing to pace buying needs against anticipated weekly average price movement. Some plants have experienced good sales, even with two weeks of lower price averages followed by this week through Wednesday showing continued price weakness.
   Cheese production in the West is uneven. Some manufacturers are running at or near full capacity, while others are balancing milk intakes to current orders. Wholesale prices are lower again this week and buyers are showing increasing interest in building stocks.  Export interest has slowed as international prices are becoming more competitive.  Cheese stocks are said to be in balance with demand.

Reductions in Milk Powder Volumes to be Major Test in GDT
   Next Tuesday’s auction will be an interesting test for bearish sentiment seen in the international market over the past few months, according to HighGround Dairy’s Eric Meyer. Meyer reports that Fonterra removed a significant amount of whole milk powder (WMP) volume from the upcoming four auctions and reduced their 12 month skim milk powder (SMP) forecast by nearly 10,000MT (6.8%). Favorable winter rains have reduced the risk of drought to begin the upcoming production season.
   It is HighGround’s view that this latest forecast signals an increase in contract volumes from the global community. If our theory stands, next week’s auction could result in the first GDT Price Index increase since early February.
   For more details, write Eric at: dairy@highgroundtrading.com.

Slaughter Rates Signal Expansion
   So reports the Daily Dairy Report. For the week ending May 3, dairy cow slaughter totaled just 48,626 head. This is 12.9% lower than the same week in 2013 and represents the lowest slaughter for any non-holiday week since June 2011. Weekly slaughter levels below 55,000 generally signal that dairy producers are adding to the herd, and current slaughter rates imply that such expansion has been underway for four weeks.
   So far this year, dairy producers have culled 117,000 fewer cows than in the first four months of 2013, a decline of 10.2%. Slaughter levels were record high last year as thin profit margins and high beef prices allowed dairy producers to earn substantial beef revenue while purchasing replacement heifers at a very low net cost. But not all of the culled cows were replaced. There were 20,000 fewer cows in the December 2013 milking herd than there were in January. Dairy producers added 16,000 head to the herd in the first three months of this year.
   The next monthly Livestock Slaughter report is out next week, Thursday, May 22.

Virtual Farm Tours to be Presented at World Dairy Expo
   Virtual Farms Tours give World Dairy Expo attendees the opportunity to experience a wide variety of farms and management styles, all from the comfort of a chair. These tours are presented by the owners and managers from the operations and include a half-hour pictorial overview of their operation, including general operation information and highlights of exceptional management practices. Time for questions and discussion will follow. This year’s operations excel in the areas of water conservation, genetic advancement, adaptation of technology, productive life, robots, environmental awareness, community involvement and sustainability.
   The free tours will be presented daily, Tuesday, September 30 through Saturday, October 4 in the Mendota 1 meeting room in the Exhibition Hall. The presentations will be available for viewing on World Dairy Expo’s website after the show. Full summaries and details can be viewed at www.worlddairyexpo.com.

Minnesota Dairy Farmers Benefit from New Agreement
   The Board of Directors at Minnesota Milk Producers Association has finalized a professional services contract with Midwest Dairy Association. Under this new contract, Midwest Dairy’s resources will be utilized to carry out specialized Minnesota Milk needs such as accounting and technology, and current staff will continue to fulfill Minnesota Milk priorities as part of the Midwest Dairy staff. 
    “We have done significant research on where our organization and our industry has been, where it is today, and where we expect it to be years from now,” stated Pat Lunemann, president of Minnesota Milk and a dairy farmer from Clarissa, Minn.  “We believe this agreement will strengthen our association and add efficiency in our quest to advance the success of our members.”
    Members of Minnesota Milk will not likely notice any change in the association.  Minnesota Milk and Midwest Dairy will maintain their separate identities and independent missions led by their separate boards. Midwest Dairy is prohibited by law from doing many of the initiatives of Minnesota Milk, in particular policy work and dairy farmer assistance.  The roles of each association must continue to be separate and distinctly different, which is why all non-checkoff activity will continue to be financed and accounted for separately.
    The model of sharing administrative and staffing services between membership and checkoff organizations is common across commodity organizations in Minnesota. Both organizations share the same future, with fewer dairy farms, and the same dairy farmer funders. 
    “Dairy farmers deserve the best from the organizations they support,” stated Bob Lefebvre, executive director of Minnesota Milk. “With increasing pressures on dairy farmers, we need to be more effective in everything we do for our members. This professional services arrangement will maximize the impact we have to our members without increasing dues, which are the same today as when the association began in 1977.”

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 CME cash cheese market was unchanged for the 3rd day in a row this morning. The  40lb. Cheddar blocks held $1.9975/lb., with 1 bid at that price going unfilled. The 500lb. Cheddar barrels remain at $1.96/lb., with no activity.
   The Spot cheese saw a fourth week of decline, with the blocks dipping below $2 per pound for the first time since December 19, 2013 and January 6, 2014 on the barrels. The blocks close 4.75¢ below last week, down 43.5¢ from its record peak in March, but still 22.75¢ above this week a year ago. The barrels are down 6¢ on the week, 41.75¢ below its record peak, and 20¢ above a year ago. Only 1 car of each traded hands on the week. The NDPSR-surveyed U.S. average block price slipped to $2.2125/lb., down 3.4¢, while the barrels averaged $2.2299/lb., down 2.6¢.
   FC Stone dairy broker, Dave Kurzawski wrote in this morning’s Insider Opening Bell: "There are expectations for future weakness in spot cheese even though we have seen more stability than weakness this week."
   Cash butter was also unchanged this morning, holding at $2.16/lb.. One offer at that price was left on the board.
   Butter peaked at $2.1750/lb. on Tuesday, highest butter price since May 27, 2011, but slipped 1.5¢ the next day. Butter was down 0.75¢ on the week, reversing three weeks of gain, but is still 54.5¢ above a year ago. Nine cars were sold this week. The NDPSR butter average was $1.9894/lb., up 8.5¢.
   Cash Grade A nonfat dry milk inched up 0.25¢ this morning on a trade, following 7 trades yesterday, and closes the day and the week at $1.7850/lb. Two offers at that price were uncovered.
   Powder is up 0.5¢ on the week. Fourteen loads traded hands this week. NDPSR powder averaged $1.8987/lb., down 4.9¢, and dry whey averaged 67.17¢/lb., down 0.3¢.

Today’s Market Closing Prices
Butter: Unchanged, at $2.16/lb.
Cheddar blocks: Unchanged, at $1.9975/lb.
Cheddar barrels: Unchanged, at $1.96/lb.
Grade A nonfat dry milk: Up 0.25¢, to $1.7850/lb.
Class III milk: May $22.58, +3¢; Jun. $20.49, -8¢; Jly $20.01, +9¢; Aug. $19.93, +5¢; & Sept. $19.84, +7¢. Based on today’s CME settlements, the Third Quarter 2014 average now stands at $19.93, +7¢ from Thursday. The 2nd half average is now at $19.56, +8¢ from Thursday.
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Looking ahead:
   The markets will plenty to feed on next week. Preliminary April Milk Production data will be issued Monday afternoon as well as the weekly Crop Progress report. The Global Dairy Trade auction is Tuesday morning, the National Dairy Products Sales report is out Wednesday afternoon, USDA announces the June Federal order Class I base milk price on Wednesday, and preliminary April Cold Storage data is issued Thursday, as well as the monthly Livestock Slaughter report.

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Monday on DairyLine:
   USDA dairy economist Joe Glauber
   Pennsylvania dairy producer Mike Ebey.

http://dairyline.com/monday.mp3

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