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DairyBusiness Update: May 6, 2014

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Global Dairy Trade Average Down 1.1%
   The slippage in the Global Dairy Trade (GDT) auction is slowing. Today’s event saw the weighted average for all products drop 1.1%, following last week’s 2.6% fall, 8.9% plunge in the April 1 event, 5.2% drop in the March 18 event, and a 4% drop on March 4. The price index has seen declines since reaching its recent high February 4.
   The downfall was led by a 2.3% drop in skim milk powder (down 4.4% in the last event), and a 1.8% decline in the Cheddar cheese (down 3.3% in the last event). Whole milk powder was down 1.7% (down1.6% in the last event), and buttermilk powder was down 1.2% (down 8.6% in the last event).
   There were products that headed up, led by rennet casein, up 6.8%, anhydrous milkfat, was up 2.4%, after inching up 0.6% in the last event, and butter was up 1.6% today, following a decline of 4.9% in the last event.
  FC Stone reports the average butter price equated to about $1.7652/lb. U.S., up from $1.7383/lb. in the April 15 event ($1.7222/lb. on 80% butterfat, up from $1.6959/lb.). CME butter closed today at $2.15/lb. The Cheddar cheese average was $1.9029, down from $1.9384/lb. The U.S. block price stands at $2.0375/lb. Skim milk powder, at $1.7568, is down from $1.8715/lb., and the whole milk powder average was $1.7819, down from $1.8004/lb. in the last event. The CME Grade A nonfat dry milk price stands at $1.7775/lb.

                                                                                        Source: GDT & INTL FCStone     

More U.S. Dairy Going Abroad
   Cooperatives Working Together (CWT) accepted 6 requests for export assistance today from Dairy Farmers of America and Tillamook County Creamery Association to sell 3.166 million pounds of Cheddar cheese to customers in Asia, the Middle East, North Africa and the South Pacific.
   The product will be delivered through September and raised CWT’s 2014 exports to 50.369 million pounds of cheese, 42.085 million pounds of butter and 7.809 million pounds of whole milk powder to 33 countries on six continents. These sales are the equivalent of 1.469 billion pounds of milk on a milkfat basis.

How Did Cattle Prices Get so High?
   Purdue University Extension economist Chris Hurt asks that question in his Farmdoc Daily posting. Where did the record cattle prices this year come from? That is a question almost all analysts and many cattle producers are asking. It was not so surprising to have record high cattle prices, but the real surprise was the lofty heights of those new records. In the first quarter, as an example, Nebraska steers averaged $147 per live hundredweight which was more than $20 higher than the previous first quarter record price. In percentage terms, finished cattle prices in the first quarter this year were up 17 percent and production was down only four percent.   
   It is easy to list some possible causes, but none of them seem to be large enough to have caused such startlingly high prices. We start with the fact that meat and poultry supplies all were low. We have mentioned the four percent reduced beef production and broiler egg hatchability has been low, reducing chicken supplies below expectations. Then it appears that PED virus in hogs may have been the real kicker, primarily because the pork market appears to have sharply overshot prices due to the uncertainty of the actual death loss from the disease. There were also arguments that "maybe" demand was very strong, but first quarter GDP growth of only 0.1 percent seems to discredit this argument. Data on trade are positive, but not enough to explain such high prices.
   Much like pork, we are left with an incomplete understanding of why cattle prices were so high, especially in March and April. Like in the pork sector, this may mean that cattle prices were "caught-up" in the fear of very short meat and poultry supplies and may have become overpriced. This may be another example of the old market adage of "buy the rumor and sell the fact."
   Record beef prices for consumers have also become a reality. In 2013, retail beef prices averaged $5.29 per pound but moved to a record $5.55 in the first quarter of 2014. Retail beef prices in 2014 are now expected to average $5.67 per pound, an increase of seven percent over last year.
   Current live cattle futures markets are taking a more moderate approach to prices for the rest of the year now that the highs of the year are likely behind us. Prices of finished cattle are expected to move downward to the mid-to-lower $140s in May and June.     
   Prices are expected to dip more in the third quarter with an average in the $135 to $139 range, and then recover into the low-to-mid $140s for the last quarter average. Prices in 2013 averaged $126 and this year's new record is expected to be near $142.
   Unexplained high prices in the first four months of 2014 have added new excitement for cattle producers as they see strong profitability potential for the first time in years. This means that the conditions have become positive for some beef cow producers to move toward expansion. The two conditions that we have suggested for expansion are the movement of calf prices above $1.75 per pound and restoration of pasture and grazing land after dry or drought conditions.  
   Read more at http://farmdocdaily.illinois.edu/2014/05/how-did-cattle-prices-get-so-high.html.  

Mielke Market Daily 
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   The bleeding began again in the cash cheese market in Chicago. The 40lb. Cheddar blocks dropped 3.25¢, to $2.0375/lb., the lowest level since Jan. 2. Five carloads traded hands today, the 1st at $2.0650/lb., and the price kept coming down. One bid at $2.03/lb. went unfilled, and an offer at $2.0375/lb. was left on the board. An uncovered offer took the 500lb. barrels down 1.75¢, to $2.0375/lb. as well.
   Butter did it again, jumping 5¢ today on an unfilled bid, to $2.15/lb., following a sale at $2.13/lb. Butter has seen five consecutive sessions of gain, soaring a total of 24¢, again to a level not seen since June 2011.
   Cash powder was unchanged again today, holding at $1.7775/lb., with no activity.
   FC Stone dairy broker Dave Kurzawski wrote in this morning’s Insider Opening Bell that "Nonfat demand from Mexico has been very quiet in the past month. There are still buyers out there, but the market is choppy and soft."    

Today’s Market Closing Prices
Butter: Up 5¢, to $2.15/lb.
Cheddar blocks: Down 3.25¢, to $2.0375/lb.
Cheddar barrels: Down 1.75¢, to $2.00375/lb.
Grade A nonfat dry milk: Unchanged, at $1.7775/lb.
Class III milk: May $22.70, -11¢; Jun. $21.09, -34¢; Jly $20.17, -23¢; Aug. $19.73, -8¢; & Sept. $19.70, -15¢. Based on today’s CME settlements, the Third Quarter 2014 average now stands at $19.87, -15¢ from Monday. The 2nd half average is now at $19.42, -13¢ from Monday.
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Looking ahead:
   The California Department of Food and Agriculture announces its June Class I milk prices on Friday. Federal order prices are announced by USDA on May 21. USDA issues its monthly World Agricultural Supply & Demand Estimates report Friday, which will include the Agriculture Department’s latest estimates on milk production and milk prices, and the monthly Crop Production report is issued on Friday.
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Wednesday on DairyLine:
   The “Processors Perspective” looks at GMO Labeling
   PDPW's "Your Bottom Line" is in our second half

http://dairyline.com/wednesday.mp3
   

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