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DairyBusiness Update: May 8, 2014

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Butter Stocks Could Use Some Help
  
Northeast butter production is adequate for seasonal demand, according to USDA’s Dairy Market News (DMN). Rather than churn beyond customer commitments, given the current high cream prices, balancing plants are moving supplies to other dairy manufacturers as cream demand increases. Butter stocks are light.
   Midwest butter prices are stronger on a firm market. Butter makers are managing inventories closely to ensure future obligations are met while taking sales at higher rates in the immediate. Increased milk supplies and improved butterfat levels fostered some higher churn rates. Some manufacturers are focused on filling previous export orders.  International demand is mostly steady. Domestic print interest is better than expected with robust sales preventing some manufacturers from what is normally a rebuilding period.  Supplies of bulk butter are tight.
   Spot load availability of cream is light as a result of increased 82% butter and whole milk powder production compared to years past in combination with seasonal Class II demand. The Central region accounted for 36% of U.S. production in March. Cumulative 2014 Central production totals 195.2 million pounds, an 11.3% decrease compared to the same time span in 2013.
   Butter production in the West continues to build with more milk supplies becoming available. Butter churns are busy filling both domestic and export orders. Increasing demand from ice cream and other cream based products is hindering full production of butter. Bulk butter buyers are showing better interest in securing inventories as spot offerings are tight. The West produced 53% of the butter in the U.S. in March.

DMN: Cheese Market Tone is “Unsettled”
   Northeast cheese manufactures have expanded production schedules at some cheese facilities, in response to consistent increases in spring flush milk supplies, according to Dairy Market News. Some manufacturers are having difficulty replenishing tight inventories, due in part to volumes required to fulfill short-term commitments.  Domestic sales are uneven. Export demand is steady.
   In March, total cheese production in the Atlantic region was 123.4 million pounds, 4.4% less than the same month last year. The Atlantic region produced 13% of U.S. cheese in March. 
   Total cheese production for New York was 66.6 million pounds, 2.9% less than one year ago, Pennsylvania produced 37.0 million pounds, 8.0% less, and Vermont produced 10.9 million pounds, 2.1% more.
   Foreign Agricultural Service (FAS) reports that, March 2014 U.S. cheese and curd exports totaled 79.7 million pounds, a 37% increase from last year.
   The cheese market tone is unsettled, according to DMN, and Midwest cheese manufacturers are producing at steady rates for the most part, while a few reduced levels following weaker sales. Buyer interest varies as some are in a "wait and see" approach, while others are increasing orders. Inventories of cheese are mixed.
   The Foreign Agricultural Service (FAS) reports that exports of U.S. cheese and curd exports during March 2014 totaled 79.7 million pounds, a 37% increase from a year ago. 
   Cumulative 2014 U.S. cheese and curd exports totals 219.5 million pounds, 42% higher than the same time span in 2013. The FAS says imports of cheese during March 2014 totaled 12.5 million pounds, a 5% decrease from a year ago.
   Total cheese imports from January to March are 34.8 million pounds, 3% lower than the same time span in 2013.           Western cheese plants are reporting mixed production levels with most showing increased production. Good demand from both domestic and export buyers is helping to clear stocks on a timely basis. Lower prices over the past week and into this week have some buyers more comfortable with increasing order volumes. Other buyers are still waiting to commit to larger orders. Cheese stocks are adequate for most current demand. The West produced 44% of all the cheese in the U.S. in March. 

Oceania Milk Production Season Good but Coming to a Close
   Australian milk production has benefitted from some timely and targeted rains which brought about an autumn bump to milk volumes, according to Dairy Market News. The rains have improved pasture and crop conditions. The good margins are also incentivizing producers to take advantage of the situation and extend the milking season. Australian meteorologists have issued an El Nino alert for the country, indicating an increased probability of drought conditions in the coming months. The autumn bump in milk production has marginally increased production of butter and skim milk powder.       
   Milk production in New Zealand is transitioning from maintaining or maximizing current production levels, to winding down current production operations and preparing for next season. This transition typically occurs this time of year. The recent storms that caused flooding on the North Island and battered the West Coast on the South Island have prompted some producers to dry off cows at increasing rates. Many producers are moving cattle to alternative grazing sites and feeding grain supplements to improve conditioning prior to the next season. The utilization of alternative grazing sites will occur for the next 6-8 weeks giving heavily worked paddocks time to become re-established.

European Milk Production Strong
   Milk production has reached the seasonal peak in Western Europe, reports Dairy Market News. Weather conditions are optimal for milk production, pastures are in good condition, feed costs are comparatively low and farm gate prices are relatively high.  Together, these factors are prompting producers to maximize milk production. Current milk volumes are leveling off as some countries are beyond their peak production and are not expected to retreat significantly in the near term. Processing plants are having difficulty processing available milk supplies. Some condensed skim loads are being sold at significant discounts in order to find a home. Drying facilities are working at capacity with some whey drying facilities being utilized for skim milk powder production. Milk powder manufacturers are holding off sales at discount prices in hope the results of a large tender will support prices. Buyers are only covering immediate needs, anticipating heavy production schedules will result in lower prices.
   Milk production in Eastern Europe is quickly building towards the seasonal peak.  Good weather and producer margins are supporting producers' milk production efforts.  Drying facilities with available capacity are able to secure loads of skim concentrate at significant discounts. Skim milk powder is more readily available compared to Western

Europe.

CDFA Offers Review View Mirror of 2013
   The California Department of Food and Agriculture issued its 2013 Cost of Production Summary. It reports that, in California for 2013, total milk production was down 1.3 percent, the number of dairy cows was down 2.5 percent, milk per cow was up 1.2 percent, and the number of dairies decreased 4.3 percent, compared to the previous year. The annual average price paid to producers was $18.49 per hundredweight (cwt.), with the lowest average price in 2013 at $17.30/cwt. in March and the highest average price at $20.77/cwt. in December.
   The year 2013 started with lower milk production in comparison to 2012, with net decreases through July when compared to the same months in 2012. Milk production began to increase in August and recorded net increases through December when compared to 2012. However, total milk production for the year finished at a negative 1.3 percent (-545.2 million pounds) when compared to 2012.
   The five leading milk producing counties recorded 73 percent of the milk production in 2013: Tulare, Merced, Stanislaus, Kings, and Kern counties. Grade B milk production in 2013 recorded an increase of 92.2 percent (+317.7 million pounds) when compared to 2012. Milk production per cow in 2013 was estimated at 23,234 pounds and the number of cows estimated to be at 1.77 million head.
   The Department held a public hearing on May 20, 2013 to consider proposed amendments to the Class 1, 2, 3, 4a and 4b pricing formulas, more specifically to consider whether temporary relief (as ordered for the period of February 1, 2013 to May 31, 2013) should be reinstituted. Complete details are posted on line at:
http://www.cdfa.ca.gov/dairy/pdf/Annual/2013/COP_Annual2013.pdf.

IDFA: GMO Considerations Should be Based on Facts
   That was the “Processor’s Perspective” in Wednesday’s DairyLine broadcast. The International Dairy Foods Association’s (IDFA) Peggy Armstrong said “It looks like Vermont will be the first state to require mandatory labeling for genetically modified foods. But with more than two dozen other states considering similar legislation, it may not be the last. What impact is this trend having on consumers who enjoy dairy products?”
   “This is an important issue for us,” Armstrong said, who reported that the Council for Agricultural Science and Technology, which includes many respected scientific societies and professionals, reviewed the current debate on mandatory GMO labeling and concluded that legislators and consumers need independent, objective information to move the GMO conversation from contentious claims to a fact-based dialogue.
   In a study released last week, the authors found that current labeling measures provide consumers with non-GMO choices and that mandatory labeling would raise food costs. The study found that non-GMO and organic food are more expensive to produce because of lower yields, higher production costs, segregation costs and various testing, certification and traceability costs. It showed that U.S. consumers paid 120 percent more for organic ice cream.  And that organic fruits and vegetables averaged 50 percent to 100 percent higher prices than conventional foods during 2012 and 2013.
   The authors noted that no material differences in composition or safety of GMO crops have been identified that would justify a label based on the modified nature of the food.
“All domesticated crops and animals have been genetically modified in some way, whether through conventional breeding techniques or biotechnology. Worldwide scientific evidence shows that both types of breeding are equally safe,” it said.
What is the impact on dairy?
   In many, but not all, of the state-proposed labeling initiatives, dairy has received exemptions, including milk derived from animals that have eaten GMO feed or been treated with GMO therapeutics. However, added sweeteners, flavorings and food products with dairy as an ingredient, would fall under most mandatory labeling requirements.
   IDFA agrees with the scientists that state-mandated rules would create confusion, reduce choices and increase costs for consumers. We oppose state GMO labeling and supports federal legislation recently introduced that would set guidelines for voluntary GMO labeling.
   For more information on the study, visit www.idfa.org.

Keep an Eye on the Competition/What Fluid Milk is Up Against
   Dairy Foods magazine reports that keeping an eye on nondairy beverage trends is important for dairy processors because many dairies also bottle juices, teas and coffee-based drinks. According to the Dairy Foods 2014 Beverage Study, 43% of survey respondents process juices, 34% coffee drinks, 27% smoothies, 23% sports drinks, 20% tea and 16% punches.
   Other dairy processors, like makers of yogurt or ice cream, can use beverage flavor trends to direct the development of new products. Nondairy beverages are competitive products to fluid white and flavored milks. Sales in the juice and drink categories (including refrigerated, frozen and shelf-stable products) totaled about $16.6 billion in the 52 weeks ended Jan. 26, 2014, nearly as large as the $17 billion fluid milk category, according to the market research firm Information Resources Inc., Chicago.
   The total refrigerated juices and drinks category increased 1.7% to $6.6 billion in the period, with unit sales up by 2.5%. While the increase in the juices/drinks category looks slight, keep in mind that orange juice makes up 51% of the category and OJ sales dropped 2.5% to $3.4 billion. Other beverages showing declines include cranberry juice and blends (down 38%), grapefruit juice/cocktail (down 31%) and grape juice (down 25%). On the other hand, juice varieties making sales gains include cranberry cocktail/drink (29%), vegetable juice/cocktail (29%), drink smoothies (23%) and blended fruit juice (up 17%). Lemonade showed sales gains of 3% to $534.5 million.
   Sales of refrigerated teas and ready-to-drink coffee registered impressive gains. Cappuccino/iced coffee sales increased 10% to $1.2 billion and RTD refrigerated coffee sales rose 37% to $168 million. Refrigerated tea sales rose 5.4% to $881 million. Although sales of canned and bottles tea rose just 0.8%, these formats are a $3 billion market.
   One example is Brisk, a brand managed by a joint venture between PepsiCo Inc. and Unilever USA, Purchase, N.Y., launched a new half-tea/ half-other product line. The new flavors are iced tea and lemonade, iced tea and cherry limeade, and iced tea and tropical lemonade flavors. The beverages are available in 24-ounce cans and 1-liter bottles for $0.99 and $1.19, respectively.
   Read the entire article at http://www.dairyfoods.com/autocrat_sneakpeak

Mielke Market Daily 
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   Cash CME block cheese inched up another 0.25¢ this morning, following the 0.5¢ reversal yesterday, and is now trading at $2.0450/lb. Two cars traded hands at yesterday’s close of $2.0425/lb. but 2 unfilled bids took it up to today’s close. Barrel jumped 1.5¢, to $2.0525/lb., 0.75¢ above the blocks. Two cars also traded hands today, the 1st at yesterday’s close, the 2nd at the higher price, plus a bid at $2.0525/lb. went unfilled.
   Explaining yesterday’s cheese market, FC Stone risk management consultant, Brendan Curran, wrote in yesterday’s Insider Closing Bell: "When the block price reached $2.0325, buying interests stepped in. Cheese is moving in the country, but at this point the market is still anticipating rather than seeing a seasonal gain in production in the Midwest.” 
   Class III futures saw double digit gains in all but 1 month for 2014.
   Somebody wants to buy butter! The Grade A price crept 0.5¢ higher this morning, hitting $2.1550/lb., on a trade, but 5 bids at that price went unfilled.
   Commenting on yesterday’s NDPSR-surveyed butter price increase, FC Stone market analyst Kyle Schrad wrote in this morning’s Insider Opening Bell: "This run-up is due to worries about supplies later in the year, not so much about the supply and demand balance today."     
   An unfilled bid ticked the cash powder up 0.75¢ this morning, following a 0.25¢ gain yesterday on a sale, and is now trading at $1.7875/lb.

Today’s Market Closing Prices
Butter: Up 0.5¢, to $2.1550/lb.
Cheddar blocks:  Up 0.25¢, to $2.0450/lb.
Cheddar barrels: Up 1.5¢, to $2.0525/lb.
Grade A nonfat dry milk: Up 0.75¢, to $1.7875/lb.
Class III milk: May $22.84, -5¢; Jun. $21.69, +20¢; Jly $20.65, +17¢; Aug. $20.14, +14¢; & Sept. $19.93, +11¢. Based on today’s CME settlements, the Third Quarter 2014 average now stands at $20.24, +14¢ from Wednesday. The 2nd half average is now at $19.70, +13¢ from Wednesday.
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Looking ahead:
   The California Department of Food and Agriculture announces the Golden State’s June Class I milk prices tomorrow. Federal order prices are announced by USDA on May 21. USDA issues its monthly World Agricultural Supply & Demand Estimates report tomorrow afternoon, which will include the Department’s latest estimates on milk production and milk prices, and the monthly Crop Production report is issued tomorrow.
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Thursday on DairyLine:
   DairyBusiness Update’s Lee Mielke discusses dairy product commercial disappearance with market analyst
          Jerry Dryer

   Dr. Mike Hutjens provides some tips on controlling flies.
http://dairyline.com/friday.mp3

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