DairyBusiness Update: Jan. 3, 2014
November dairy products report: More cheese, less butter/powder
November 2013 U.S. milk production was only up 0.3% compared to a year ago, so that translated into small increases in cheese output, a small decline in butter, and sizeable drop in powder production for the month, according to USDA’s monthly Dairy Products report, issued today. November 2013 dairy product output, compared to November 2012 and year-to-date (Y-T-D) estimates included:
• Total cheese: 940.66 million lbs., up 2.9%; Y-T-D 10.18 billion lbs., up 2.5%.
• Total Italian cheese: 414.52 million lbs., up 7.8%; Y-T-D 4.38 billion lbs., up 3.6%.
• Mozzarella: 320.01 million lbs., up 7.6%; Y-T-D 3.398 billion lbs., up 3.4%.
• American cheese: 354.55 million lbs., down 2.7%; Y-T-D 4.05 billion lbs., up 1.8%.
• Cheddar: 250.35 million lbs., down 3.4%; Y-T-D 2.92 billion lbs., up 2.0%.
• Butter: 142.76 million lbs., down 0.1%; Y-T-D 1.71 billion lbs., up 1.2%.
• Dry milk powders – Nonfat dry milk, human, 100.13 million lbs., down 13.6%,
Y-T-D 1.36 million lbs., down 15.6%; and skim milk powders, 56.39 million lbs., up
26.1%, Y-T-D 572.69 million lbs., up 67.2%.
• Dry whey (total): 75.08 million lbs., up 3.1%; Y-T-D 852.47 million lbs., down 6.3%.
• Yogurt: 324.41 million lbs., up 4.4%; Y-T-D 4.27 billion lbs., up 5.2%.
Weather impacting milk production
Colder than normal temperatures and feed quality issues continue to plague Midwest milk production rates leaving them stagnant to marginally increasing, according to Dairy Market News (DMN). Spot load prices on milk picked up a little this week with less than seasonal supplies available. Bottling orders are beginning to pick back up as educational pipelines start to be restocked.
The market tone for Midwest cheese is softening, says DMN, with heavy inventories and sluggish sales due to the short holiday week. Many manufacturers took on additional milk last week, but some are cutting back on production due to high inventory. Cheesemakers expect sales to increase next week with a full work week.
Milk output mixed “down under”
Australia’s November milk production was down 2.9% from November 2012, according to Dairy Australia. New Zealand output continues to pace itself above last year's levels by nearly 6%. DMN reports that the close of the current season should see milk production well above last year's drought stricken finish. The dairy herd in New Zealand has rebounded from last year's drought with Statistics New Zealand pegging it at 6.6 million head, up 27% from 2006. Interestingly, other livestock numbers showed slight declines in 2013, “an indication that conversion to dairy operations is ongoing.”
Government regulations may fuel China’s powder imports
Dairy Market News says news reports out of China, indicating new regulations imposed by China's Food and Drug Administration may limit domestic milk powder supplies, are giving the dairy markets a firm undertone. The situation in China has increased buying focus on New Zealand's remaining available supplies. One contact indicated current dairy demand is contingent on what China will do. The GDT auction has taken an extra week hiatus over the holiday period and will conduct the first auction of 2014 on January 7.
China’s pent up dairy demand
The Daily Dairy Report’s Sarina Sharp wrote in the December 27 Milk Producers Council newsletter that Chinese imports are growing further due to a decline in domestic milk output. She states that data on the Chinese dairy industry is “murky at best,” but said there are widespread reports of declining cow numbers and milk production deficits.
Sharp also discussed the situation in Friday’s DairyLine and reported that a Chinese official estimates that, due to high beef prices and poor farm-level economics, the Chinese dairy herd has lost two million cows in the past year. The same official estimates that milk production is down 20 percent from a year ago.
“If China has indeed suffered such a decline in milk output, then the pent-up demand for milk powder could be astounding,” Sharp says.
Chinese milk powder buyers kept imports minimal this summer and fall in the wake of the New Zealand drought, according to Sharp, but “Now that their preferred supplier is back the Chinese are buying with abandon.” Read her complete report at http://www.milkproducerscouncil.org/updates/122713.pdf.
Dairy margins ended 2013 on strong note
Dairy margins continued to improve over the second half of December, finishing the year on a strong note, according to the latest CIH Margin Watch report from Commodity & Ingredient Hedging, LLC. Margins remain well above the 90th percentile of the previous 10 years through the first half of 2014, and above the 80th percentile in the second half of the year, providing dairy producers great opportunities to protect profitability at historically strong levels.
With feed costs relatively unchanged over the last two weeks of 2013, margins improved primarily due to higher milk prices. Milk continued to draw support from strength from the export market and the strong drawdown in dairy product inventories.
Meanwhile, although margins are quite strong, limited heifer supply and strong beef prices may help to stall any significant expansion in milk production over the medium-term in the U.S. market.
Feed costs remain in check due to demand considerations, including China’s recent rejection of corn and DDG cargoes testing positive for MIR 162. The impact of the latter has reverberated back to the U.S. market, where domestic soybean meal basis is in sharp retreat with DDG’s increasingly displacing meal in livestock feed rations.
Wisconsin farm income good in 2014
That’s according to Ed Jesse, Department of Agricultural and Applied Economics, University of Wisconsin and the College of Agricultural and Life Sciences. “Income wise it was a very good year for Wisconsin, Jesse said in a special audio interview. “We earned about, in total, $3.75 billion in that farm income, which is not a record, but very close to it. Our record was set in 2011 at $3.8 billion, by about $400 million above last year.” Jesse said the lionshare of the income came from dairy as a result of “very good prices, second highest to 2011 in terms of all milk price in Wisconsin, and about 500 million pounds more production.”
Looking ahead Jesse said “The crystal ball is pretty murky,” but believes dairy income will be down as much as 2-3%, adding that “crop revenue will be down because we’re going into a situation where farmers are planting fairly large acreages of corn and soybeans, and we already are beginning to build up stocks in those commodities.” Listen to the compete audio at:
Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
Cash cheese prices strengthened the first Friday of 2014 as traders awaited this afternoon’s November Dairy Products report. The 40lb. Cheddar blocks, on 1 unfilled bid, closed this morning at $2.0425/lb., up 2.75¢ on the day. One single bid took the 500lb. barrels up 7¢, to $1.92/lb. An offer at $1.95/lb. was left on the board.
The blocks are up 4.25¢ on the week, 28.25¢ above a year ago, and the highest level since November 6, 2012. You’ll recall the barrels plunged a total of 12¢ Monday and Tuesday but regained 7¢ this morning. They still closed 5¢ below last Friday, 20¢ above a year ago, and 12.25¢ below the blocks. Only 2 cars of barrel traded hands this week. The AMS-surveyed U.S. average block price hit $1.9133/lb., up 2.4¢, while the barrels averaged $1.8990, up 6.3¢.
FC Stone risk management consultant Joe Kobel wrote in this morning’s eDairy Insider Opening Bell that added support is coming from Dairy Market News report yesterday of mostly higher international dairy product prices and from the higher average U.S. cheddar cheese prices in yesterday's AMS-surveyed prices.
Unfilled bids, 2 of them, took the spot butter 3¢ higher today, to $1.57/lb, following 5 unfilled bids yesterday that added 0.75¢, following a 1¢ gain on Tuesday. The CME Double A butter price is up 2¢ on the week and 7¢ above a year ago. Eleven cars traded hands this week. AMS butter averaged $1.5804/lb., down 6.5¢.
Cash Grade A nonfat dry milk, after losing 2¢ on Monday and 3¢ on Tuesday, inched up 0.75¢ this morning, on 3 trades, and is now trading at $2.0675/lb. The 1st sale was at $2.0650/lb., and 2 followed at $2.0675/lb. Two bids at $2.0675/lb. got no response. The Grade A price is down 4.25¢ on the week. Extra Grade held all week at $2.09/lb., with no activity.
Today’s market closing prices:
Butter: Up 3¢, to $1.57/lb.
Cheddar blocks: Up 2.75¢, to $2.0425/lb.
Cheddar barrels: Up 7¢, to $1.92/lb.
Grade A nonfat dry milk: Up 0.75¢, to $2.0675/lb.
Extra Grade nonfat dry milk: Unchanged, at $2.09/lb.
Class III milk: Jan.$20.06, +40¢, Feb.$19.68 +56¢, Mar. $19.07 +53¢, Apr. $18.55 +38¢, May $18.18 +18¢, & Jun. $17.96 +13¢. Based on today’s CME closing prices, the 2014 average stands at $18.26/cwt., +22¢ from Thursday.
The dairy markets won’t have a lot to feed off of next week, as far as USDA reports. The California Department of Food and Agriculture issues its February Class I milk prices on Friday, January 10, and USDA issues its monthly Crop Report that afternoon as well as its World Agricultural Supply and Demand Estimates report, which will include the Department’s latest milk production and milk price projections.
Monday on DairyLine:
Michigan dairy producer Jim Reid shares his experience in Dubai.
Kristy Pagel, dairy team facilitator with Diamond V, discusses the importance of team
This week in DairyBusiness Update:
TRENDS: Many December dairy numbers are the best of the year
Page 2: Dairy margins end 2013 on strong note; milk a ‘carrier’
INDUSTRY: Dairylea/DFA merger vote next month
WASHINGTON: Next week is critical for Farm Bill; USDA conducting 2014 NAHMS survey