DairyBusiness Update: May 21, 2014

June “Dairy Month” Federal Order Class I Price Drops $1.61
   The Agriculture Department announced the June Federal order Class I base milk price this afternoon at $22.86 per hundredweight, down $1.61 from the record high May price, but still $3.93 above June 2013, and the highest June Class I price since June 2011. It equates to about $1.97 per gallon.
   That puts the six-month Class I average at $23.02, up from $18.22 at this time a year ago, $16.48 in 2012, and $18.14 in 2011.
   The two-week, NDPSR-surveyed butter price used in calculating today’s price was $2.0176 per pound, up 4.7 cents from May. Nonfat dry milk averaged $1.8768, down 12.7 cents. Cheese averaged $2.2029, down 16.7 cents, and dry whey averaged 67.24 cents, down fractionally from May.

Fonterra Pained by GDT Price Fall
   Highground Dairy’s Eric Meyer, looking at Tuesday’s Global Dairy Trade auction, says on the surface, the GDT Price Index has fallen for the seventh straight auction with the strongest declines in skim milk powder and butter. But when digging further into the results, the story becomes clear that Fonterra endured the biggest pain while other sellers found stability this week.
   We were somewhat surprised by this week’s whole milk powder declines given the decrease in Fonterra’s volume estimates for this trading event and the following three auctions. At 15,300MT, this was the lowest amount of Fonterra WMP on offer in 11 months. Though the comparable auction last year had drastically lower volume due to drought impact, WMP volume from two years ago was nearly 10,000MT more than offered yesterday. While it could be an anomaly, lower prices on decreased volumes is a bearish indicator.
   In addition to WMP, Fonterra struggled with a number of different commodities at this week’s GDT. There is no glaring reason from the data to suggest why this occurred except for lack of demand and the potential loss of market share during their off-season.
   The US appeared to be the winner with stable to higher prices on SMP and Butter offered this week. However, the current premiums being achieved for US product over Fonterra and other sellers is likely to erode at some point in the near future as buyers begin to shop for value. US milk supply growth remains underwhelming but the EU continues to show impressive gains and both Oceania and South American countries are seeing substantial year-over-year increases at the tail end of their season.
   Read Meyer’s conclusions by writing him: dairy@highgroundtrading.com.

Growing Milk Output Spinning the Churn and Filling the Vat  
   With upturns in Northeast milk volumes and increases in cream supplies, butter manufacturers are actively churning, according to USDA’s Dairy Market News. They anticipate added milk/cream volumes to emerge during the Memorial holiday period. Some balancing plants' churns are inactive with loads primarily clearing to Class II usage. Butter stocks are moderate to increasing. Interest from the export market is active.
   Milk supplies for cheese production are plentiful. Interest in wholesale Swiss has declined considerably. In addition, some producers indicate that current Swiss price levels are relative to March cheese prices, as a result, the market stands to lose significant margins as prices move lower. Generally, cheese inventories in the region are building as the market stabilizes.  Interest from export markets remains active.

Lagging NDPSR Prices: Cheese Dropping, Butter  Jumping
   The latest Agricultural Marketing Service’s National Dairy Products Sales Report (NDPSR), released this afternoon shows the U.S. average block Cheddar cheese price at $2.1602/lb., down 5.2¢ from the week before, while the barrels averaged $2.1651, down 6.5¢. Butter jumped 6.5¢, to $2.0544/lb. Nonfat dry milk averaged $1.8556/lb., down 4.3¢, and dry whey averaged 67.27¢/lb., up 0.1¢. These prices are used in determining Federal order Class milk prices.

California Powder Continues to Slip But Sales Are Up
   The California Department of Food and Agriculture announced its latest surveyed nonfat dry milk prices yesterday at $1.8284/lb. for the week ending May 16, on sales of 17.68 million lbs. The price was down from $1.8386/lb. the week before, on sales of 15.42 million lbs.

California Producer Group Forms Alliance with Law Firm  
   California’s Milk Producers Council (MPC) and Weintraub Tobin Chediak Coleman Grodin Law Corporation (Weintraub) announced a new strategic partnership this morning in a press release. The partnership was created to “provide labor and employment and environmental support services for the dairy family members of MPC and offer these members access to both labor and employment and environmental legal counseling.”
   Weintraub’s program developed for MPC’s members includes unlimited access to Weintraub’s monthly Labor and Employment Seminars, regular updates on evolving labor/employment and environmental issues, as well as 24/7 access to its attorneys.
   “Whether you are talking about environmental or labor regulations, the sea of red tape in California can be drowning for our State’s dairy farmers, and it’s seemingly worse by the day,” said Rob Vandenheuvel, MPC’s General Manager. “This partnership will provide MPC’s members with access to valuable information that can help them navigate their way through those regulations. We’re very excited to be partnering with this prestigious firm for the benefit of our membership.”
   Lee N. Smith, a Weintraub shareholder in Fresno and Sacramento added, “While we have been doing work for the dairy industry for many years on the environmental side, we look forward to bringing our extensive labor expertise to these dairy families as well.”
   Weintraub Tobin Chediak Coleman Grodin Law Corporation is headquartered near the California state capitol and has offices in San Francisco, Beverly Hills, Newport Beach and Fresno. The firm’s website is found at: www.weintraub.com.

Mielke Market Daily 
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   If it weren’t for butter trading this morning, one might have thought the dairy traders took off early for the Memorial Day holiday. CME cash cheese was unchanged, with no activity. The 40lb. block Cheddar remains at $1.96/lb., following losses yesterday and Monday totaling 3.75¢. The 500lb. barrels are also at $1.96/lb., with no activity.
   FC stone dairy broker Dave Kurzawski wrote in this morning’s Insider Opening Bell that the 1.04% increase in April milk production was “not a lot and people are talking about El Nino and possible drought effects down the road for Oceania." He adds that “milk demand has softened but is still enough to underpin the market.”
   And, after the 16-car buying spree in butter yesterday, two more loads traded hands this morning, both at $2.1625/lb., down 0.5¢, after jumping 1.25¢ yesterday. An offer at $2.1625/lb. could not draw another buyer.
   "Butterfat is not necessarily tight but it is certainly sought after," says Kurzawski.
   Cash Grade A nonfat dry milk was unchanged today, after inching up 0.5¢ yesterday, 0.25¢ Monday, and 0.25¢ both Thursday and Friday last week, and remains at $1.7925/lb. There was no activity today in the powder.

Today’s Market Closing Prices
Butter: Down 0.5¢, to $2.1625/lb.
Cheddar blocks:  Unchanged, at $1.96/lb.
Cheddar barrels: Unchanged, at $1.96/lb.
Grade A nonfat dry milk: Unchanged, at $1.7925/lb.
Class III milk: May $22.56, -2¢; Jun. $20.23, -4¢; July $19.98, -9¢; Aug. $19.99, -6¢; & Sept. $20.03, Unchanged. Based on today’s CME settlements, the Third Quarter 2014 average now stands at $20.00, -5¢ from Tuesday. The Fourth Quarter average is now at $19.25, +2¢ from Tuesday.

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Looking ahead:
   The Agriculture Department issues its preliminary data from the April Cold Storage report is out tomorrow afternoon, along with the monthly Livestock Slaughter report.  

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Thursday on DairyLine:
   National Milk’s Chris Galen has his weekly Capitol Hill Update      

www.dairyline.com/thursday.mp3

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