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Increase in Class 3 Milk Price Could Be Start of Upward Trend

by Lee Mielke

Published: Friday, April 13, 2018

The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Week-ly."

The March federal order Class III benchmark milk price started climbing out of its hole and hit $14.22 per hundredweight, up 82 cents from February but $1.59 below March 2017. The first quarter average is at $13.87, down from $16.49 at this time a year ago and compares to $13.75 in 2016.

Class III futures last Friday morning portend an April price of $14.45; May, $14.74; and June at $15.08, with a peak at $16.16 in October.

The March Class IV price is $13.04, up 17 cents from February but $1.28 below a year ago. Its first quarter average stands at $13.01, down from $15.37 a year ago and compares to $13.75 in 2016.

USDA's latest Dairy Products report pegged February U.S. cheese output at 981.6 million pounds, down 10.5 percent from January but 4.2 percent above February 2017. That put the two-month total at 2.08 billion pounds, up 4.6 percent from a year ago.

California produced 198.8 million pounds of that cheese, down 8.3 percent from January but 3.5 percent above a year ago. Wis-consin, at 262.9 million pounds, was down 9.5 percent from January and also 3.5 percent above a year ago. Idaho contributed 72.1 million pounds, down 15.6 percent from January but 5.5 percent above a year ago and Minnesota, at 56.9 million pounds, was down 8 percent from January but 10.6 percent above a year ago. New Mexico produced 64.8 million, down 5.2 percent from January and 9 percent above a year ago.

Churns produced 168.6 million pounds of butter, down 7.4 percent from January but 4.7 percent above a year ago. YTD output is at 350.7 million, up 3.5 percent.

Yogurt output amounted to 367.8 million pounds, up 1.3 percent from a year ago, with YTD hitting 733.2 million pounds, down .6 percent.

Dry whey totaled 89.4 million pounds, up 14.6 percent, with YTD output at 179.7 million pounds, up 12.1 percent. Stocks totaled 88.6 million pounds, down 1.8 percent from January but 24.8 percent above those a year ago.

Nonfat dry milk totaled 158.5 million pounds, down 1.1 percent from January but 12.1 percent above a year ago. YTD output stands at 318.8 million pounds, up 8.2 percent. Stocks climbed to 323.99 million pounds, up 17 million pounds or 5.5 percent from January and 61.9 million pounds or 23.6 percent above a year ago. January stocks were revised sharply lower to the tune of 33.2 million pounds.

Skim milk powder produc-tion totaled 36.5 million pounds, down 20.3 percent from January and 8.9 percent below a year ago.

Dairy product prices were mostly higher the first week of April. Cheddar block cheese closed that Friday at $1.6025 per pound, up 7¼ cents on the week and 14¼ cents above a year ago. The barrels finished at $1.45, up a penny on the week, 1½ cents above a year ago, but an unsustainable 15¼ cents below the blocks. Six cars of block were traded on the week at the CME and 32 of barrel.

Cheese demand is a mixed bag, says Dairy Market News. Reversing a trend from previous weeks, Italian style cheesemakers report steady to increased sales. While traditional style cheesemakers, who have recently provided generally positive demand reports, are relaying decreasing sales in some cases.

More cheesemakers are taking discounted spot milk, with prices ranging $2.50 to $5 under class and milk offers are prevalent. Market tones are somewhat mixed. Some contacts expect prices to steadily increase near term, while others point to recent slips and question the market's direction.

Western cheese is active as milk continues to be readily available. Manufacturers expect production to remain solid in the coming weeks as they reach the upsurge of the spring flush. With current abundant inventories, prices are fairly steady. "Some contacts report that prices are not reflecting the current condition of the market. Cheese inventories/production are more than demand; therefore, according to contacts, prices are supposed to be lower than they are."

Cash butter shot up 9½ cents last Wednesday to $2.3350 per pound, despite a lot of product finding its way to Chicago, but it closed last Friday at $2.2875, up 7¼ cents on the week and 19 cents above a year ago, with 51 cars sold.

Cream headed for the churns is not where some butter producers were expecting following the holiday, says DMN. Butter demand is not slowing and 82 percent butterfat loads are sought after on the world market, whereas 80 percent butterfat loads have been moving fairly regularly in the domestic arena. Contacts continue to relay the increased cold storage data has not affected overall market positivity.

U.S. farmers for the first time in 35 years are expected to plant more soybeans in 2018 than corn. The Agriculture Department's March 29 Prospective Plantings report estimates corn acreage at 88 million acres, down 2 percent, or 2.14 million acres, from last year. Planted acreage is expected to be down or unchanged in 33 of the 48 es-timating states from a year ago.

Soybean planted area is estimated at 89 million acres, down 1 percent from last year. Planted acreage intentions are down or unchanged in 20 of the 31 estimating states and cotton planted area was estimated at 13.5 million acres, up 7 percent from a year ago.

Corn and soybean meal spiked sharply in response to the report, with acreage estimated well below trade expectations, according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC.

Low Margins Continue

The MW stated, "Dairy margins deteriorated over the second half of March as a result of higher projected feed costs, with milk prices holding mostly steady." "Margins remain negative and well below average in spot second quarter and only exist near breakeven beyond that through early 2019."

The Agriculture Department is calling on dairy farmers to sign up for the "new improved" Margin Protection program (MPP).

Agriculture Sonny Perdue says the MPP will "provide better protections for dairy producers from shifting milk and feed prices. We recognize the financial hardships many of our nation's dairy producers are experiencing right now. Folks are losing their contracts and they are getting anxious about getting their bills paid while they watch their milk check come in lower and lower each month. The Bipartisan Budget Act provided some much-needed incentives for producers to make cost-effective decisions to strengthen their farms, mitigate risk, and conserve their natural resources." The enrollment period will run from ow through June 1.

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