New Milk Marketing Order to Be Created for California Producers
Published: Friday, June 15, 2018
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
California dairy farmers said "Yes." The Agriculture Department therefore announced June 7 that the nation's largest milk producer will become part of the Federal Milk Marketing Order. The new order will be officially be implemented on Oct. 17 when USDA releases the November Class I base milk price. Affected parties will be required to comply with all provisions starting Nov. 1.
Meanwhile, the gears reversed again in the June 5 Global Dairy Trade auction, this time with the weighted average of products offered falling 1.3 percent, following a 1.9 percent uptick May 15 and a 1.1 slippage on May 1.
Cheddar cheese led the declines, down a bearish 3.6 percent, following a 4.4 percent ascent last time. Butter was down 3.5 percent, after it rose 2.4 percent. Anhydrous milkfat slipped 1.7 percent, after it led the gains last time with a 5.8 percent advance, and whole milk powder was off 1.1 percent, after it inched .2 percent higher on May 15.
Buttermilk powder led the gains, up 17.7 percent, after not trading in the last event. Lactose was up 3.9 percent and rennet casein was up 2.7 percent. Skim milk powder inched .3 percent higher after a strong 3 percent rise last time.
FC Stone equates the GDT 80 percent butterfat butter price to $2.4696 per pound U.S. CME butter closed last Friday at $2.39. GDT Cheddar equated to $1.8135 per pound U.S. and compares to last Friday's CME block Cheddar at $1.6350. GDT skim milk powder averaged 93.04 cents per pound and whole milk powder averaged $1.4538. CME Grade A nonfat dry milk closed last Friday at 80½ cents per pound.
World trade is in reactionary mode following President Trump's announced retaliatory tariffs. You'll recall in March he increased tariffs on U.S. imports of steel and aluminum but gave temporary waivers to several countries including the EU, Canada and Mexico. He threatened to end the waivers if a new NAFTA wasn't renegotiated by June 1. That didn't happen. Hence, he acted accordingly.
Mexico retaliated by raising tariffs on a number of U.S. products, including a 20 percent tariff on U.S. pork imports, apples and potatoes and 20 to 25 percent tariffs on various cheeses and bourbon, effective July 5.
HighGround Dairy warned, "The listed tariffs as reported by Mexico, if implemented, would be bearish to the U.S. market, as this would impact nearly all of the cheese that is exported into Mexico. While this would not cut off exports from the U.S. completely as supply chains need to be filled. This would make product 10-25 percent more expensive for Mexican end-users, which would have an impact on demand as well as encourage buyers to look elsewhere to fill their needs."
HGD's Lucas Fuess talked about it in the June 11 "Dairy Radio Now" broadcast and reported that, ironically, the U.S. had another great month in exporting dairy products. He stated, "All products posted higher exports versus prior year levels and 2018 is shaping out to be a record year for U.S. dairy exports."
Nonfat dry milk posted another record high, he said, third month in a row powder exports set a new record. Nonfat dry milk exports were up 17.7 percent from March, which itself was a record export month. Nonfat dry milk exports to Mexico were up 28 percent versus 2017 and accounted for a 41 percent market share.
Whole milk powder shipments also continued strong, more than double prior year levels for two months in a row now. Volumes to China continued to impress, importing an additional 2,394 metric tons in April versus prior year and becoming the top destination, with 54 percent market share, according to HGD.
"Total cheese exports were close to but not quite at record levels (7.3 million pounds short of the March 2014 record). Volumes to Mexico, the top destination for U.S. cheese, were up 11 percent versus prior year to 18.4 million pounds for 25 percent market share," according to Fuess.
"If we can maintain these exports, coupled with strong domestic demand, it will be good overall for the market, but any drop in export volumes, coupled with higher milk supplies that continue in the U.S., will pressure prices in a negative way," he concluded.
The U.S. Dairy Export Council President and CEO Tom Vilsack warned, "Tariffs on cheese will potentially eliminate the competitive advantage we have in our No. 1 market. That is a legitimate concern." He said the council will analyze the potential impact of the tariffs and "work to mitigate their negative impact."
Just a quick heads up from FC Stone: "China is desiring to balance the trade books with the U.S. One way they can do that is to buy more energy and agricultural products from the U.S., including corn."
Milk Production Up Slightly
The U.S. has plenty to export. You'll recall that preliminary USDA data reported April 50-state milk production at 18.4 billion pounds, up just .6 percent from April 2017. USDA's latest Dairy Products report shows where that milk went.
April cheese output totaled 1.07 billion pounds, down 3.7 percent from March but .9 percent above April 2017. Year-to-date output stands at 4.26 billion pounds, up 2.6 percent from this time a year ago.
Wisconsin produced 277.9 million pounds of that cheese, down 4.2 percent from March and .7 percent below a year ago. California provided 210.7 million pounds, down 2.3 percent from March but .1 percent above a year ago. Idaho contributed 86 million pounds, down .1 percent from March and 3.7 percent below a year ago. Minnesota, at 61.4 million, was down 3.2 percent from March but 2.5 percent above a year ago. New Mexico produced 73.8 million pounds, down 3 percent from March but 14.7 percent above a year ago.
Italian cheese totaled 451.6 million pounds, down 6.2 percent from March but .8 percent above a year ago. Year-to-date (YTD) Italian is at 1.8 billion pounds, up 3.1 percent from a year ago. Mozzarella, at 351.1 million pounds, was up 1.1 percent, with YTD at 1.4 billion pounds, up 2.9 percent.
American type cheese production totaled 440.8 million pounds, down .6 percent from March but 1.4 percent above a year ago, with YTD at 1.72 billion pounds, up 1.6 percent.
Cheddar output, the cheese traded at the CME, totaled 318.2 million pounds, down .9 percent from March and 3.5 percent below a year ago, with YTD Cheddar at 1.25 billion pounds, down 1.7 percent.
Churns produced 175.3 million pounds of butter, down 3.7 percent from March but a hefty 8.3 percent above a year ago and the biggest gain year over year since February 2012. YTD output is at 709.6 million pounds, up 4.7 percent.
California butter totaled 53.5 million pounds, down 9.4 percent from March but 11.3 percent above a year ago. Pennsylvania output was up 6.5 percent from Match and 3.4 percent above a year ago.
Yogurt output amounted to 358.7 million pounds, down 4.4 percent from a year ago, with YTD hitting 1.49 billion pounds, down 3.1 percent.
Dry whey totaled 85.2 million pounds, up .7 percent, with YTD output at 355.8 million pounds, up 7.3 percent. Stocks totaled 68.7 million pounds, down 8.5 percent from March and 19.7 percent below those a year ago.
Nonfat dry milk production totaled 166.3 million pounds, down 6.9 percent from March and 3.8 percent below a year ago. YTD output stands at 663.1 million pounds, up 5.1 percent. Stocks fell to 274 million pounds, down 23.9 million pounds, or 8 percent, from March but are 6.6 million pounds, or 2.5 percent, above those a year ago.
Skim milk powder production totaled 49.3 million pounds, up 17.3 percent from March but 1.8 percent below a year ago.
Cheddar Prices Rally
Cash dairy markets weakened, perhaps over trade concerns, but rallied as the first week of June Dairy Month progressed. Block Cheddar dipped to $1.5750 per pound last Tuesday but closed last Friday at $1.6350, up 3¾ cents on the week and a half-cent above a year ago. The barrels finished at $1.5650, up 4½ cents and 15 cents above a year ago, with 35 cars of block trading hands and 39 of barrel.
Spot milk remains discounted for Class III producers, according to Dairy Market News, ranging $1.50 to $4 under class. Plants report that cheese production is steady to increasing, but lighter demand may reverse that. Demand remains slow to steady, depending on variety and destination. Pizza cheesemakers report that Eastern buyers "have been falling back on necessity buying of late, as market prices have slipped since early May. Some Midwestern cheesemakers point to Mexican tariffs as a potential cause for concern, while suggesting effects may not be felt until later in the year."
Western cheesemakers report that cheese customers are making regular draws, but not asking for more right now. The unofficial start to summer has passed and grilling season is upon the nation. However, terms are ending for the school year and food service demand is shifting. Buyers and manufacturers are adjusting to the new consumption patterns. In some cases, processors are planning to slow the cheese vats, despite the widespread availability of cheap milk. Inventories are healthy, but not burdensome. Contacts hope export demand continues to grow, but some have lingering concerns about trade discussions, potential tariffs, currency rates, shipping and other trade issues.
Cash butter saw a Friday close at $2.39 per pound, up 1¼ cents on the week but 8½ cents below a year ago, with 19 cars trading hands on the week.
Cream remains fairly tight for some upper Midwest butter makers, according to DMN, though bulk butter is very available, particularly from the West. "Production is picking up a bit, as fall storage preparations are underway. Some regional analysts have relayed that U.S. butter markets may have hit their 2018 apex. They suggest inventory increases in the U.S., and in some import destinations, are going to impact the markets during what is typically the butter boom season the fall. That said, butter markets have been especially resilient in the face of bearish holdings reports month after month," said DMN.
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