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Key Price Index Shows Improved

by Lee Mielke

Published: Friday, October 5, 2018

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

A higher U.S. All-Milk price average and lower feed prices boosted the August milk feed price ratio to its highest level since January 2018. The Agriculture Department's latest Ag Prices report put the August ratio at 2.03, up from 1.92 in July but down from 2.51 in August 2017.

The index is based on the current milk price in relationship to feed prices for a dairy ration consisting of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. In other words, one pound of milk today purchases 2.03 pounds of dairy feed containing that blend.

The U.S. All-Milk price averaged $15.90 per hundredweight, up 50 cents from July but $2.20 below August 2017.

New Mexico had the bottom at $14.30, followed by Michigan at $14.60. California was at $15.45, up 40 cents from July; and Wisconsin was at $16.20, up 90 cents.

The national average corn price averaged $3.36 per bushel, down 11 cents from July but 9 cents per bushel above August 2017. Soybeans averaged $8.59 per bushel, down 49 cents from July and 65 cents per bushel below a year ago. Alfalfa hay averaged $177 per ton, down $2 from July but $30 per ton above a year ago.

The U.S. milk-over-feed margin advanced 70 cents, to $7.42 per hundredweight, based on the dairy Margin Protection Program calculation. That is the second-highest margin of the year but lower than any margin in 2017.

Looking at the cow side of the ledger, the August cull price for beef and dairy combined averaged $63 per hundredweight, down $3.80 from July, $13.30 below August 2017 and $8.60 below the 2011 base average of $71.60 per hundredweight.

Meanwhile, you'll recall last week I reported August culling at 279,000 head, up 5.3 percent from August 2017. FC Stone adds some insight: "With these types of slaughter numbers and the USDA estimating the dairy herd rose by 5,000 head, we'd suggest this illustrates just how available replacements are. Nevertheless, August's slaughter report in and of itself suggests herd contraction."

Checking the dairy markets, CME Cheddar block cheese finished September at $1.69 per pound, highest level since Sept. 4, up 5½ cents on the week but 4½ cents below a year ago and a half-cent below where it was on Aug. 31. The Cheddar barrels closed the week and the month at $1.3825, 2¼ cents higher on the week, 31 cents below a year ago, and 26¼ cents below its Aug. 31 perch.

It's also an unsustainable 30¾ cents below the blocks, a spread that tops a previous decade high of 30 cents. This was the second week in a row there were no blocks traded at the CME as opposed to 38 of barrel. Only 16 cars of block were traded on the month but 97 cars of barrel.

Producers of gift-packaged Cheddar, Muenster and Colby cheeses are taking in more milk to meet increasing demand, according to Dairy Market News. Mozzarella and Provolone orders are flat to up, week over week. Spot milk is accessible, but most is at a premium, with price ranging from class to $1.50 over. Some milk handlers suggest premiums could go over $2 in the near term.

A fly in the ointment is that cheesemakers, particularly those who ship out of their respective states, suggest that freight has become a logistical nightmare. They relay that required electronic logs are making it harder to find available haulers at practical price points. Bottom line, cheese market tones are uncertain, says DMN.

Retail Sales Pick Up

Matt Gould, editor and analyst with the Dairy and Food Market Analyst, stated in the Oct. 1 Dairy Radio Now broadcast that, "Maybe you wouldn't know it from prices, but domestic demand has been very strong or firm."

Domestic retail sales are up 2 percent, year to date, he said, natural cheese sales are up 3 percent, butter sales are up at least 4 percent, "all firm growth numbers."

Ditto on foodservice, according to Gould. He reported that August restaurant sales were up 11 percent, according to census bureau data. That outpaced the first half of the year's 5 to 8 percent range, adding that the 5-year average is 5.4 percent so "domestically, things are holding up just fine."

Turning to the trade wars, China's latest retaliation to President Trump adding more U.S. tariffs on Chinese goods will hurt dairy more than the last set. The previous tariffs applied to whey and milk powder, Gould explained, but this last set will apply to lactose, which had fallen through the cracks.

He said the trade war with China continues to ramp higher. However, Gould pointed out that things elsewhere may be getting better. President Trump announced that the U.S. will begin trade negotiations with Japan, an agreement with Korea was announced last week, and NAFTA is still on the table as negotiations with Canada continue so, "hopefully other agreements will be achieved that will help dairy," he concluded.

The U.S. Food and Drug Administration, on Sept. 27, announced that it will receive comments on labeling practices of plant-based foods that imitate dairy products.

A FDA press release stated, "The wide variety of plant-based foods that are being positioned in the marketplace as substitutes for standardized dairy products has been the subject of much discussion in our initial work on the Nutrition Innovation Strategy. The rising demand for plant-based products, like soy-based alternatives to cheese and nut-based alternatives to milk, has created a growing number of new food choices in supermarket aisles. However, these products are not foods that have been standardized under names like 'milk' and 'cheese.'"

The FDA said it "has concerns that the labeling of some plant-based products may lead consumers to believe that those products have the same key nutritional attributes as dairy products, even though these products can vary widely in their nutritional content. It is important that we better understand consumers' expectations of these plant-based products compared to dairy products."

The National Milk Producers Federation praised the FDA's announcement and said it hopes the FDA will "finally curtail the misleading labeling practices of plant-based foods imitating real dairy products."

NMPF said it will "provide additional perspective explaining why the agency must enforce its own labeling regulations and limit the use of standardized dairy terms to products that come from an animal," and that it is "pleased that after years of engagement with FDA, the agency is finally addressing its concerns about how these plant-based products are inappropriately marketed to consumers."

No Farm Bill

Last but not least, the 2018 Farm Bill was not be passed by the Sept. 30 deadline and the existing bill will not be reauthorized until Dec. 31, according to Bob Gray, editor of the Northeast Dairy Farmers Cooperatives newsletter. Gray stated that the 2014 Farm Bill will be allowed to lapse rather than be reauthorized.

"This means that some farm programs will be in limbo over the next few months until Congress takes up the legislation after the mid-term elections on Nov. 6," he said. "One of the major controversial issues remaining to be resolved between the House and Senate versions of the bill are the SNAP (Food Stamp) work requirements which would mean that all able-bodied citizens without dependents would be required to attend 80 hours of training each month in order to be eligible to receive food stamps."

Gray adds that most farm bill programs will continue. "Margin Protection Program payments for 2018 would continue to be made if farm milk prices were low enough to warrant payments. Farm insurance payments would continue to be made."

But he concludes with a warning, "Getting the farm bill completed during the Lame Duck session will not be easy. The session in December will be hectic as appropriations bills will be under consideration as well."

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