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Global Demand for Dairy Products 'Robust,' but Tariffs Stand in Way

by Lee Mielke

Published: Friday, November 9, 2018

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

The Agriculture Department announced the October Federal Order Class III benchmark milk price at $15.53 per hundredweight, down 56 cents from September, $1.16 below October 2017, and equates to $1.34 per gallon, down from $1.38 in September and $1.44 a year ago. The 10-month average is $14.72, down from $16.18 at this time a year ago and compares to $14.42 in 2016.

Last Friday morning Class III futures portended a November Class III at $14.81; December, $15.23; January, $15.17; February, $15.25; and March at $15.36.

October's Class IV price is $15.01, up 20 cents from September, 16 cents above a year ago, and the highest Class IV since September 2017. Its 10-month average is $14.10, down from $15.44 a year ago and compares to 13.65 in 2016.

Matt Gould, analyst and editor of the Dairy and Food Market Analyst newsletter, said in the Nov. 5 Dairy Radio Now broadcast that while 2018 is the fourth year in a row of poor farm level milk prices, there are some positives; strong domestic demand for cheese and butter plus global dairy demand is "robust."

"It's not an issue of demand," he explained, "it's an issue of, can we access that demand." The trade war with China and the tariff spat with Mexico has been the driver of low prices this year, he said, and the silver lining might be a repeal by President Trump of his tariff spat with Mexico as "that would be supportive."

When asked about pending new trade agreements, Gould said such agreements with Japan, the Philippines and the United Kingdom once they do Brexit, would be beneficial as they are large dairy markets.

"The tailwinds of the dairy industry are global population growth and rising per capita consumption by those that can afford dairy," he concluded, "So the long-term outlook is certainly positive."

The USDA's latest Dairy Products report shows more milk moved to the vat and less to churns and driers. September cheese output hit 1.06 billion pounds, down 2 percent from August but 3.1 percent above September 2017. Year-to-date (YTD) output hit 9.63 billion pounds, up 2.5 percent from a year ago. September was the 66th consecutive month output exceeded that of a year ago.

U.S. churns produced 134.4 million pounds of butter, up .3 percent from August but .1 percent below a year ago. YTD is at 1.4 billion pounds, up 3 percent.

Yogurt output, at 371.4 million pounds, was down 5.6 percent from a year ago, with YTD at 3.36 billion pounds, down 2.4 percent.

Dry whey totaled 71.3 million pounds, down 21.9 percent, with YTD at 771.9 million pounds, down 2.1 percent. Dry whey for human consumption totaled 70.1 million pounds, down 9.7 percent from August and down 21.7 percent from a year ago. Dry whey stocks totaled 67.5 million pounds, down 5.1 percent from August and a whopping 36.5 percent below those a year ago.

Nonfat dry milk totaled 106.3 million pounds, down 13.2 percent from August and 21 percent below a year ago. YTD output stands at 1.3 billion pounds, down 3.2 percent. Stocks fell to 262.1 million pounds, down 19 million pounds, or 6.7 percent, from August and 58.7 million pounds, or 18.3 percent, below 2017.

Skim milk powder totaled 48.7 million pounds, up 2.4 percent from August and a hefty 67.3 percent above a year ago. YTD skim is at 428 million pounds, up 3.8 percent from a year ago.

Cash dairy prices started November looking for direction. The Cheddar blocks fell to $1.4550 per pound last Thursday, lowest level since June 25, but closed last Friday at $1.4575, down 5¾ cents on the week, 25¾ cents below a year ago, and 29 cents lower than they were Oct. 1.

The barrels jumped 8¼ cents last Wednesday, climbed to $1.3750 last Thursday, but closed last Friday at $1.34, 9 cents higher on the week, 37½ cents below a year ago and 11¾ cents below the blocks. The spread is closer to the normal 3 to 5 cents but is still too high. Lots of cheese came to Chicago with 14 cars of block trading on the week, 82 on the month, and 23 cars of barrel; 183 on the month.

The spread had seen 31 straight trading days at 20 cents or more, and FC Stone says the excess milk continues to move into barrels. Invariably, many of those barrels continue to find their way to the exchange.

Dairy Market News says, "Choppy cheese markets continue to permeate the narrative in the Midwest. However, there was a sign of positivity midweek, as CME barrel prices jumped up to over $1.30 for the first time since mid-October." Specialty cheese producers suggest demand is near peak ahead of the fall holidays. Mozzarella and Provolone producers also suggest demand is steady to up. Supplies are mixed, but freshly produced cheese is moving well.

A higher U.S. All-Milk price average nudged the September milk feed price ratio a little higher, highest level since January, though feed prices crept higher as well. The Agriculture Department's latest Ag Prices report shows the September ratio at 2.10, up from 2.03 in August but down from 2.46 in September 2017.

The U.S. All-Milk price averaged $16.70 per hundredweight, up 80 cents from August but $1.20 below September 2017. New Mexico again had the low end at $15, followed by Michigan at $15.40. California was at $15.97, up 52 cents from August; and Wisconsin was at $17.40, up $1.20 from August.

The national average corn price in September averaged $3.39 per bushel, up 3 cents from August and 12 cents per bushel above September 2017. Soybeans averaged $8.77 per bushel, up 18 cents from August but 58 cents below a year ago. Alfalfa hay averaged $180 per ton, up $3 from August and $31 per ton above a year ago.

The U.S. milk-over-feed margin gained 84 cents from August, hitting $8.26 per hundredweight based on the dairy Margin Protection Program calculation. While that is the highest margin of the year, the Daily Dairy Report points out that it's still lower than any monthly margin in 2017 and $1.73 less than a year ago.

Looking at the cow side of the ledger, the September cull price for beef and dairy combined averaged $60.80 per hundredweight, down $2.20 from August, $9.10 below September 2017 and $10.80 below the 2011 base average of $71.60 per hundredweight.

Milk cows averaged $1,230 per head in October, down $90 per head from July, and $380 below October 2017. California cows averaged $1,200 per head, down $100 from July and $400 below a year ago. Wisconsin cows averaged $1,180 per head, down $70 July and down $430 per head in October 2017.

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