Cheese, Butter Production Surge, Though Market Has Bullish Tone
Published: Friday, January 18, 2019
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Week two of 2019 became week three of the partial government shutdown and hope for an end was nowhere in sight. The Agriculture Department's monthly World Agricultural Supply and Demand Estimates report (WASDE), scheduled for Jan. 11, was the latest casualty of the shutdown. The report would have included the USDA's latest estimates on U.S. milk production and milk prices as well as crop estimates. The last time this happened was October 2013 and the report was eventually canceled.
Monthly U.S. trade data from the Bureau of Census, which was due to be released Jan. 8, was also not published, and the Northeast Dairy Farmers Cooperative's newsletter editor, Bob Gray, said, "There will be a delay in writing the new rules for the Dairy Margin Coverage Program. USDA loans and grants will not be processed as well."
The week saw the block Cheddar fall to $1.37 per pound last Wednesday, then rebound and close last Friday at $1.41, down three-quarter cents on the week and 4½ cents below a year ago, as traders anticipated the Jan. 15 Global Dairy Trade (GDT) auction.
The barrels finished at $1.2450, down 5¾ cents, 2¾ cents above a year ago when they tumbled 17¼ cents, and are 16½ cents below the blocks. CME trading put six cars of block into new hands on the week and 28 cars of barrel.
Dairy Market News reports that cheese production continues aplenty, though the milk price narrative has changed. Last week's spot milk prices ranged from $2 under to $1 over, whereas New Year's week prices were wholly discounted. "Sales reports from most producers point to a bullish push," said DMN. "Some expect schools and restaurants are simply refilling their stocks, and the uptick may be short-lived once establishments and schools are replenished." Cheese markets remain somewhat quiet, and while some regional producers relay their inventories are balanced, nationally stores are heavy.
Western inventories remain abundant for the most part, except for a few exceptions. "Cheese sales are quiet to very active depending on the processor. More Mozzarella is clearing through the retail channels for pizza manufacturing. Cheese exports to Asia are up while orders from Mexico are stable. However, supplies exceed current orders." Higher components in farm milk and plenty of milk in the West means cheese productivity is growing, warns DMN, adding more to current stocks and cheese outputs are likely to further increase in the near future, "so market players hope to see livelier spot trading activities in the forthcoming football season."
The spot butter price ended the week at $2.2575 per pound, up three-quarter cents on the week and 9¾ cents above a year ago, with 11 cars sold.
Post-holiday cream availability has Central butter churns fully engaged, says DMN, as producers work to build springtime inventories. Some producers suggest the amount of cream clearing into plants this week was higher than it has been in three years. Butter sales are somewhat steady.
"Butter market analysts suggest butter prices were expected to be slightly lower than they currently are, as market prices hold in and around the low $2.20s. Early year positivity have some contacts suggesting 2019 may be as bullish, if not more so, than 2018," said DMN.
Lots of eyes have been on the powder markets, which strengthened in the last three GDT auctions. CME Grade A nonfat dry milk closed the second Friday of January at $1.03 per pound, up 5½ cents on the week, 36¼ cents above a year ago, and the first time it topped $1 per pound at the CME since January 2017. Ten carloads found new homes on the week.
The Daily Dairy Report's Sarina Sharp wrote in the Jan. 4 Milk Producers Council newsletter, "Lower milk output in parts of the U.S. and Europe is reducing milk powder production and global demand seems to be on firm footing." She adds, "China imported 67.9 million pounds of skim milk powder (SMP) in November, 69 percent more than a year ago and the greatest volume ever for November. Chinese whole milk powder (WMP) imports reached 87.7 million pounds, up nearly 30 percent from November 2017. Through November, China imported 11 percent more SMP and 6 percent more WMP than it did in the first 11 months of 2017. As China struggles to modernize its dairy industry without forcing contraction, imports are expected to remain robust."
Sharp also warned that December U.S. milk checks will be "woefully inadequate," but "subsequent milk checks will be considerably better, especially in those areas with high Class I or Class IV utilization." She said, "The dairy industry has undergone some painful pruning in 2018, but those producers who managed to survive could enjoy a more prosperous new year."
Not having projections from this month's WASDE, Class III futures, as of Jan. 10, projected a 2019 Class III average at $15.83 per hundredweight, up from $14.61 in 2018 and compares to $16.17 in 2017.
FC Stone dairy broker, Dave Kurzawski, wrote in his Jan. 9 Early Morning Update that, "If co-ops in the country have better returns from NFDM/butter production that will take some milk away from producing surplus cheese. Overall the past few years Class IV has continued to maintain discounts to Class III due to the weak NFDM market, but that may be changing after a multi-year bear market cycle."
He adds that Mexico is back in the market and the past 12 months saw Mexico's NFDM/SMP imports rise 9.1 percent at 344,820 metric tonnes (MT). But Mexico re-exported close to 54,000 tons to Venezuela in the form of humanitarian aid, "So, most of the increase in SMP exports to Mexico in the past two years has been because of their aid to Venezuela, which is in economic and political turmoil."
Meanwhile, HighGround Dairy's director of market intelligence, Lucas Fuess, speaking in the Jan. 14 Dairy Radio now broadcast, said "the unthawing" of trade relations with China is good news for U.S. farmers and included the release of the trade data itself, which had been withheld since last April, plus U.S. rice was exported to China for the first time ever.
But, while U.S. dairy exports to China are "doing well, considering the economic issues that China has had the past several months," the big concern is the new competition. The U.S., New Zealand and Europe have traditionally been the biggest suppliers of dairy products to China. Other countries showed up in this latest data, including South America and Belarus, so market share will have to be fought for, he said, and the U.S. will have its work cut out for it to gain back those markets. Fuess concluded, "The U.S. can compete on a very strong level. However, as is apparent with trade around the world, it's never a sure thing."
Down on the farm, milk production patterns the week of Dec. 31 tended to follow the trend of recent weeks, according to the USDA's weekly update. Production is increasing in most areas of the West, but others report steady volumes. Mild winter conditions inspire increased milk output in the Central region. Output is steady to increasing in the Northeast and Florida, with declines in the Mid-Atlantic and unchanged in the Southeast.
Manufacturing plants are at or near capacity in many locations across the U.S. Trucking shortages and freight costs are an issue, prompted by the need to redistribute seasonally heavy fluid supplies. Bottle milk sales remain weak in a few markets, but increasing in others, as schools re-open and consequential re-filling of Class I pipelines occur. Fluid cream markets are in the same situation as fluid milk, heavy volumes and lower prices. Churning is becoming more active.
In politics, the Wisconsin-based American Dairy Coalition (ADC) called on President Trump to liquidate surplus cheese in storage. An ADC press release stated that U.S. dairy farmers are "in a crisis" and "as each week passes, an increasing number of hard-working dairy families are going out of business. Many of us feel helpless and we struggle to support our families, some have even required food stamps to put food their tables. We very much appreciate your recent assistance, but we need milk prices to rise. We want to become profitable, but due to the uncertainty created by lingering retaliatory tariffs, we only see a slight, if any, rebound anytime soon."
"Our milk price has dropped nearly 40 percent over the last 4 years," the ADC charged. "Cheese exports from the U.S. to Mexico are down more than 10 percent annually and shipments to China have fallen almost 65 percent annually. If this isn't bad enough, the industry faces onerous and costly dairy regulations, as well as a shortage of workers, making it hard to find a way each day to stay in business."
The ADC adds that "Despite assistance to offset the negative impacts of milk prices due to the implementation of tariffs with Mexico, Canada and China, more action is needed. Currently, 1.4 billion pounds of American, Cheddar and other types of cheese are sitting in cold storage throughout the U.S. With the price of milk at a record low, it is necessary that this surplus be liquidated to jump start the industry. It is estimated that 40 million Americans struggle with hunger and food insecurity. Stored dairy in the form of cheese provides an excellent source of nutrition for families who do not know where their next meal will come from," the ADC argued.
Speaking of hunger; one of the affected programs of the partial government shutdown has received a reprieve. A Jan. 9 USDA press release stated, "When USDA's funding expired on Dec. 21, 2018, the Supplemental Nutrition Assistance Program (SNAP) benefits for January were fully funded. States have already received that money and have been distributing it to participants. Since the lapse in appropriations, USDA has been reviewing options available for funding February benefits without an additional appropriation from Congress."
President Trump directed U.S. Agriculture Secretary Perdue to announce a plan to "ensure that low-income Americans have access to the nutrition they need, despite the inability of Congress to pass an appropriations bill that safely secures our borders. The plan provides full benefits for participants in SNAP for the month of February."
"USDA is working with states to issue February benefits earlier than usual and will rely on a provision of the just-expired Continuing Resolution (CR), which provides an appropriation for programs like SNAP and child Nutrition to incur obligations for program operations within 30 days of the CR's expiration. USDA will be reaching out to states to instruct them to request early issuance of SNAP benefits for February. States will have until Jan. 20 to request and implement the early issuance. Once the early issuances are made, the February benefits will be made available to SNAP participants at that time," said USDA.
"USDA has also ensured the other major nutrition assistance programs have sufficient funding to continue operations into February. The child nutrition programs, including school meals and after-school programs have funding available to continue operations through March. The Special Supplemental Nutrition Program for Women, Infants and Children has prior year funding which USDA will begin to provide states this week to facilitate February benefits."
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