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Prices Climb for Seventh Straight Time on Global Dairy Trade Auction

by Lee Mielke

Published: Friday, March 15, 2019

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

Technical issues delayed reporting of the March 5 Global Dairy Trade auction (GDT), but, once resolved the weighted average of products offered moved higher for the seventh consecutive event, jumping 3.3 percent. That followed a .9 percent ascent Feb. 19 and 6.7 percent on Feb. 6. Sellers brought 52.8 million pounds of product to the market, down from 55.8 million on Feb. 19.

The gains were led by buttermilk powder, up 11 percent. GDT Cheddar cheese was up 6 percent, after it led the gains last time with a 2.9 percent boost. Whole milk powder was also up 6 percent after it inched .3 percent higher last time. Anhydrous milkfat was up 3.9 percent, following a .7 percent increase, and butter was up 3.7 percent, after it gained 1.2 percent in the last event.

Skim milk powder was down 4.3 percent, after it gained 2.8 percent last time, and rennet casein was down .1 percent.

FC Stone equates the GDT 80 percent butterfat butter price to $2.0609 per pound U.S., up 7.2 cents from the last session. CME butter closed last Friday at $2.2675. GDT Cheddar equated to $1.7634 per pound, up a dime from the last event and compares to last Friday's CME block Cheddar at $1.5350. GDT skim milk powder averaged $1.1165 per pound, down from $1.1702. Whole milk powder averaged $1.4452, up from $1.3706 last time. CME Grade A nonfat dry milk closed last Friday at 97½ cents per pound.

Back on the home front, Jan. 31 butter stocks totaled 211.1 million pounds, according to preliminary data in USDA's latest Cold Storage report issued March 7. That's 31.8 million pounds, or 17.7 percent, more than December but an unexpected 15.6 million pounds, or 6.9 percent, below January 2018 and the second time stocks fell below a year ago since February 2018.

American type cheese, which includes Cheddar, climbed to 805.3 million pounds, up 5 million pounds, or .6 percent, from December but 63.5 million, or 8.6 percent, above a year ago.

The other cheese category hit 525.3 million pounds, up 10.6 million pounds, or 2.1 percent, from December and 17.2 million, or 3.4 percent, above a year ago.

The total cheese inventory stood at 1.36 billion pounds, up 15.2 million pounds, or 1.1 percent, from December but a bearish 81.4 million pounds, or 6.4 percent, above a year ago and the 51st consecutive month stocks topped a year ago. The report is viewed as bullish on butter, neutral on cheese.

The Agriculture Department continues to play catch up in its delayed reports due to the government shutdown. The latest was the January 2019 Livestock Slaughter report, which showed dairy cow culling took a jump from December and was up from January 2018.

An estimated 298,400 head were slaughtered under Federal inspection, up 37,200 head from December's 14.2 percent, indicative of the tough times on the farm, and is 8,600 head, or 3 percent, above a year ago.

Meanwhile, the March 1 Daily Dairy Report (DDR) warns of a shrinking supply of young stock on U.S. dairies, in addition to a shrinking dairy herd. The DDR cited the recent semi-annual Cattle report, where USDA estimated the inventory of milk cows on Jan. 1 was at 9.35 million head, down .8 percent from a year ago.

"There were 4.7 million dairy heifers at the start of the year," the DDR stated, "nearly 67,000 head fewer than at the beginning of 2018, a decline of 1.4 percent. The agency also revised downward its estimate of last year's dairy heifer inventory by .3 percent or 12,700 head. For the third straight year, the number of dairy heifers expected to calve and enter the milk cow herd has retreated. USDA projected 3 million dairy heifers will calve in 2019, down 30,700 from Jan. 1, 2018. Since peaking in 2016, the number of dairy heifers expected to calve has fallen by 3.6 percent," according to the DDR.

In another delayed USDA report, December U.S. dairy export data was weaker than expected, reports FC Stone, "driven mostly by dry whey and whey protein concentrate being down 36 and 52 percent, respectively, from last year, although NFDM was a little weaker than expected as well."

"It's hard to disentangle the African Swine Fever from the tariff impact," explains FC Stone, "but U.S. shipments of tariff-affected products were down 59 percent from year-ago levels. Growing exports to other countries were making up for lower shipments to China and Mexico, but shipments of unaffected products were below year ago levels in November and December too. If there is anything bullish in the aged data, it is cheese exports still holding together pretty well."

The Agriculture Department again lowered its 2019 milk production estimate in its latest World Agricultural Supply and Demand Estimates report issued March 8, blaming smaller expected dairy cow numbers.

2019 production was estimated at 219.7 billion pounds respectively, down 400 million pounds from their previous estimate. If realized, 2019 production would still be up 2.2 billion pounds, or 1 percent, from 2018.

The Class III milk price forecast was raised, based on a higher cheese price projection more than offsetting a lower whey price.

CME Cheddar block cheese closed the second Friday of March at $1.5350 per pound, down 7½ cents on the week, ending five weeks of gain, and 3½ cents below a year ago. The barrels climbed to $1.45 last Wednesday, highest price since September 2018, but closed last Friday at $1.3650, down 4½ cents on the week, 13¼ cents below a year ago, and 17 cents below the blocks. Six cars of block traded hands on the week at the CME and 38 of barrel.

Dairy Market News reports that a number of Midwest cheesemakers say that orders have been slow since early February and, seasonally, expectations are not particularly high for certain producers. That said, some plant managers have picked up production as milk remains discounted week over week.

Continued winter weather in the upper Midwest caused some closures at Class III facilities, pushing extra milk onto the spot market, and prices ranged 50 cents under to $2 under Class III. Cheese inventories are long nationally, though regionally, a number of contacts suggest respective inventories are "in balance."

Western cheese continues to move well through existing contracts and some manufacturers report "pockets of strong demand." Most of the cheese industry suggest that demand is good, but not great. Near term spot sales are slow to develop and recent price increases have "had a cooling effect on end users' mood." Cheese facilities continue to operate at or near full capacity and processors are happy to push off extra loads of milk into other channels, especially as parts of the region enter spring flush. Cheese stocks are plentiful, and cheese makers want to keep tabs on inventories.

Spot butter started the week jumping 5¼ cents, a likely reaction to the CME's new crop rule, according to insiders, but the markets reacted last Tuesday and the gains were short-lived. It closed last Friday at $2.2675 per pound, down 2 cents on the week but 6¼ cents above a year ago, with 29 cars selling on the week.

FC Stone dairy broker Dave Kurzawski wrote in his March 8 Early Morning Update, "What we find more and more interesting is that the butter price is able to maintain a $2.20-ish price level despite increased fat production by U.S. dairy producers. Forget about aged USDA data, the little nugget you ought to be paying attention to is that fat demand continues to gain ground every day. More people are eating higher fat items in the U.S. for any number of reasons."

DMN says seasonally available cream inventories are flowing into butter plants, with some weather-related exceptions in the Upper Midwest, but plant managers continue to store butter for the spring and fall demand pushes.

Grade A nonfat dry milk saw last Friday's close at 97½ cents per pound, down a penny from the previous week but 26¾ cents above a year ago, on 16 sales.

FC Stone's Kurzawski said, "Discussions around powder over the past month have not necessarily turned bearish, just not bullish. With more productive capacity online in the U.S., decent milk flows, and a cooled global demand picture has added up to a corrective mode from January highs. We're not necessarily done with that yet, but we're in what appears to be a lull presently."

Spot dry whey, which will celebrate its one year anniversary at the CME this week, closed last Friday at 34 cents per pound, down 2 cents on the week, with 15 cars finding new homes on the week.

In politics, Agriculture Secretary Perdue got an earful on behalf of hurting dairy farmers after meeting Feb. 27 with Arden Tewksbury, manager of the Progressive Agriculture organization, before the House Agriculture Committee Meeting.

Tewksbury delivered a letter to Perdue prior to the meeting urging him to take immediate action because, according to Pro-Ag, the total loss to U.S. dairy farmers for each year for the last four years equals $12 billion and the loss each year to the rural economy is at least $60 billion.

Pro-Ag called for holding national milk hearings for dairy farmers, to "give them an opportunity to illustrate how tough it is on our dairy farms." The group also called for an emergency floor price of $20 per hundredweight be placed under milk used to manufacture dairy products, and called for a new pricing formula that considers the dairy farmers' cost of operation.

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