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Dairy Cow Culling Increases in October; International Prices Up

by Lee Mielke

Published: Friday, November 29, 2019

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

Dairy cow culling in October took a jump from September but fell below October 2018, according to the Agriculture Department's latest Livestock Slaughter report. An estimated 286,100 head were slaughtered under federal inspection, up 30,400 head from September but 2,100, or .7 percent, above a year ago. The 10-month cull count stands at 2.7 million head, up 79,000, or 3 percent, from a year ago.

Dairy cow slaughter for the week ending Nov. 9 totaled 62,700 head, according to the USDA's weekly summary, down 800 head from the previous week and down 2,300, or 3.5 percent, from that week a year ago.

Strength remains in the international dairy market as this week's weighted average of products offered in the Global Dairy Trade auction (GDT) was up 1.7 percent, down from the 3.7 percent jump on Nov. 5, but is the fifth consecutive session of gain. Sellers brought 83.7 million pounds of product to the market last Tuesday, down from 85.3 million in the last event.

Rennet casein led the gains, up 5.6 percent, which follows a 5.1 percent gain last time. Skim milk powder was up 3.3 percent, after jumping 6.7 percent, and GDT Cheddar was up 2.5 percent, after slipping .6 percent. Whole milk powder was up 2.2 percent, following a 2.6 percent rise, and lactose was up 1.3 percent, after falling 1.9 percent last time.

Anhydrous milkfat and butter made up the losses, down 1.5 percent and 1.3 percent, respectively, after respective gains of 2.6 percent and .2 percent in the last event.

FC Stone equated the GDT 80 percent butterfat butter price to $1.7969 per pound U.S., down 2.5 cents from the last event. CME butter closed last Friday at $2.0250. GDT Cheddar cheese equated to $1.6788 per pound, up 4.2 cents and compares to last Friday's CME block Cheddar at $1.8425. GDT skim milk powder averaged $1.3683 per pound and compares to $1.3262 last time. Whole milk powder averaged $1.5063, up from $1.4762. CME Grade A nonfat dry milk closed last Friday at $1.22 per pound.

The December federal order Class I base milk price was announced by the USDA at $19.33 per hundredweight, up $1.19 from November, a hefty $4.28 above December 2018, and the highest Class I price since December 2014. It equates to about $1.66 per gallon, up from $1.29 a year ago. The 2019 Class I average is $16.99, up from $14.84 in 2018 and $16.45 in 2017.

Declines in CME cheese prices paused the week before Thanksgiving as traders awaited last Friday afternoon's October Cold Storage report. The Cheddar blocks fell to $1.8375 per pound last Tuesday, lowest since Aug. 2, but they closed last Friday at $1.8425, still 4.75 cents lower on the week and the third consecutive week of decline, but were 49.75 cents above a year ago when they lost 10.75 cents.

The barrels dipped to $2.15 last Tuesday but closed last Friday at $2.1850, down 1.25 cents on the week and 94.5 cents above a year ago, when they rolled 12 cents lower. They were still at an inverted 34.25 cents above the blocks. Only nine cars of block traded hands on the week at the CME and three of barrel.

Dairy Market News reports that "cheese markets are beginning to play a larger role in rank-and-file cheese production in the upper Midwest. A growing number of plant managers say they are hesitant to add to production schedules in light of the slide, or the correction, of current market prices. Contacts say the price gap is a continued concern, as block prices were sliding quicker than those of barrels."

Cheese demand in most varieties was steady to slower, in line with seasonal trends. Barrel producers are breaking records with strong orders continuing later into the year than expected. As to milk availability, some holiday related milk discounts are being reported at $2.50 under class, while others continue to report premiums at $1 over class.

Western manufacturers say cheese is moving well, pizza sales are steady, and retail accounts are making orders as expected, but additional demand "just is not there." Spot sales have been slow to develop, even as CME prices decreased. Barrel cheese is available and blocks are plentiful so buyers do not have an urgency to take additional loads of cheese and can wait for deals or buy as needed. Milk for processing is abundant and cheese production is active.

Butter barely remains above $2 per pound, closing last Friday at $2.0250, down 4.25 cents on the week and 25.5 cents below a year ago, with 18 sales on the week.

Butter makers say cream is readily available at similar multiples to the past month while others say it's available but are having a hard time finding favorable rates. Some continue to source loads from the West. Expectations are that cream will be readily available Thanksgiving week. Butter churning is generally steady and inventories are in a general balance. Organic butter output is increasing regionally, with organic cream becoming more available of late. Butter markets continue to maintain at just above the $2 mark. Undoubtedly, higher domestic stores and an increasing amount of imports are keeping butter markets toward the lower end of their range-bound status, according to DMN.

Western grocery interests in butter are up and additional requests have been coming the past two weeks. A few bulk sellers received unexpected inquiries from unfamiliar buyers. More cream is going to manufacture Class II products for the upcoming holiday but loads of cream are still enough for butter processing. Stored bulk butter is plentiful and unlikely to run out any time soon, says DMN.

Grade A nonfat dry milk saw a fourth consecutive week of gain, closing at $1.22 per pound, up a quarter-cent on the week, highest CME price since Nov. 4, 2014, and 32.25 cents above a year ago. Twenty-one cars found new homes on the week.

CME dry whey strengthened and less product is moving to Chicago. It closed last Friday at 34.75 cents per pound, up 2.75 cents on the week but 7.75 cents below a year ago, with only 12 sales on the week, down from 29 the previous week.

The Agriculture Department's Nov. 15 Livestock, Dairy and Poultry Outlook stated that "lower expected growth in milk cow numbers and higher expected milk per cow for the latter part of 2019 are expected to carry into 2020. Milk cows are forecast to average 9.335 million head in 2020, 5,000 less than last month's forecast. Milk per cow is forecast at 23,830 pounds, 105 pounds higher than last month's forecast. With higher yields expected to more than offset lower growth in the milking herd, milk production for 2020 is forecast at 222.4 billion pounds, .8 billion pounds higher than last month's forecast."

Matt Gould, editor of the Dairy and Food Market Analyst, warned of rising milk output in the U.S. in the Nov. 25 Dairy Radio now broadcast. He said the weather was cold in the U.S. in October, so output would likely have been higher, had it not been for the cold, and that the milk supply is growing in Europe.

"If you just look at the supply side of the equation, you might conclude things are pretty price negative," he said. "However, there's a number of very positive things on the demand side," and he pointed to the five-year highs on nonfat dry milk and skim milk powder prices, driven by purchases from Southeast Asia and China.

He said he's hearing rumblings that China is getting its hands around its African Swine Fever situation and is coming back to the U.S. for feed for those newborn piglets. "There's a lot to be optimistic on the international demand side" he said. Cheese prices hit the highest levels since 2014 and remain strong, despite the recent fall.

When asked if he agreed with USDA's latest prediction of a 1.7 percent increase in milk output in 2020 over 2019, Gould said, yes, as we are adding cows again. "If you hold cow numbers flat, we tend to increase milk production by a little over 1 percent so 1.7 percent growth rate means more cows," he concluded. However, USDA is also projecting the highest milk prices in 2020, highest since 2014."

Dairy margins strengthened the first half of November as milk prices continued to advance while feed costs remained relatively steady, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.

The MW stated, "Forward margins remain above the 90th percentile of historical profitability through the first half of 2020, with third quarter very close to that benchmark as well. Nearby Class III milk corrected following a drop in cheese futures, although extreme volatility remains between block and barrel prices in the spot market. The CME Group announced a new block cheese futures contract will be launched in January to address this volatility and provide both producers and end users with a better hedge," the MW said.

In politics, the National Milk Producers Federation praised U.S. Sen. Tammy Baldwin (D-Wis.) for "her advocacy for public health and labeling transparency in her questions for Dr. Stephen Hahn during this week's hearing on his nomination to be commissioner of the U.S. Food and Drug Administration."

NMPF president and CEO, Jim Mulhern, stated in his press release, "As the nation's top health official, Dr. Hahn would face many challenging issues, labeling integrity high among them. It's heartening to hear the nominee pledge that an FDA under his leadership will immediately examine this crucial unfinished business." "Given his stated commitment to science and data-based decision-making and his concern for public nutrition, we expect FDA will soon begin enforcing its own standards, which clearly reserve dairy terms for real dairy products, not plant-based imposters who mislead consumers by mislabeling nutritionally inferior products."

In response to a question from Baldwin asking him whether and when the FDA will begin enforcing its own labeling standards, Dr. Hahn said, "The American people need this so that they can make the appropriate decisions for their health and for their nutrition and said he would "look at this as soon as I am confirmed."

Negotiations between House Speaker Pelosi (D-Calif.) and Trade Rep. Robert Lighthiser on the U.S.-Mexico-Canada free trade agreement have been halted for the time being, according to Bob Gray, editor of the Northeast Dairy Farmers Cooperatives newsletter. No reasons were given, but Gray warns, "There are very few legislative days left on the calendar for the rest of this year."

The legislation is welcome by the U.S. dairy industry and while trade issues remain in limbo with China, dairy producers are encouraged to contact their elected representatives and urge them to support the USMCA. A posting at the U.S. Dairy Export Council website shows a state-by-state breakdown of how dairy exports benefit each state. Wisconsin's economy leads the country with more than 12,700 jobs from dairy exports alone, says USDEC.

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