Lee Mielke: Roller coaster ride continues in dairy market

Columnist Lee Mielke wraps up the week’s dairy industry news.

By Lee Mielke

For the Capital Press

Published on August 28, 2018 11:37AM

Lee Mielke

Lee Mielke


The roller coaster was alive and well at the CME last week. The Cheddar blocks fell to $1.61 per pound Monday but closed Friday at $1.67, up 1 1/2-cents on the week and 2 cents above a year ago.

The barrels fell to $1.5650 Wednesday but closed Friday at $1.60, down 7 cents on the week and 4 1/4-cents above a year ago.

The blocks lost 1 3/4-cents Monday, then regained 1 1/2-cents Tuesday, hitting $1.6675. The barrels were up a penny Monday and stayed there Tuesday at $1.61.

Demand reports throughout August have been similar, according to Dairy Market News. Mozzarella, provolone and curd orders have been strong or strengthening, while Cheddar/specialty producers have seen slowdowns. Orders last week were steady to stronger across the board. Pizza cheesemakers are citing new and returning college students as a primary factor in the continued demand upticks, not to mention an overall bump in dining out.

While milk production has eased somewhat in the West and Class I demand has increased, cheese production remains steady and in line with seasonal norms.

Cheese orders from the food service sector have somewhat increased as pizza processing is taking more cheese than usual. But stocks remain profuse for many varieties of cheese. Cheese marketers continue to report that U.S. cheese is facing strong competition in international markets. Nonetheless, industry players are hopeful that new sales opportunities both in the international and domestic markets will become available and help keep inventories in check.

Spot butter dipped to $2.2375 per pound last Tuesday, only to close Friday at $2.26, still down 4 1/2-cents on the week and 36 3/4-cents below a year ago.

Monday’s butter jumped 3 1/2-cents and inched up a half-cent Tuesday, to $2.30.

Churn activity increased last week in the Midwest, while some south-central butter plants were holding off. Cream prices have become more approachable for butter producers since their peak, says DMN, and cream rates are in a fairly sharp downturn, as school bottling has put more milkfat back on the market. Retail sales remain healthy, according to contacts and the butter market tone is steady.

The Western butter market has been showing a weaker price trend in recent days and the spot market appears to be taking a break as purchasers try to figure out the market’s direction.

Grade A nonfat dry milk closed Friday at 87 cents per pound, up three-quarter cents on the week but 2 1/2-cents above a year ago, on 34 reported sales for the week.

Monday’s powder was unchanged but added three-quarters Tuesday, inching to 87 3/4-cents per pound.

Cash dry whey closed Friday at a new high 48 cents per pound, up 3 1/2-cents on bids, with 2 sales reported on the week for the CME’s newest market.

The whey was unchanged Monday but inched up a half-cent Tuesday to another new high of 48 1/2-cents per pound.


Cheese record


July butter stocks saw a bullish drawdown in July but remain bearishly above July 2017, according to the Agriculture Department’s latest Cold Storage data. The July 31 inventory fell to 318.0 million pounds, down 18.6 million pounds, or 5.8 percent, from June but 10.7 million pounds, or 3.5 percent, above July 2017.

American type cheese, which includes Cheddar, jumped to 824.6 million pounds, up 24.2 million pounds, or 3.0 percent from June, but 6.9 million or 0.8 percent below a year ago.

The other cheese category inched up 557.4 million pounds, up 498,000 pounds from June and 46.5 million, or 9.1 percent, above a year ago.

The total July cheese inventory stood at a new bearish record high 1.41 billion pounds, up 25.7 million pounds or 1.8 percent from June and 44.8 million pounds or 3.3 percent above a year ago.


Culling continues


U.S. dairy cow culling crept higher in July and was substantially above a year ago. The latest Livestock Slaughter report shows an estimated 239,600 head were slaughtered under federal inspection, up 2,100 from June and 13,800 or 6.1 percent above a year ago. A total 1.8 million head were culled in the seven-month period, up 87,200 head or 5.1 percent from 2017.


Class I up


The Agriculture Department announced the September Federal order Class I base milk price at $14.85 per hundredweight, up 70 cents from August but $1.86 below September 2017, and the lowest September Class I value since the disastrous year 2009 when it was at $10.93. The 2018 average now stands at $14.58, down from $16.41 at this time a year ago and compares to $14.37 in 2017.


Aid package


While the media on Monday reported that the U.S. and Mexico have agreed on a re-tooled NAFTA, which pushed Class III milk futures higher, U.S. Agriculture Secretary Sonny Perdue announced details of actions the Agriculture Department will take to “assist farmers in response to trade damage from unjustified retaliation by foreign nations.”

As announced last month, USDA will authorize up to $12 billion in programs, consistent with World Trade Organization obligations, to “assist agricultural producers to meet the costs of disrupted markets.”

USDA’s Farm Service Agency will administer the Market Facilitation Program to provide payments to corn, cotton, dairy, hog, sorghum, soybean and wheat producers starting Sept. 4.

USDA’s Agricultural Marketing Service will administer a Food Purchase and Distribution Program to purchase up to $1.2 billion in commodities unfairly targeted by unjustified retaliation. USDA’s Food and Nutrition Service will distribute these commodities through nutrition assistance programs such as the Emergency Food Assistance Program and child nutrition programs.

Through the Foreign Agricultural Service’s Agricultural Trade Promotion Program $200 million will be made available to develop foreign markets for U.S. agricultural products.

FC Stone calculates the payout to dairy producers will be about 12 cents per cwt. or about $127.4 million. Another $84.9 million will go to commodity purchases, which FC Stone says will likely raise cheese prices about 3 cents per pound or 26 cents per cwt. for Class III milk.

“This is truly unlike other farm aid packages” says FC Stone. “The program seems significantly limited by the stipulations and conditions that need to be met in order to spark both direct payments and purchase programs. Additionally, the whole thing remains fairly vague as if the government is leaving themselves an ‘out.’ Mr. Perdue literally said that the aid package could ‘go away tomorrow’ if we can work out deals with major trade partners. The package is generally supportive of dairy markets currently. But a new trade deal with Mexico is more supportive.”

The National Milk Producers Federation says the plan “falls far short of addressing the losses dairy producers are experiencing due to trade retaliation resulting from the administration’s imposition of steel and aluminum tariffs.”

“The dairy-specific financial assistance package centered on an estimated $127 million in direct payments, represents less than 10 percent of American dairy farmers’ losses caused by the retaliatory tariffs imposed by Mexico and China.”

“The price drop resulting from these tariffs has not been gradual, it’s hurting U.S. dairy producers right now and will continue to do so. Since the retaliatory tariffs were announced in late May, milk futures prices have lost over $1.2 billion through December 2018. Milk prices for the balance of the year are now expected to be $1.10-per-hundredweight lower than were estimated just prior to the imposition of the tariffs on U.S. dairy exports,” NMPF says.



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