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New Zealand bounces back from drought

Lee Mielke's weekly dairy column
By LEE MIELKE For the Capital Press

Published on September 2, 2013 10:25AM

Lee Mielke

Lee Mielke

A lot of eyes are and will be on the situation in Oceania, particularly on New Zealand, which suffered through a severe drought earlier this year.

Things appear to have turned around significantly, according to Jerry Dryer’s Dairy and Food Market Analyst.

“New Zealand milk producers are contending with too much grass after the back of last summer’s drought was broken during the winter,” the Aug. 23 edition reported. “Forecasters generally agree that the new season will get off to a robust start this year and likely earlier than usual.”

However, he added that output has remained “subdued” through the winter lull. Fonterra milk collections were down 10.4 percent during June and July.

In 2012, the combined production of June and July accounted for just 1.5 percent of the annual total. Australian milk output was down just 3.5 percent during July after being as much as 9.5 percent lower during April.

European production was down several percentage points earlier in the year, but was just 0.6 percent lower in May, the latest data available, according to Dryer.

A footnote on New Zealand: The London-based Global Drought Monitor projects that drought conditions will “dramatically worsen from mid-August to mid-October,” reports The Milkweed. The Milkweed adds that the Global Drought Monitor projects serious dry conditions for much of the agricultural U.S., except for the Deep South and New York and New England during the second half of 2013.

World dairy buyers may be looking to the U.S., the Milkweed warns, but, “in this nation, Mother Nature has been darn tough on crops (especially vital forages) here in 2013 following 2012’s drought.”

Milk production was down in June and July because it is the end of the drought-impacted lactation, adds Jerry Dryer.

“Cows freshen in late August and September and it is a whole new ball game,” he said.

Dryer also expects a huge pull down of butter stocks during August, because plants have switched to 82 percent (butterfat) production and began filling more domestic orders out of existing inventories rather than current production.

The Aug. 28 Daily Dairy Report (DDR) says “Rising farm gate milk prices have done little so far to increase milk production in Oceania.” It reports that the Australian season got off to an unremarkable start with output totaling 1.45 billion pounds in July, a drop of 3.5 percent from July 2012 but slightly higher than July 2011.

New Zealand milk production totaled nearly 269 million pounds in June, which is 6.9 percent lower than the first month of the 2012-13 season and down 3.9 percent from June 2011.

However, New Zealand production was exceptionally strong in both the 2011-12 and 2012-13 seasons. While lower than the past two years, June’s milk production was higher than historical norms but the DDR warned that “early-season milk production in June and July in both New Zealand and Australia is an unreliable indicator of production trends in Oceania.”

“Right now New Zealand dairy producers need to make the decision to take steps to slow down grass growth,” said the DDR’s Sarina Sharp. “If they have too much grass, they could face some quality issues and have lower quality forage from cows trampling through very tall grass,” Sharp warned. “That could reduce per cow production at the peak of their milk production season later this year.”

Steps to slow grass growth include pulling pasture out of the grazing rotation and harvesting silage off of that pasture, reducing fertilizer use or speeding up grazing rotation to keep grass at a lower level in all pastures, according to Sharp.

However, Sharp warned: “If there is a drought later this year, then those producers who took steps to reduce grass growth would be even more short of pasture and high quality forage so it’s a real gamble as to what to do right now.”

She believes most producers will “lean toward having more forage and not be so concerned with the quality issue given their experience with last year’s drought.”

When asked what this means for international and U.S. dairy markets, Sharp reported that New Zealand’s two largest cooperatives, Fonterra and Westlynn and Murray Goulburn in Australia, have increased their price forecasts to historically high levels. She stated “That sends a clear signal to dairy producers to produce as much milk as possible.” Lower feed costs will also encourage larger milk production in Europe and the U.S., according to Sharp, “So we have the tension of very firm global demand and already high dairy product prices and the possibility that global milk production could increase in the months to come.”

No problem found in Fonterra whey

Here’s a quick update on a story a couple weeks ago. After extensive testing, New Zealand’s Ministry for Primary Industries announced this week that the adulterated whey produced by Fonterra did not contain Clostridium botulinum, a bacteria that can produce botulism. A recall was announced as a precaution but the whey in question contained a different strain of bacteria which poses no health risk to consumers.

Speaking of drought on the home front, FC Stone dairy broker Dave Kurzawski, wrote in his Aug. 27 eDairy Insider Opening Bell that “hot, dry weather that carried soybean and corn prices higher Monday will affect cows regardless of feed prices. This heat dome over the Midwest is putting people on guard a little on cow comfort and milk production.”

Meanwhile, milk supplies in the Northeast and Midwest have kept cheese plants busy, while production was reduced somewhat in the West, according to USDA’s Dairy Market News (DMN). Cheese inventories are adequate to service current needs with buyers looking to see if the market is becoming oversupplied. Retail sales are mostly steady. Large buyers are said to be well supplied at current prices and are waiting for price breaks to add to inventories.

Export sales are good as U.S. prices continue to be favorable versus international prices. Lower milk volumes are available for cheese plants to increase production as milk begins to fill the Class I demands of bottlers for school openings in the South.

Nine CWT offers approves

Cooperatives Working Together (CWT) accepted nine requests for export assistance this week to sell 3.296 million pounds of Cheddar, Gouda and Monterey Jack cheese and 493,284 pounds of butter to customers in Asia and Europe. The product will be delivered through February 2014 and raised CWT’s assisted member cooperative cheese sales to 85.237 million pounds, plus 65.440 million pounds of butter, 44,092 pounds of anhydrous milk fat and 218,258 pounds of whole milk powder to 35 countries on six continents.

Cash cheese prices sustained last Friday’s rebound and then some, but roller coasters do go down from time to time and that’s what happened Thursday — dropping 2 1/4-cents — but then jumped 5 1/2-cents Friday to close the last week of August at $1.7825 per pound, 11 1/4-cents above the previous week but still 3 3/4-cents below a year ago. Barrel finished at $1.77, up 12 3/4-cents on the week and three quarter-cents below a year ago. Eleven cars of block traded hands on the week and only one of barrel. The AMS-surveyed U.S. average block price hit $1.7769, up 1.4 cents. Barrel averaged $1.7972, down 0.7 cent. Keep in mind, a penny movement on the cheese price equates to about a dime on the milk price.

Butter got caught in the updraft and closed Friday at $1.4375, up 4 1/4-cents on the week but 40 1/4-cents below a year ago. A whopping thirty five carloads found new homes on the week. AMS butter averaged $1.3577, down 7.9 cents.

The butter market was unsettled due to an undefined price trend and ample inventories, according to DMN. Butter production is increasing at many churns as cream demand slackens from frozen dessert facilities. Higher bottling interest is also sending more cream into the marketplace, and butter churn operators report cream multiples were declining. Despite these cream market conditions, some butter manufacturers are reluctant to add to already hefty butter inventories.

Although butter stocks are above year-ago holdings nationally, there are some butter/powder producers who cleared all their butter. With cream multiples decreasing and butter prices at low ebb, some manufacturers are anxious to rebuild their inventories for fall commitments. Other manufacturers are turning to print manufacturing for Fourth Quarter orders. Internationally, U.S. butter is priced favorably for clearance to overseas markets, according to DMN.

Cash powder was steady on the week, with Grade A holding at $1.80 and Extra Grade at $1.78. AMS powder averaged $1.7741, up 0.3 cent, and dry whey averaged 58.29 cents per pound, up 0.7 cent.

California milk production was trending lower last week, resulting from a spell of hot weather. Some processors saw a quick 2-4 percent drop in receipts from the previous week earlier. Arizona output was also lower. Hot weather advisories were being issued for man and beast. Production in the Pacific Northwest continues to decline along expected seasonal lines.

Utah and Idaho supplies were restricted by continued hot weather. Wildfires in the region have caused transportation issues as trucks were rerouted. The number of milk loads leaving the Central region heading to the Southeast to fill Class I demand is increasing from week to week. Handlers expect weekly milk load increases will continue until all schools are back in session and the pipeline is completely filled.

Manufacturing milk spot loads are scarce within the Central region as a result of increasing Class I demand and seasonally decreasing farm milk intakes. Milk production remains above seasonal levels and adding to manufacturing milk supplies in the Northeast. Manufacturing milk supplies in the Mid-Atlantic are being reduced as increased Class I demand in the Southeast is pulling supplies out of the region. Milk production in Florida continues to decline with the typical seasonal low point still a few weeks out. Florida imported 212 spot loads of milk the week of August 12 which was the highest number since August 2006.

Back to the futures

Second half Federal order 2013 Class III contracts portended an $18.48 per cwt. average on June 14. That figure slipped to $18.34 June 21, $17.87 on June 28, $18.02 on July 5, $17.91 on July 12, $18.33 on July 19, $17.88 on July 26, $17.84 on Aug. 2, $17.66 on Aug. 9, $17.74 on Aug. 16, $17.45 on Aug. 23, and was trading around $17.63 late morning Aug. 30, including the announced July Class III price.

The World Forage Analysis Superbowl Dairy Forage Seminars will be held Oct. 2-5 at the Alliant Energy Center in Madison, Wis. A World Dairy Expo press release stated that industry experts will present a series of educational programs geared towards assisting farmers with improved forage growing, storage and feeding techniques.

The seminars are included with World Dairy Expo admission and will take place on the Dairy Forage Stage, in the Arena Building, near the World Analysis Forage Superbowl displays.


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