Summer temperatures drive dairy markets
By LEE MIELKE
For the Capital Press
Strength resumed in the cash dairy markets the third week of July as they awaited Friday afternoon's preliminary June milk production estimate. Rising temperatures are taking their toll on milk production and component levels.
The block cheese price closed Friday at $1.7475 per pound, up 7 1/4-cents on the week and 3 cents above a year ago. Barrel finished at $1.74, up 9 on the week and 4 1/2-cents above a year ago. Thirteen cars of block sold on the week and 18 of barrel. The AMS-surveyed U.S. average block price dropped a penny and a half, to $1.7065, while the barrels averaged $1.6864, down 2.4 cents.
Cheese demand is good with buyers taking advantage of price breaks to build inventory, according to USDA's Dairy Market News (DMN), but there's plenty of fresh cheese available though export sales continue above year ago levels. The Foreign Ag Service (FAS), reports that exports of cheese and curd for January-May totaled 271.4 million pounds, up 5 percent from a year ago and the CWT program continues to assist export sales.
CWT accepted 30 requests for export assistance this week to sell 4.4 million pounds of cheese and 3.5 million pounds of butter to customers in Asia, Europe, the Middle East and North Africa. The product will be delivered through December and raised 2013 cheese exports to 72.16 million pounds, plus 56.9 million pounds of butter, 44,092 pounds of anhydrous milk fat and 218,258 pounds of whole milk powder to 34 countries.
Cash butter was up 3 cents this week after dropping 6 1/2 cents the previous week and was trading at $1.49 by week's end, 10 cents below a year ago. Eight cars were sold on the week and AMS butter averaged $1.5182, up 5.3 cents.
Grade A nonfat dry milk closed Friday at $1.7750, up 2 1/2-cents on the week, and Extra Grade was up a half-cent, to $1.73. AMS powder averaged $1.7189, up 1.3 cents, and dry whey averaged 57.35 cents, down 0.9 cent.
There was some regional variation in butter markets related to weather and other factors the second week of July, according to DMN. Hot weather across much of the West was causing concern over cream supplies and was making it difficult to move it long distances. Central butter production remains strong but "the rate of growth has slowed as ice cream manufacturing is increasingly siphoning cream from the churns, according to DMN.
Northeast cream cheese manufacturers are already drawing cream to produce for fall orders and ice cream manufacturers have increased cream interest as hotter weather has arrived. These factors leave butter production down.
FAS reports exports of butter and milkfat for January-May totaled 56.1 million pounds, down 2 percent or 0.9 million pounds from a year ago. Butter and milkfat exports accounted for 6.4 percent of total U.S. butter production for the year.
Trade prices increase
The trade-weighted index of prices on the July 16 GlobalDairyTrade (GDT) jumped 4.9 percent, according to FC Stones eDairy Insider Closing Bell. Whole milk powder led the gains, up an average 7.7 percent, including a 12.5 percent jump for September contract prices.
Butter milk powder prices gained an average 4.8 percent, including a 5.2 percent increase for September; anhydrous milk fat was up 3.6 percent; skim milk powder climbed 3.3 percent; and cheddar added 2.1 percent. On the down side, average prices for rennet casein fell 5 percent and butter lost 0.3 percent.
GDT prices are over $2 per pound for cheese and skim milk powder is making domestic end users nervous, according to FC Stone Risk Management consultant Ron O'Brien.
"Inventory of cheese coming to the CME spot market is probably not as available as it had been," he said. "And the market gets to a point where shorts run out of ammunition. Hot weather also adds support."
Meanwhile, May fluid milk sales were estimated at 4.3 billion pounds, according to USDA's latest data, down 1.2 percent from May 2012. Conventional milk products were off 1.6 while organic sales were up 8 percent from a year earlier.
California output stabilizes
Checking the milk supply, California output stabilized the week of July 8 as temperatures were more moderate, according to USDA's weekly update. Processing plants saw milk intakes down 8-15 percent during the height of the heat wave. Arizona milk continues to decline as a direct result of the hot weather and the duration of the weather cycle. The forecast of increasing humidity and the resulting "monsoon season" will likely foreshadow additional milk declines.
Milk production in the Pacific Northwest has improved as cooler nighttime weather helped relieve heat stress on cows although some of that heat returned the following week. Overall milk receipts are off as cows slowly recover. Idaho and Utah production was also lower from the hot weather though some recovery was being noted as the extreme weather abated.
Anecdotal reports from Central Region milk haulers indicate farm milk loads are decreasing in volume as summer advances. Components in the milk are also dropping in step with the arrival of rising daytime temperatures and humidity.
Base milk price $18.88
Pricewise, the August Federal order Class I base milk price was announced by USDA this week at $18.88 per hundredweight, down 3 cents from July but $2.33 above August 2012, and equates to about $1.62 per gallon. The 2013 Class I average now stands at $18.39, up from $16.36 at this time a year ago and compares to $18.91 in 2011 and $14.74 in 2010.
The AMS-survey butter price used in calculating the base price averaged $1.4902 per pound, down 6.9 cents from July. Nonfat dry milk averaged $1.7131, up 3.1 cents. Cheese averaged $1.7201, down 6.1 cents, and dry whey averaged 57.69 cents, up 0.6 cent.
Looking "back to the futures," second half Federal order 2013 Class III contracts portended an $18.48 per hundredweight 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, and was trading around $18.29 late morning July 19.
Feed prices were projected to be lower next year in this week's Livestock, Dairy, and Poultry Outlook but it warned that producers are likely to respond slowly as milk prices remain flat to down. Large stocks of cheese and butter will dampen prices. Nonfat dry milk stocks are high as well, but USDA says strong exports will strengthen prices somewhat.
Commodity prices level
Corn prices for the 2012-13 year were unchanged in July at $6.75-$7.15 per bushel. For the 2013-14 year, corn prices were also unchanged from last month at $4.40-$5.20 per bushel.
The production forecast for the 2013 corn crop was lowered based on lower expected harvested acreage. However, slightly higher imports and reduced feed and residual use maintained prices. The soybean meal price forecast remained at $290-$330 per ton where it was in June. According to the most recent Agricultural Prices report, preliminary June alfalfa prices were $220 per ton, fractionally lower than May but 10 percent above the June 2012 price.
Farm bill update
In politics, we still could see a new Farm Bill passed before the end of September when the current bill expires, according to National Milk's Chris Galen. Galen said the House passed a "seriously flawed bill because it contained the Goodlatte-Scott dairy amendment and repeals some permanent law," something NMPF does not believe is in the best interests of dairy farmers, he said.
He added that, if the House had not passed the bill it did, "We would have been up a creek without a paddle." He said that a conference committee will soon begin meeting to reconcile the differences between the Senate and the House versions. Galen said NMPF is optimistic the Senate's version of the Dairy Title, which includes the controversial Dairy Security Act, will be in the final bill.
DairyBusiness Update (DBU) reports that the farm bill process has bogged down for the moment due to procedural issues between the House and Senate, according to Bob Gray, editor of the Northeast Dairy Farmers Cooperatives NDFC Newsletter.
The House sent its farm bill over to the Senate earlier this week. The Senate could take up the scaled-down House Farm Bill and either pass it as is, or make changes and send it back to the House. Right now the Senate is deciding what its next step will be. Until that happens, farm bill conferees for both sides cannot be appointed, according to DBU.
Some have suggested the House consider the previously passed Senate version, which includes nutrition programs not covered by the House. However, due to constitutional issues regarding revenue, the Senate farm bill has been "blue slipped" by the House Ways and Means Committee so technically it cannot be considered in the House.
Speaking of DBU and, on a more personal note I am exiting my "semi-retirement" status by beginning to assist DBU editor Dave Natzke. I've known many a dairy farmer who "retired" and maybe even moved to the city but they still make a daily trip to the dairy so, as the saying goes, "You can take the farmer out of the country but you can't take the country out of the farmer."
I will also be a regular feature on the Friday DairyLine.
I've been in the dairy reporting business for many years and the concept of supply management has surfaced many times but never saw the light of day.
To National Milk's credit, this is probably the closest the industry has come to a permanent supply management provision in federal dairy policy, but that remains to be seen whether the 2013 Farm Bill will include it in the dairy title.
I was reminded of something often said to me by an elderly dairy farmer who was a mentor for me when I first started in this business: "Every dairy farmer is for supply management -- for his neighbor."
I believe there is some truth to that and believe there are good arguments on both sides of this issue. I just hope that we keep our readers informed on the issues and encourage them then to make their voice known to their cooperatives and elected representatives.