lee mielke

This column was written for the marketing week ending May 31.

Just as we thought U.S. trade with Mexico would return to some semblance of normalcy, President Trump announced May 30 that he will assess a 5 percent tariff on all Mexican imports, effective June 10. The administration hopes to pressure Mexico to do more to reduce the number illegal immigrants passing through Mexico coming to the United States. Trump warned the percentage will gradually increase to 25 percent.

Markets do not like this kind of uncertainty; plus dairy markets were somewhat starved this week for information (other than the weather and political events) as the U.S. Department of Agriculture issued no major reports that the market regularly monitors.

Cash dairy prices ended the shortened Memorial Day holiday week mixed. Chicago Mercantile Exchange block cheddar cheese closed May 31 at $1.7150 per pound. This is up 3.25 cents on the week, highest since March 28, and 11.75 cents above a year ago. The barrels finished at $1.54, down 4 cents on the week, lowest since April 18, and 17.5 cents below the blocks. They have lost 17 cents in three weeks but are 2 cents above a year ago. There were five cars of block traded on the week, 67 in the month of May. Thirty-two cars of barrel were sold on the week and 135 for the month.

FC Stone’s Dave Kurzawski wrote in his May 30 Early Morning Update, “We know less cheddar has been produced so far this year, but it’s possible we’ve seen additional resources move back to barrel production, out of Mozzarella. Regardless, the market feels supplied with fresh cheese right now, not over-supplied.”

Dairy Market News reports that central cheese demand was fairly slow throughout May, but contacts pointed to some positive movements in the Memorial Day week. Curd producers reported continued strength and some barrel producers stated that demand was outpacing their supplies.

Cheese production has increased. Some plants are running seven-day workweeks and plan to do so through the next few weeks. However, most producers suggest that last year's schedules were busier. Milk prices were reported from $1 to $2 under Class, although offers were heavier this week and a number of cheesemakers were not on the spot milk market. In week 22 of previous years, spot milk prices averaged $4.50 under in 2018 and $4.75 in 2017.

Cheese market tones were “shakier,” says Dairy Market News, as CME barrel prices began to put distance between them and the block prices. Cheese inventories in the area are still in “reasonable balance,” while still heavy nationwide.

Western cheese sales are active but vary. Block demand is a bit more contingent on the prices, says Dairy Market News. “Some contacts mentioned that as prices move closer to $1.70, demand somewhat declines while a back pedal in prices enhances purchasers' interest.” International sales have improved a bit and may be partly due to the lifting of Mexico’s retaliatory tariffs on U.S. cheese. Several participants were confident that cheese requests by Mexico would likely improve but that may not be the case with the latest development.

Cash butter shot up to $2.4075 per pound on May 28 which is the highest CME price since May 30, 2018, almost one year ago. But it closed on May 31 at $2.36, down 2.75 cents on the week and 1.75 cents below a year ago. Twenty-nine carloads exchanged hands on the week and 79 for the month of May.

Contacts suggest the surge in the butter price may have been “rushed,” as imports from Mexico and elsewhere are expected to keep U.S. markets in check. Cream was more available during the holiday weekend, but butter plant managers relay that cream access was back even with the previous week. Most contacts say they are content with their stocks heading into the fall busy season.

Western churns are active and orders have been strong through the course of the spring, according to Dairy Market News. “End users are buying at a pace that makes it difficult for butter inventories to grow very fast. However, processors suggest they would rather see the current steady pull on butter stocks than have the combination of burdensome inventories and limited summertime butter demand. So far, butter production and cream intakes have been in relatively good balance. Although cream supplies are tightening, there doesn’t seem to be any major problem getting the cream.” Class II dairy products and ice cream are also taking heavy amounts of cream, according to Dairy Market News.

Cash Grade A nonfat dry milk closed May 31 at $1.055 per pound, up a penny on the week and 23 cents above a year ago. Twenty-two cars found new homes on the week, 17 on May 31 alone, and 59 for the month.

Dry whey ended the week at 35.25 cents per pound. This is three-quarter cents lower on the week and 3.25 cents below a year ago, with five cars trading places on the week at the CME, and 25 for the month.

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One thing that’s “outstanding in the field” these days is water — due to the continuing rainfall in the Midwest. The USDA’s latest Crop Progress report shows just 58 percent of the corn crop was planted, as of the week ending May 26. This is up from 49 percent the previous week, but down 32 percent from a year ago and 32 percent behind the five-year average. Thirty-two percent of the corn has emerged, up from 19 percent the previous week, but 37 percent behind a year ago and 37 percent behind the five-year average.

“This is a problem,” notes Kurzawski. “Between lower acres planted, weaker than expected emergence (32 vs. 66 percent) and what we can only imagine will be compromised final yields, the 2.4 billion plus bushel carry-out no longer looks overwhelming. In fact, it may not be enough.”

He adds, “The delayed planting has the potential to impact the corn crop and price in two significant ways. First would be the potential loss of planted acres. Currently, forecasts have called for a loss of corn acres ranging from 3-10 million. The worst loss of acreage on record was 4 percent of the planted acres, 3.3 million, in 1995. The loss of 4 million acres or more would put the United States in demand rationing mode without considering a decline in yields. The second concern is the impact on yield the late plantings will have. The longer farmers are forced to delay getting the corn in the ground the larger the potential decline in crop yield.”

Farmers have 29 percent of the soybeans in the ground, up from 19 percent the previous week, 45 percent behind a year ago, and 37 percent below the five-year average. Eleven percent have emerged, down from 44 percent a year ago and 24 percent behind the five-year average. The cotton crop is 57 percent planted, up from 44 percent the previous week but 4 percent behind a year ago, and 1 percent behind the five-year average.

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Subsidized dairy exports continue via Cooperatives Working Together. Member cooperatives accepted six offers of export assistance this week to help capture sales of 101,413 pounds of cheddar cheese, 654,773 pounds of butter, and 2.866 million pounds of whole milk powder. The product will go to customers in Asia, the Middle East, and North Africa from June through September.

In other trade news, China imported a record amount of skim milk powder in April, according to HighGround Dairy’s Lucas Fuess in the June 3 Dairy Radio Now broadcast. Whole milk imports were also “extremely impressive.”

The bad news, he said, is that China continues to diversify where it makes its purchases, with less coming from the United States due to the ongoing trade dispute. China continues its purchases from New Zealand and Europe as well as South America and Belarus. Fuess reported that Belarus can now ship product directly by rail to China so purchases can be made within a 10-day time period.

The message for the United States, says Fuess, is to continue to be competitive in getting products to China as well as on a global basis.

New Zealand trade data was also issued this week and Fuess reported skim milk and whole milk powder exports were very good — despite the lower milk output toward the end of their production season. He believes New Zealand is clearing their inventories before their new milk production season begins.

“Overall, global milk output is viewed by HighGround Dairy to be a bit below what we anticipate global demand will be,” says Fuess. “With continued strong protein and dairy demand from China, HighGround Dairy continues to hope for bullish prices in the back half of the year.”

Speaking of New Zealand, the Daily Dairy Report says, “For the second consecutive month, New Zealand milk production fell below prior-year levels as output totaled just over 3 billion pounds, down 8.4 percent compared to the previous year. Pastures deteriorated this year as rainfall slowed, spurring dairy producers to dry cows early. April output was the lowest for any April since 2015.”

The Daily Dairy Report also stated New Zealand and Australia milk production for April totaled just 4.2 billion pounds. This is 10 percent below prior-year levels and the lowest for April since 2014.

Fonterra updated its latest farmgate forecast, according to the Daily Dairy Report, “revising the outlook to $6.30 to $6.40 per kilogram of milk solids, down from an earlier estimate of $6.30 to $6.60. Fonterra also announced its first price forecast for the 2019-20 season at $6.25 to $7.25. If that price were to come to fruition, it would be highest farmgate milk price since the 2013-14 season.”

Seasonal milk output in Australia, July 2018 through March 2019, was down 6.7 percent from the previous year, according to Dairy Market News. March output was down 10.6 percent and April was down 13.7 percent, as severe drought took its toll.

Dairy Market News also reported EU milk production January through March was down 0.1 percent from a year ago according to Eucolait. March output was up 1 percent. March year-over-year milk production in Poland was up 3.6 percent. Belarus, January to March cheese exports increased 24.6 percent from 2018. Cheese exports to Russia, the top destination, increased 22.9 percent.

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Checking the rearview mirror, the USDA’s 2018 Milk Production Disposition and Income Summary, issued May 30, reported that U.S. milk output increased 1.0 percent in 2018 to 218 billion pounds. Output per cow averaged 23,149 pounds, 235 pounds above 2017. The annual average number of milk cows on farms was 9.40 million head, down 7,000 from 2017.

Cash receipts from marketings of milk totaled $35.2 billion, down 7.1 percent from 2017. Producer returns averaged $16.28 per hundredweight, 8.0 percent below 2017. Marketings totaled 216.6 billion pounds, up 0.9 percent above 2017. Marketings include whole milk sold to plants and dealers and milk sold directly to consumers. An estimated 1.02 billion pounds of milk were used on farms where it was produced, up 2.6 percent from 2017. Calves were fed 91 percent of this milk, with the remainder consumed in producer households.

Lee Mielke is a syndicated columnist who resides in Everson, Wash. His weekly column is featured in newspapers across the country and he may be reached at lkmielke@juno.com.