Lee Mielke ~ Mielke Market Weekly

This column was written for the marketing week ending Feb. 20.

The U.S. Department of Agriculture announced the March Federal order Class I base milk price Thursday at $15.56 per hundredweight, down 68 cents from February, $8.08 below March 2014, and the lowest Class I since July 2012. The price equates to about $1.34 per gallon, down from $1.40 last month. The three month Class I average is now at $16.79, down from $22.38 at this time a year ago and compares to $18.33 in 2013.

The two-week National Dairy Products Sales Report-surveyed butter price used to calculate the Class I value was $1.6585 per pound, up 10.6 cents from February. Nonfat dry milk averaged $1.0213, down fractionally. Cheese averaged $1.5408, down 4.5 cents, and dry whey averaged 54.15 cents per pound, down 4.9 cents.

Speaking of fluid milk, December 2014 packaged fluid milk sales totaled 4.37 billion pounds, down 1.2 percent from December 2013, according to USDA’s latest data. December sales of conventional products, at 4.16 billion pounds, were down 1.5 percent from a year ago; organic products, at 210 million, were up 5.7 percent. Organic represented about 4.8 percent of total sales for the month.

January-December 2014 total packaged fluid milk sales, at 50.12 billion pounds, were down 3.0 percent from the same period a year earlier. Year-to-date sales of conventional products, at 47.64 billion, were down 3.6 percent. Organic products, at 2.47 billion pounds, were up 9.2 percent. Organic represented about 4.9 percent of total milk sales in 2014.

The figures represent consumption of fluid milk products in Federal milk order marketing areas and California, which account for approximately 92 percent of total fluid milk sales in the United States.

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Cash cheese prices were mostly steady in the Presidents Day holiday-shortened week. The block Cheddar closed Friday at $1.5450 per pound, up 1.5 cents on the week but 61.75 cents below a year ago. The barrels closed at $1.4850, unchanged on the week but 67.25 cents below a year ago. Three cars of each traded hands on the week. The lagging NDPSDR-surveyed U.S. average block price hit $1.5258, down 1.2 cents. The barrels averaged $1.5251, up 0.7 cent.

Many Midwest commercial cheese buyers continue to have an active interest in building inventory at current cheese prices, according to Dairy Market News. Dairy manufacturers with multiple dairy product manufacturing options in their plants generally favor diverting milk into cheese over other dairy products at the present time for profitability reasons. Relatively stable cheese prices are helping sustain manufacturer margins related to what is paid for milk compared with cheese sales prices. Moreover, with surplus milk in the Midwest selling at below Class prices, cheese manufacturing is at very heavy levels in most plants.

Cheese sales for western manufacturers are good, both name brands and store brands. Production schedules are running full with cheese typically being the favored dairy product for manufacturers with multiple product manufacturing options in plants. Exports are not a significant factor in sales. Manufacturers of cheese have all of the milk they want. At current prices, there is noticeable interest among buyers in building inventory levels for retail sale as well as for cheddar and provolone aging programs.

Cash butter finished Friday at $1.7225 per pound, up a quarter-cent on the week but 6.25 cents below a year ago. Twelve cars were sold on the week. NDPSR butter averaged $1.6976, up 6.8 cents.

Central retail butter sales were slower in January but have been moving up, according to Dairy Market News. The market tone is steady. Many operators are churning heavily, taking advantage of plentiful cream supplies and the favorable pricing. Some manufacturers are focused on rebuilding stocks.

Some Western manufacturers are churning available internal cream this week, not selling or buying any cream for churning on spot markets. Print orders for retail sales are good ahead of the Easter/Passover season, a time when butter demand has a spike. Butter production is steady this week.

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Cash Grade A nonfat dry milk reversed four weeks of gains, starting the week with a 5 cent gain only to give it back Thursday and lose another 4 cents Friday, closing at $1.11 per pound, down 4 cents on the week. NDPSR powder averaged $1.0230, up 0.4 cent and dry whey averaged 52.7 cents, down 3.3 cents.

Falling milk prices continue to incentivize heavier dairy cow culling. USDA’s latest Livestock Slaughter report issued Thursday shows an estimated 275,000 dairy cows were slaughtered under federal inspection in the month, up 18,000 head from December and 5,000 head more than January 2014.

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Looking internationally, Tuesday’s Global Dairy Trade auction saw the weighted average for all products jump 10.1 percent, following a 9.4 percent jump on February 3. It is the fifth consecutive gain and again likely driven by Fonterra’s announcement late January lowering its milk production estimate by 3.3 percent.

All products offered saw gains led, believe it or not, by Cheddar cheese, up 16.8 percent, following a drop of 11.1 percent in the February 3 event. Whole milk powder was next, up 13.7 percent, following a 19.2 percent jump last time. Next was skim milk powder, up 5.7 percent, which follows a 6.7 percent jump last time. Anhydrous milkfat was up 6.4 percent, following a 5.4 percent decline last time, buttermilk powder, up 1.9 percent, following a slip of 0.4 percent last time, rennet casein, up 1.2 percent, following a 7.7 percent jump last time, and butter was up 1.1 percent, following a 6.1 percent advance last time.

FC Stone reports the average GDT butter price equated to about $1.7340 per pound U.S., up from $1.7160 in the Feb. 3 event. Contrast that to Chicago Mercantile Exchange butter which closed Friday at $1.7225 per pound The GDT Cheddar cheese average was $1.3854 per pound U.S., up from $1.1956. The U.S. block Cheddar CME price closed Friday at $1.5450 per pound. GDT skim milk powder, at $1.2445 per pound U.S., is up from $1.1782, and the whole milk powder average at $1.4844 per pound U.S., is up from $1.3035 in the last event. The CME Grade A nonfat dry milk price closed Friday at $1.11 per pound.

FC Stone dairy broker Dave Kurzawski says “The surge in price increases over the past several GDT events has come at a time of lower volume offerings. While we see dairy product demand as stable to increasing in certain global markets, China remains noticeably quiet and it remains unclear as to the long-term impact of GDT auction on U.S. based prices. At this point, we suggest that such an auction event will continue to inspire U.S. buyers, but their interest is expected to be well satisfied with available product.”

The Daily Dairy Report has also pointed out, the number of winning bidders is slipping and so is the quantity of product being sold on the GDT. So, is the GDT an accurate barometer?

“Yes,” said Kurzawski in Friday’s DairyLine and he likened the GDT to the Chicago Mercantile Exchange, and said, while they operate differently, they both essentially operate as a “price discovery or price transparency mechanism;” the GDT being the one for international prices.

Kurzawski said the GDT is “The finest one we have outside of anecdotal discussions with traders and brokers and companies that are actually moving the product. From that aspect, it serves a purpose and has value,” he said, but “Whether or not, week to week or event to event it has a long term bearing on what prices are going to do is up for debate.”

I also asked about the strength of butter, which likely is a result of the upcoming Easter-Passover holiday. Kurzawski said inventory building is occurring and there’s pipeline refilling in preparation for upcoming cheese promotions, “and you have some who got caught short on nonfat dry milk.”

“When the market is very bearish according to everybody you talk to and everywhere you turn,” Kurzawski explained, “like in early January, the market was so super bearish it creeps its way into buyer behavior and people step aside from the market and think they can come back next week or next month or in the next six months and get stuff bought.”

He said buyers felt they “didn’t have to get real aggressive but that changed on January 28th when that letter was released (Fonterra’s milk output prediction) and discussions of the expectation that New Zealand would be down 3.3 percent.”

“People said they didn’t have enough coverage and now they need more so buyer behavior has gone from somewhat greedy to somewhat more worried and that’s happened in a very short period of time, not only here but globally,” he said.

“Will it calm down?” he asked. “I think so. We still have plenty of milk and we have plenty of inventory of product right now. Eventually that may not be the case but it is the case today,” he concluded.

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Cooperatives Working Together accepted seven requests for export assistance this week to sell 2.94 million pounds of 82 percent butter to customers in Asia, Europe and the Middle East. The product will be delivered March through August 2015 and raised CWT’s 2015 cheese exports to 4.64 million pounds plus 18.45 million pounds of butter to 16 countries.

Speaking of international trade, there’s some big bucks “sitting on the dock of the bay,” due to a dockworkers strike on the West Coast. The U.S. Dairy Export Council, National Milk Producers Federation and the International Dairy Foods Association sent a joint letter to Congress addressing the dispute over concerns that the strike is hurting U.S. business, including agricultural interests.

A letter to President Obama stated: “The nine-month-old contract dispute between West Coast dockworkers and port operators is a growing economic calamity that necessitates White House intervention. As a result of the dispute, West Coast ports have been operating at less than 50 percent of their normal volumes and recently the threat of total stoppage has become a reality. That is crippling critically important U.S. maritime exports, including agriculture products. Financially, the losses are likely to reach billions of dollars. And that doesn’t count losses in jobs, export markets and income for family farms and businesses across the country.

“U.S. dairy products are among the many time-sensitive goods caught up in this congestion. Asia is our number one overall destination, and our fastest growing — helping our exports grow 6 percent for a fifth straight record year. Yet, the port slowdown has weakened the business cycle, and foreign buyers have become severely concerned about our reliability.

“Our competition for overseas customers is intense, and any threat to a reliable supply line forces them to look quickly at other ways to fill their needs. Once gone, these customers don’t necessarily come back. The United States can grow and raise the best farm products in the world. But, if we can’t deliver them dependably and affordably, the customers will go elsewhere.

“The economic value of increased American dairy, food and agricultural exports has been extremely beneficial to the terminals and to the thousands of dockworkers who handle the shipments. Their inability to settle their contract dispute is causing tremendous collateral damage, to say the least.

“Working with a number of coalitions, our organizations have urged the International Longshore and Warehouse Union and the Pacific Maritime Association to resolve their differences as quickly as possible. However, given that there has not been a solution despite current involvement from the Department of Labor, we urge you, Mr. President, to insist the parties involved in the dispute to accept the outcome of mediation.”

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.