lee mielke

This column was written for the marketing week ending Oct. 25.

Some called it a September surprise. Others called it fodder for the bears. The U.S. Department of Agriculture’s latest Milk Production report showed preliminary output at 17.6 billion pounds, up 1.3 percent from September 2018. Output in the top 24 states totaled 16.8 billion pounds, up 1.6 percent. Revisions added 10 million pounds to the original 50-state August total, now put at 18.29 billion pounds, up 0.2 percent from August 2018. Revisions added 32 million pounds to the top 24 states’ output.

Cow numbers continued to slip. The head count in the 50 states totaled 9.315 million, down 2,000 from August, which was revised lower by 1,000 cows, and 53,000 head below a year ago. Output per cow averaged 1,891 pounds, down 72 pounds from August, but 34 pounds above a year ago.

California output was up 1.6 percent, thanks to a 35-pound gain per cow offsetting 5,000 fewer cows milked. Wisconsin was up 0.6 percent, on a 20-pound gain per cow. Cow numbers were down 6,000 from a year ago.

Virginia had the biggest loss, down 7.3 percent on 8,000 fewer cows, followed by Arizona, down 4.9 percent on 11,000 fewer cows. Texas showed the biggest increase, up 9.3 percent, thanks to 30,000 more cows and a 70-pound gain per cow.

Idaho was up 3.6 percent, thanks to 17,000 more cows and a 15 pound gain per cow. New York was up 1.7 percent, on 6,000 more cows and a 15 pound gain per cow and Minnesota was up 1.1 percent on a 40-pound gain per cow offsetting 5,000 fewer cows.  

Michigan was up 3.8 percent on a hefty 50-pound gain per cow and 6,000 more cows. New Mexico was up 2 percent, on a nice 40-pound gain per cow. Oregon was up 3.4 percent on a 15-pound gain per cow and 3,000 more cows. Pennsylvania continues to struggle, down 3.8 percent on a drop of 32,000 cows from a year ago, though output per cow was up 40 pounds.

Vermont inched up 0.5 percent on a 25-pound gain per cow offsetting 1,000 fewer cows. Florida was up 0.6 percent on a 35-pound gain per cow offsetting 2,000 fewer cows. Washington State was 1.8 percent on 4,000 more cows and a 10-pound gain per cow.

The overall increase came on milk-per-cow gains, even when forage quality and quantity are questionable, says University of Wisconsin’s Dr. Robert Cropp and Dr. Mark Stephenson in their monthly podcast. The two remain optimistic on milk prices and don’t see a major downfall in the near term, assuming there is not a collapse in cheese demand.

HighGround Dairy says, “It is unlikely that U.S. milk output will see declines in the near term” and warned, “Production expansion has returned for good and will become the new normal yet again, ending the declines seen in three different months earlier this year and contributing to a return to global milk production expansion.”

Matt Gould, analyst and editor of the Dairy and Food Market Analyst newsletter, said the Milk Production report “represents the fastest growth rate in milk supply in about a year,” in the Oct. 28 Dairy Radio Now broadcast.

Gould warned that milk output is also growing in Europe, “So we’re exiting a period where milk production was negative worldwide and entering, or maybe we’re already in, a period where milk production is positive.” That will put downward pressure on prices, though we are entering “the demand season of year,” but “Volatility is probably the one thing you can predict will continue.”

Gould doesn’t see a freefall in prices and says, “Next year’s lows are probably going to be the highest lows that we have seen in several years.” He also said it’s possible that prices may be even higher. “The big difference is, we started this year with a mountain of milk powder in European inventories and now it’s all gone. We don’t have buffer stocks to insulate markets from volatility.”

Demand will also continue to play a big role. U.S. cheese at retail has been growing 2-3 percent, he concluded, “and we’re still growing per capita consumption.”

FC Stone stated in its Oct. 24 Early Morning Update, “In a broader view, a generally tighter milk production situation coupled with Class IV prices running above Class III early in the year (and, to some extent, California moving into the Federal Order) has tightened the availability of fresh cheddar (to say nothing of several production hiccups we’ve heard about in the past few months). This has partly led some users to whittle down, rather than building inventories for the holidays as they had last year.”

Dairy farmers culled fewer cows in September than they did in August, but more than a year ago. The USDA’s latest Livestock Slaughter report shows an estimated 255,700 head were slaughtered under federal inspection, down 10,900 from August, but 8,300 or 3.4 percent above a year ago. The 9-month cull count totaled 2.417 million head, up 81,100 head or 3.5 percent from a year ago.

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The September Milk Production report fed the bears and the September Cold Storage report likely added a little more fodder. September butter stocks totaled 302.1 million pounds, down 2.2 million pounds or 0.7 percent from August, but were 19.8 million or 7 percent above September 2018.

HighGround Dairy says September is when holiday orders would typically be pulling product from storage. “The 2.2 million pound stock decline paled in comparison to the five-year average of 25.5 million pounds. At 302 million pounds, September’s ending stock is the highest level for the month since 1993.”

American cheese stocks totaled 771.4 million pounds, up 5.5 million pounds or 0.7 percent from August, but were 32.3 million or 4 percent below a year ago.

Stocks in the “other” category climbed to 571.6 million pounds, up 2.1 million pounds or 0.4 percent from August; but were up 26.5 million or 4.9 percent from a year ago.

The total cheese inventory crept up to 1.369 billion pounds. This is up 6.4 million pounds from August, but 10.5 million pounds or 0.8 percent below September 2018.

HighGround Dairy says, “While the increase in total cheese in storage was less than last September’s climb, the 6.4 million-pound monthly increase was well above the five-year average 10.9 million drawdown. Total cheese stocks have climbed higher in September in just three of the past ten years (2010, 2018, and 2019). On a positive note, total cheese stocks dropped back slightly below prior year levels after eclipsing 2018 levels at the end of August.”

Traders appeared to ignore the bearish reports and took the cheddar blocks to an Oct. 25 close at $2.1225 per pound. This is up 15.5 cents on the week and 60.75 cents above a year ago. The barrels caught fire this week and closed at $2.25, up 25 cents on the week — the highest barrel price since Sept. 26, 2014, and $1 above a year ago, and with an inverted spread of 12.75 cents. Twenty-one cars of block traded hands on the week at the Chicago Mercantile Exchange and only nine of barrel.

Midwest cheesemakers continue to report a lack of spot milk, says Dairy Market News, but keep a close eye on how much to take on due to production capacity and potential resale concerns. Demand reports continue to be steady but slower than a few weeks ago and inventories in the region are “mostly in balance.”

Western cheesemakers have found comfort in the narrowing block-barrel spread and firming prices. Western cheese output is active and cheese demand is “steady, but not phenomenal,” says Dairy Market News. Holiday orders are starting to come but are not impressive. Some contacts suggest government purchases could be helping support cheese prices. Fiscal 2019 purchases of cheese products are up about 14 percent from 2018 and processed cheese buys are up nearly 40 percent.

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CME butter fell to $2.0575 per pound on Oct. 24, but closed the next day at $2.06. This is down 5.5 cents on the week and 17.25 cents below a year ago on 13 sales.

Butter producers are reporting varying production methods, says Dairy Market News. Cream is slightly less available and some suggest it may soon be out of reach for churning. Demand is steady, meeting seasonal expectations, but market tones are, relative to their typical steadfastness, “slightly in flux.”

Analysts tell Dairy Market News they expect a slightly bearish 2020 butter market as higher imports and stocks put a bearish slant on the overall tone. Still, butter is expected to remain in its range-bound status.

Retail butter orders in the west have been strong the past days, says Dairy Market News, but stockrooms are full and, so far, incoming orders for the holiday seem lower than usual. Butter output is steady to up a bit due to readily accessible and reasonably priced cream.

FC Stone points out that 2019 will likely mark the seventh year National Dairy Product Sales butter prices have averaged above $2.00.

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Grade nonfat dry milk closed Oct. 25 at $1.1525 per pound. This is down 1.75 cents on the week, but 28.5 cents above a year ago on 11 trades for the week.

Dry whey finished at 28.25 cents per pound, a quarter-cent lower on the week. This is the lowest CME price since April 4, 2018, and 18.75 cents below a year ago. A lot of product continues to flow to the CME — 75 loads; 273 loads since Oct. 1.

Class I milk prices will move higher. The USDA announced the November Federal order Class I base price at $18.14 per hundredweight, up 30 cents from October, $2.62 above November 2018, and the highest Class I since January 2015. It equates to $1.56 per gallon, up from $1.33 a year ago. The 11-month average is at $16.78, up from $14.82 a year ago and $16.41 in 2017.

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        The US crop harvest is hastening on, but corn and soybeans lag behind a year ago, according to this week’s Crop Progress report. The data shows 30 percent of the corn has been harvested as of the week ending Oct. 20. This is up from 22 percent the previous week, but down from 48 percent a year ago and 17 percent behind the five-year average. Fifty-six percent was rated good to excellent, down from 68 percent a year ago.

Forty-six percent of the soybeans are out of the field, down from 51 percent a year ago and 18 percent behind the five-year average. Fifty-four percent are good to excellent, 12 percent behind a year ago.

Forty percent of the cotton has been harvested, up 2 percent from a year ago and 5 percent ahead of the five year average. Forty-one percent is rated good to excellent, up from 34 percent a year ago.

The 2019-20 corn price forecast was raised in the Oct. 17 Livestock, Dairy and Poultry Outlook from last month’s forecast, to $3.80 per bushel, 20 cents higher than last month’s forecast. The soybean meal forecast is $325 per short ton, an increase of $20. The August alfalfa hay price was $179 per short ton, a decrease of $4 from July but $2 higher than August 2018. The five-state weighted average for premium alfalfa hay was $208 per short ton, $1 less than July’s price.

The Outlook also stated, “Based on recent data for milk cow numbers and dairy cow slaughter, milk cows for third quarter 2019 are expected to number 9.32 million — 5,000 higher than forecast last month. Milk per cow for the third quarter is expected to be 5,805 pounds, an increase of 15 pounds from the last forecast.

Milk production for third quarter is thus expected at 54.1 billion pounds, up 200 million pounds than the last forecast. The fourth-quarter milk production forecast was unchanged at 53.8 billion pounds. The 2019 forecast is 218.2 billion pounds.

The forecast for the 2020 milking herd was unchanged from last month at 9.34 million head. Milk yield per cow was forecast at 23,725 pounds, an increase of 35 pounds from the last forecast, as more rapid yield growth in late 2019 should carry over into 2020. Due to the higher milk-per-cow forecast, the 2020 production forecast was raised 400 million pounds to 221.6 billion pounds.

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U.S. dairy products continue to leave the country via the Cooperatives Working Together program. Member cooperatives accepted five offers of export assistance this week to facilitate sales of 965,625 pounds of cheddar cheese and 180,779 pounds of cream cheese. The product is going to customers in Asia and the Middle East from November through March 2020.

Dairy Management Incorporated board members were in Mexico this week getting a first-hand look at dairy checkoff programs going on there, sponsored by the U.S. Dairy Export Council.

USDEC points out Mexico is the United States’ number-one export market, accounting for one-quarter of U.S. dairy exports. Nearly 90 percent of Mexico's dairy imports come from the United States. Those sales amounted to $1.4 billion in 2018, says USDEC, and have increased for nine consecutive years. Exports to Southeast Asia were second, totaling about half those to Mexico, followed by Canada, China, South Korea, South America, and Japan.

In other global news, HighGround Dairy reports, “EU milk production showed the strongest year-over-year growth since April, supported by higher production from the top five milk producing countries on the continent and especially good output from both Ireland and Poland.”

Lastly (and on a bright note), for the first time ever, a cheese from the United States has been judged "Best in the World" at the World Cheese Awards. A panel of 260 judges from 25 countries ranked Rogue Creamery’s “Rogue River Blue” number one on Oct. 18 in Bergamo, Italy. There were 3,804 entries.

Rogue Creamery is located in Central Point, Ore. The USDEC praised the award and what it means for U.S. cheese globally “now that U.S. cheeses can be found in fine cheese shops and restaurants in Europe, the UK, Australia, Japan, and around the globe.” Complete details are posted at the USDEC website.

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.