lee mielke

This column was written for the marketing week ending May 17.

The talk of the week was China’s retaliatory tariffs against the United States on $60 billion of goods in response to President Trump’s upping the ante by raising tariffs on imports from China.

HighGround Dairy stated while the trade war with China is bearish to U.S. commodity prices, it believes African swine fever in China is “taking a much larger toll on U.S. dairy exports rather than the existing and potentially new tariffs that may take effect next month.”

The majority of U.S. dairy exports to China are in the form of sweet whey powder, whey permeate or lactose with recent month volumes at multi-year lows,” says HighGround Dairy. “China's hog herd was reportedly down 10 percent into the first quarter of 2019 (or more) and the country has been unable to control the outbreak.”

President Trump vowed to protect U.S. farmers from the lost sales to China by increasing government purchases of soybeans. Farmers have, for the most part, been supportive of the President’s actions; but that support may be waning. Weather issues are delaying planting and the trade issues have farmers in a conundrum whether to plant soybeans or corn.

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As I reported last week, the U.S. Department of Agriculture lowered its 2019 milk production estimate for the sixth time in the latest World Agricultural Supply and Demand Estimates report — blaming declining milk cow inventories and slow growth in milk per cow.

2019 production and marketings are now estimated at 218.7 and 217.7 billion pounds respectively, down 800 million pounds on production from last month’s estimate and 900 million pounds lower on marketings. If realized, 2019 production would be up just 1.1 billion pounds or 0.5 percent from 2018.

The report provided the first preview of what is expected for 2020. It projected milk output to hit 222.7 billion pounds, which would be up 4 billion pounds from 2019. Dairy herds are expected to expand as producers respond to higher milk prices and lower feed costs, according to the WASDE. Milk per cow is expected to continue increasing, plus the forecast reflects the one extra day due to leap year.

Cheese, butter and nonfat dry milk prices were forecast higher than the previous year on robust demand expectations. However, the whey price forecast was slightly lower on continued softness in export demand.

The Class III milk price is forecast to increase as stronger cheese prices more than offset the weaker expected whey price. Look for a 2019 average at around $16.05 per hundredweight, up 70 cents from last month’s estimate and compares to $14.61 in 2018 and $16.17 in 2017. The 2020 average is projected at $16.55.

The Class IV price is expected to increase due to higher nonfat dry milk and butter prices. It’s projected at $16.20, up 15 cents from last month’s projection, and compares to $14.23 in 2018 and $15.16 in 2017. The 2020 projection is at $16.80.

The U.S. feed-grain outlook for 2019-20 is for larger production and domestic use, lower exports and greater ending stocks. The corn crop is projected at 15.0 billion bushels, up from last year and the second-largest on record. The yield projection of 176 bushels per acre. With beginning stocks down from a year ago, total corn supplies are forecast at a record high 17.2 billion bushels.

Corn used for ethanol is projected to increase 1 percent from a year ago. Feed and residual use is projected higher on a larger crop, lower expected prices, and continued growth in grain consuming animal units. U.S. corn exports are forecast to decline 25 million bushels in 2019-20, despite larger world corn trade.

With the total U.S. corn supply rising more than use, U.S. ending stocks are up 390 million bushels from last year If realized, ending stocks would be the highest since 1987-88. Stocks relative to use at 16.9 percent would be the highest since 2005-06. With larger stocks relative to use, the season-average farm price is projected at $3.30 per bushel, down 20 cents from 2018-19 and the lowest since 2006-07.

The 2019-20 outlook for U.S. soybeans is for higher supplies, crush, exports, and slightly lower ending stocks compared to 2018-19. The soybean crop is projected at 4.15 billion bushels, down 394 million from last year’s record crop on lower harvested area and yields. With higher beginning stocks, soybean supplies are projected at 5.165 million bushels, up 3 percent.

The U.S. season-average soybean price is projected at $8.10 per bushel, down 45 cents from the 2018-19 forecast. Soybean meal prices are forecast at $290 per short ton, down $15.

Cotton forecasts include higher exports and ending stocks. Production is forecast at 22 million bales, based on 13.8 million planted acres. With harvested area up, production is projected 20 percent higher than in 2018-19. The marketing year price received by producers is forecast to average 65 cents per pound, 5 cents lower than in 2018-19.

The latest Crop Progress report shows 30 percent of the corn crop was in the ground, as of the week ending May 12, up from 23 percent the previous week, down 29 percent from a year ago, and 36 percent behind the five-year average. Ten percent of the corn has emerged, up from 6 percent the previous week, 15 percent behind a year ago, and 19 percent behind the five-year average.

Checking cotton, 26 percent has been planted, up 8 percent from the previous week, 8 percent behind a year ago, and 6 percent behind the five-year average. Also, 9 percent of U.S. soybeans are in the ground, up 3 percent from the previous week, 23 percent behind a year ago, and 20 percent below the five-year average.

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Cheese prices slipped following Mother’s Day. Chicago Mercantile Exchange block cheddar fell to $1.6575 per pound on May 15, but closed two days later at $1.6725. This is down three-quarter cents on the week, but 9 cents above a year ago. The barrels fell to $1.60 on May 14, but closed May 17 at $1.6250 which is down 8.5 cents and 9.25 cents above a year ago. Nineteen cars of block sold on the week and 43 of barrel — the highest total since late October 2018.

FC Stone states in its May 17 Early Morning Update, “The cheese market has found some level of equilibrium in the mid/low-$1.60s for the time being.” Traders await the May 20 April Milk Production report which could show further decline in U.S. milk output and await the May 21 Global Dairy Trade auction.

Midwest cheese markets felt “slippery” this week, according to Dairy Market News. Recent demand reports have been mixed to bullish; but this week more cheesemakers suggested lower sales numbers. Producers report expectations are generally being met, while some predict the slowdown to last upwards of a month. “The reported spot milk range was $2 under to $2 over. Comparing the week 20 averages to past years is telling of the current downtrend in milk supplies,” says Dairy Market News. “Last year during week 20, the average was $3 under, while in 2017 spot milk prices averaged $4.50 under Class, with discounts $6 under. All said, cheese plant schedules are steady with available milk supplies.”

The western cheese market is strong and national inquiries are steady to more solid. Some players report having a challenge with transnational sales as they need more export assistance. Retail orders are good as stores replenish post-holiday stocks. Cheese output is mostly flat despite a bit of increase in the Class III price noted at some localities but cheese supplies are plentiful.

Cooperatives Working Together granted just four offers of export assistance this week to members to help capture sales of 1.627 million pounds of whole milk powder. The product will go to customers in Asia and South America through July and raised CWT’s 2019 exports to 27.14 million pounds of American-type and Swiss cheeses, 3.96 million pounds of butter (82 percent milkfat), 1.97 million pounds of cream cheese, and 25.9 million pounds of whole milk powder.

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Cash butter climbed to $2.3850 on May 16, the highest CME price since Aug. 14. But on May 17 it closed at $2.34, unchanged on the week and 4.5 cents below a year ago, with 25 cars exchanging hands on the week.

Midwestern cream supplies have “slimmed down,” says Dairy Market News, but some butter plant managers say they are surprised it is still as available as it is. Others report cream purchases are becoming rare and are only looking locally. Butter market tones are bullish. Lower overall milk supplies and an increasing value on milkfat have contacts believing they could continue to push up this summer; but others believe an increase in imports could rein in those bulls.

Western butter demand continues to give a “solid presence,” according to Dairy Market News. Some participants forecast prices to move higher still as cream supplies tighten.

Contacts say end users are anxious to assure coverage and possibly avoid the risk of higher butter prices later in the year.

Spot Grade A nonfat dry milk closed May 17 at $1.0475 per pound, down 2 cents on the week but 19.5 cents above a year ago, with four cars sold on the week.

Dry whey inched down three-quarters on May 13 and stayed there the rest of the week at 34 cents per pound, 3 cents below a year ago. Seven sales were reported.

Woes continue in U.S. fluid milk sales. The latest data reports 3.9 billion pounds of packaged fluid sales in March, down 4.7 percent from March 2018. Conventional product sales totaled 3.7 billion pounds, down 4.5 percent. Organic products, at 202 million, were down 8.1 percent and represented 5.2 percent of total sales for the month.

Whole milk sales hit 1.2 billion pounds, down 3.6 percent from a year ago and made up 31.8 percent of total fluid sales in the month. Sales for the three month period totaled 28.8 billion, virtually unchanged from a year ago. Skim milk sales, at 294 million pounds, were down 11.6 percent and made up just 7.5 percent of total milk sales.

Total packaged fluid milk sales for the three month period totaled 11.8 billion pounds, down 2.4 percent from a year ago. Conventional products year-to-date totaled 11.1 billion pounds, down 2.2 percent. Organic products, at 631 million pounds, were down 4.5 percent and represented about 5.4 percent of total fluid milk sales for the period.

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The continued falling fluid milk sales report comes as June Dairy Month approaches and prompted a discussion about it with Hoards Dairyman managing editor Corey Geiger in the May 20 Dairy Radio Now broadcast.

I will include most of those comments in my June Dairy Month tribute. However, as a hors d’oeuvre, I begin by stating this is June DAIRY month, not fake milk month. A growing number of consumers — primarily millennials — believe that drinking a beverage from a plant is more beneficial than what comes from a cow.

Geiger countered, “There’s a reason milk is called nature’s most perfect food.”

 He quoted South Dakota State University’s Lloyd Metzger, who recently spoke to a group of dairy economists and policy advisors in Grand Rapids, Mich. (Metzger credited the casein protein in milk as one of the best and most complete proteins known to man and great for growing muscle mass.)

Metzger says casein protein lifts the calcium and phosphate in milk in suspension. “Calcium and phosphorus are minerals,” Geiger charged. “The casein protein lifts them so that when you drink milk, you also consume the calcium and phosphorus.”  He quickly added; “If consumers really knew the whole story, they probably wouldn’t be drinking plant-based beverages  because they don’t have the casein protein to lift these minerals so vital to human health.”

Again, I’ll have more in my upcoming June Dairy Month column.

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In politics, the Trump Administration was called on this week to “correct the inequity in cheese sales opportunities between the U.S. and the European Union, given the EU’s anti-trade practice of abusing geographical indications policies to monopolize generic cheese names as a means to shut out competition.”

That was the message in a letter from the chairman of the Consortium for Common Food Names Errico Auricchio, President and Founder of Belgioioso Cheese in Green Bay, Wisc.

“The U.S. is an extremely profitable dairy market for the EU. We must leverage that power in correcting this deeply frustrating inequity,” Auricchio wrote. “I urge you to utilize all available tools to remedy this situation. Let us at least consider imposing the same restriction on them they do on us: require that they not sell cheeses by these names into our market, as long as we are locked out of theirs.”

The United States is Europe’s number one export market for cheese; but the EU restricts competition from the United States in many cheese categories — contributing to a massive $1.6 billion U.S./EU dairy trade deficit, the letter states.

And, the U.S. Trade Representative was called upon to “slap tariffs on dairy shipments from Europe in response to the $11 billion in damage EU Airbus subsidies caused the United States,” according to the National Milk Producers Federation President Jim Mulhern, in testimony before a USTR panel this week

A NMPF press release stated, “The World Trade Organization recently found that Europe’s large civil aircraft subsidies were against international trade rules and permitted the United States to levy duties on EU products until Europe comes into compliance.”

“We have a unique opportunity to make a big dent in the dairy market access gap with Europe. Including EU cheeses, yogurt, and butter on this list, as USTR has proposed, is entirely warranted, and we would encourage you to add additional EU dairy-related tariff lines,” Mulhern said. Doing so “would bring increased attention to the gross inequities that define our dairy trading relationship.”

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.