The “Trade War” has begun. President Trump fired the first salvo with $50 billion worth of tariffs on China. China responded with tariffs on 128 U.S. products. While dairy is not directly involved, it will be impacted in the coming weeks.
Meanwhile, a mild February in most of the U.S enabled milk output to surpass that of a year ago for the 50th consecutive month and hit a bearish 15.9 billion pounds in the top 23 states. That’s up 1.8 percent from February 2017, according to preliminary data in the USDA’s latest Milk Production report. February’s 50-state total, at 17 billion pounds, was also up 1.8 percent. Revisions added 9 million pounds to the January total, now put at 17.3 billion, up 1.8 percent.
February milk cow numbers totaled 8.75 million head in the 23 states, up 1,000 from January and 49,000 more than a year ago. The 50-state total, at 9.4 million head, was up 1,000 from January and 45,000 above a year ago. Output per cow averaged 1,822 pounds in the 23 states, up 23 pounds from a year ago.
California saw its second month with output above a year ago, up 3.5 percent, despite 17,000 fewer cows, but output per cow was up 80 pounds. Wisconsin was up just .1 percent on a 10-pound gain per cow, offsetting 5,000 fewer cows.
The Northeast was the exception on the mild weather. Case in point, New York output was down 2.3 percent on a 55-pound loss per cow, though cow numbers were up 4,000. Idaho was up 4.8 percent, thanks to a 60-pound increase per cow and 9,000 more cows. Pennsylvania was up .3 percent on a 5-pound gain per cow. Cow numbers were unchanged. Minnesota was down .5 percent, on 5,000 fewer cows, but output per cow was up 10 pounds. Michigan was up .9 percent on a 5-pound gain per cow and 3,000 more cows.
FC Stone’s Dave Kurzawski cautioned in the March 26 Dairy Radio Now broadcast that “the behavior of the market is what you really want to watch, so it’s less about how the market reacts in that kneejerk moment, but more about how the market trades the day after and where it goes from there.” He added the caveat, “If the market doesn’t go down on bearish news, you have to question how bearish the market really is.” He admitted that the report showed solid gains in milk output but said, “it’s nothing to really hold the market down at this moment as we shift into what appears to be decent demand here in March.”
Dairy cow culling dropped sharply in February but was still above February 2017. The latest Livestock Slaughter report shows an estimated 260,700 head were slaughtered under federal inspection, down 29,100 from January but 7,500 above a year ago. A total of 550,400 head have been “retired” from the business in the first two months of 2018, up 28,100 head, or 5.4 percent, from 2017.
Last Tuesday’s Global Dairy Trade auction saw its weighted average of all products offered drop 1.2 percent, following the March 6 decline of .6 percent.
Skim milk powder led the losses, plunging 8.6 percent, and reversing a 5.5 percent advance last time. Cheddar cheese was down 3.9 percent, after gaining 1.7 percent. Anhydrous milkfat and butter were unchanged but FC Stone explains, “We’ve had a pretty flat GDT forward curve for the past few auctions, so really just a continuation of that. Butter is slightly down in the front end of the curve and a little up on the back end of the curve, flattening out the curve further and leaving the butter index unchanged overall.”
Whole milk powder was the only product in positive territory but was only up .1 percent, after slipping .8 percent last time.
FC Stone equates the GDT 80 percent butterfat butter price to $2.3370 per pound U.S. CME butter closed last Friday at $2.19. GDT Cheddar cheese equated to $1.6369 per pound U.S. and compares to last Friday’s CME block Cheddar at $1.5450. GDT skim milk powder averaged 85.57 cents per pound, U.S. and whole milk powder averaged $1.4632. CME Grade A nonfat dry milk price closed last Friday at 69¼ cents per pound.
Dairy product inventories saw large gains in February, particularly on butter. The Agriculture Department’s latest Cold Storage report shows Feb. 28 butter stocks swelled to a just under 277 million pounds, up 50.2 million pounds, or 22.1 percent, from January and 7 million, or 2.6 percent, above February 2017. Revisions added 2.8 million pounds to January’s total.
American-type cheese grew to 762.7 million pounds, up 20.9 million pounds, or 2.8 percent, from January and 18.1 million, or 2.4 percent, above a year ago. Revisions added 3.6 million pounds to the January inventory.
The “other” cheese category totaled 523.5 million pounds, up 15.4 million pounds, or 3 percent, from January and 68.7 million, or 15.1 percent, above a year ago. That nudged the total cheese inventory to 1.3 billion pounds, up 35.5 million, or 2.8 percent, from January and 87.7 million, or 7.2 percent, above a year ago.
After weighing the Milk Production and Cold Storage reports, plus last Tuesday’s GDT, traders took the Cheddar blocks to a Friday close of $1.5450 per pound, down 4 cents on the week and 3 cents below a year ago. The barrels finished at $1.51, down a nickel on the week and three-quarter cents below a year ago when they plunged 10¼ cents. Four cars of block were sold and 12 of barrel.
Dairy Market News reports that demand for cheese is trending up. “Manufacturers of most varieties and styles are reporting bullish ordering ahead of the spring holidays. On the other hand, for some Midwestern producers, Northeastern weather continues to hinder sales as the fourth Nor’easter in three weeks struck the densely populated customer base.”
Spot milk prices are in a tight and discounted $3 to $4 under class, with no shortage of milk offers. Cheese inventories are generally long, but vary from manufacturer to manufacturer. Some barrel producers are suggesting their stocks are lighter than expected, and that unpredictable buying practices of late have deterred them from adding to production.
Although milk availability is ample, some Western cheese processors are not running at full capacity but are planning to increase output in the coming weeks as the spring flush gets near. Overall, cheese supplies are “copious,” said DMN. “Some cheese outputs are being stocked for future usage as current demand, although strong, seems to still be below total production levels. Export market activities are flat and are expected to remain the same unless domestic or international cheese prices change.”
All Eyes on Europe
While Class III futures prices have improved the past month, they still have a long way to go to cover production expenses. The DDR’s Sarina Sharp said, “Much depends on European milk production. Preliminary data from the Eurozone, assuming steady trends Greece, Spain and Sweden, which have yet to report, shows January milk at 28.5 billion pounds. That is up 4 percent from a year ago and 2 percent greater than the formerly record-breaking output of January 2016. All of the top 10 major dairy nations reported year-over-year increases, although improvements in Spain are assumed rather than official.”
“Growth is likely to slow going forward,” she said. “Harsh weather in late February and March hampered milk production per cow. Also, since June, year-over-year growth percentages have been misleading, as they are building on milk volumes in 2016 and early 2017 that were lower than the prior year. Beginning this month, if Europe can achieve continued growth in milk production, it will be building on last year’s expansion, a surplus that the market may find difficult to absorb,” Sharp concludes.
U.S. dairy margins improved slightly the first half of March due primarily to falling feed prices as milk values were steady to a little higher, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.
The MW said, “Margins remain below average and negative in the spot period while only projected slightly above breakeven in the second half of the year. Although the milk market remains oversupplied and production has increased at a faster rate than handlers’ ability to process into dairy products, low prices may be stimulating demand and helping to move excess supplies.”
“Corn and soybean meal have retreated following rainfall in Argentina that has brought some relief to drought conditions in the country; however, corn remains supported by a larger than expected cut to U.S. projected ending stocks in the March WASDE. USDA raised the corn export forecast 175 million bushels due to U.S. price competitiveness, record-high outstanding sales, and reduced exports from Argentina, while ethanol usage was raised 50 million bushels from February.”
The April Federal Order Class I base milk price was announced by the USDA at $14.10 per hundredweight, up 74 cents from March but $1.95 below April 2017. That equates to $1.21 per gallon, up from $1.15 in March and compares to $1.45 a year ago. The four-month average is at $14.29, down from $16.78 a year ago and $14.30 in 2016.
Source: The Farmers Exchange