The big headline became a small story this week. New Zealand-based Fonterra issued an Aug. 1 press release notifying the industry that eight of its customers had been advised of a quality issue involving three batches of whey protein concentrate. The product was produced at a New Zealand manufacturing plant in May of last year and recently tested positive for Clostridium Botulinum which can cause botulism.

There were no reports of any illness linked to consumption of the affected whey protein but High Ground Dairy’s Eric Meyer said, at first glance it seemed like a pretty big deal, because New Zealand supplies China with over 90 percent of its whole milk powder and a lot more of its skim milk and whey milk protein.

Chinese authorities temporarily suspended importation of whey powder and dairy base powder (a whey-based dairy ingredient used in the manufacture of infant formula) produced by Fonterra, or produced in Australia using Fonterra’s whey protein powder as an ingredient (including whey protein concentrate). China also increased inspection and supervision at the border for New Zealand dairy products, and indicated extra testing may be required, according to Meyer, and Russia put a temporary ban on New Zealand dairy products.

Meyer and others speculated that this could have had a ripple effect on the global markets and be somewhat bullish to the others that supply the world, namely the EU and the U.S. but such was not the case as the week progressed. 

There wasn’t much evidence of concern over the issue at Tuesday’s Global Dairy Trade (GDT) auction, where the majority of product sold is from New Zealand. 

The GDT was somewhat bearish, according to Chris Hildebrand, risk management consultant at INTL FCStone. He said “That signals that the downside is the path of least resistance for the short term.” “The average winning price on GDT was up slightly from the July 16 average, but the GDT price index fell 2.4 percent. Prices gained for rennet casein and butter milk powder but fell for other products,” according to Hildebrand.

The cash dairy markets in Chicago didn’t seem to react much to the story either. The Cheddar blocks saw a sixth consecutive week of gain, closing Friday at $1.7975 per pound, up 2.25 cents on the week but 5.75 cents below a year ago when hot temperatures jumped the price 14.5 cents. The barrels finished at $1.7650, down three-quarters on the week and 5.5 cents below a year ago when they gained 13.5 cents. Ten carloads of block traded hands on the week and five of barrel. The lagging AMS-surveyed U.S. average block price hit $1.7160, up 2.4 cents, and the barrels averaged $1.7386, up 2.9 cents.

The cash cheese market is unsettled as the trade decides if lower milk volumes will continue or if the large inventories in cold storage are the more important factors, according to USDA’s Dairy Market News (DMN). Milk supplies have rebounded slightly from the heat induced reductions. Cheese plants are taking differing positions on increasing production depending on their individual analysis. Domestic cheese demand remains good, according to DMN, with some buyers looking to place orders for late third and fourth quarter purchases. 

FC Stone risk management consultant Ron O’Brien, noted in his Aug. 6 Insider Opening Bell that December corn futures dropped more than $1 per bushel since mid-June and “That’s alleviating a lot of the concern that there’s going to be a milk deficit at some point this year.” He added that “Cheese is moving well in the country, but production is strong.”

DMN reported that dairy product commercial disappearance in the first five months of 2013 totaled 81.67 billion pounds, down 0.7 percent from the same period in 2012, and about 3.43 billion pounds less than total milk marketings for the period, according to DairyBusiness Update.

Producer milk marketings for the January-May 2013 period were estimated at 85.10 billion pounds. Adding to available supplies, beginning commercial stocks totaled 12.19 billion, up 11 percent from a year earlier; and imports for the period totaled 1.31 billion pounds, up slightly from January-May 2012. May ending commercial stocks totaled 16.93 billion, up nearly 2 billion from May 2012.

Export demand is being aided by assistance from the Cooperatives Working Together (CWT) program, which accepted seven requests for export assistance this week to sell 1.38 million pounds of cheese and 992,080 pounds of butter to customers in Europe, the Middle East and North Africa. 

The product will be delivered through October and raised year-to-date exports to 77.1 million pounds of cheese, 62.3 million pounds of butter, 44,092 pounds of anhydrous milk fat and 218,258 pounds of whole milk powder to 34 countries.

The views and opinions expressed in this column are those of the author and not necessarily those of Farm World. Readers with questions or comments for Lee Mielke may write to him in care of this publication.