Dairy exports took us up, now they’re taking us down

By LEE MIELKE
Mielke Market Weekly

 The dairy export market took dairy prices to record highs in 2014, but the lack of those exports is bringing prices down as well. That’s according to USDA’s latest data and reported by the U.S. Dairy Export Council (USDEC).
Despite tough competitive conditions, USDEC says U.S. dairy export performance improved slightly in October from the prior month. Exporters shipped 154,419 tons of milk powders, cheese, butterfat, whey and lactose in October, down 8 percent from a year ago but up 9 percent from September (on a daily-average basis). Total exports were valued at $515.7 million in October, down 16 percent from last year. That brought year-to-date U.S. sales to $6.13 billion, up 11 percent versus 2013.
Overall dollar sales lagged year-ago levels in many of the United States’ top markets. Sales to Mexico were down 11 percent versus last October, Southeast Asia was down 14 percent, and China was down 32 percent. In addition, exports to the Middle East/North Africa region were just a fraction of what they were last year, falling 75 percent from October 2013 levels.
Nonfat dry milk/skim milk powder (NDM/SMP) exports were 38,709 tons, down 25 percent versus last October, but an improvement over the 32,097 tons shipped in September. Sales to the Philippines approached record highs (7,292 tons, up 114 percent from last year). Exports to Mexico (14,625 tons) were greater than September, though still off 12 percent from last year.
However, exports to China were just 1,882 tons, down 73 percent from last October, and a 19-month low. The complete report is posted at www.usdec.org
In other export news, the Cooperatives Working Together (CWT) accepted seven requests for export assistance last week to sell 540,133 pounds of Cheddar, Gouda and Monterey Jack cheese to customers in Asia and the Middle East. The product will be delivered through June 2015 and brings CWT’s 2014 cheese exports to 99.690 million pounds plus 53.591 million pounds of butter and 56.729 million pounds of whole milk powder to 45 countries on six continents.
Global market weakness
Cash cheese prices saw a little strength. The block Cheddar closed the second week of December at $1.60 per pound, up 2 cents on the week but 32.5 cents below that week a year ago. The Cheddar barrels closed Friday at $1.51, down 4 cents on the week and 32 cents below a year ago, and the lowest level they have seen since May 29, 2012. Three cars of block traded hands on the week and 30 of barrel. There were 27 carloads of barrel traded on Thursday, the second largest single day total in 10 years and represented over 1 million pounds. The blocks have plunged 85 cents from their lofty record high in September and the barrels are down 98 cents. The NDPSR-surveyed U.S. average block price fell 13.7 cents, to $1.8858, while the barrels averaged $1.8297, down 13.9 cents.
Jerry Dryer, editor of the Dairy and Food Market Analyst, called the barrel volume an “aberration” in a Friday interview on DairyLine.
“Somebody, apparently, needed to fill an order or felt it was very important that the price be raised, and they tried to and they succeeded,” Dryer explained, but warned, “It may very well reverse itself. The long term trend is at or below these levels, so I would call it an aberration.”
When asked to comment on Fonterra, the New Zealand-based dairy cooperative, dropping its 2014-15 seasonal farm gate milk price forecast by 11.3 percent, Dryer said the forecast says “The global dairy market is weak and is going to remain at least this weak for the foreseeable future.”
Earlier, Fonterra suggested that we would see some international product price recovery in March, Dryer reported, and now they’re talking about July. And, the price they announced is equivalent to less than a $12 per cwt. Class IV U.S. price, according to Dryer. “So it’s very bearish news.”
Should the U.S. give up the export market? Is that a silly question?
“There’s no such thing as a silly question, but we shouldn’t give up the export market,” Dryer answered. Doing that would mean we would have to cut U.S. milk production by 15 percent tomorrow morning, he said.
“We exported 15 percent of our product this year, and we will export 15 percent or more for the foreseeable future, for many years to come. We don’t want to give it up,” he concluded. “It’s just means the ups and downs are broader based rather than just domestically based.”
Cheese markets have a weak undertone, according to USDA’s Dairy Market News (DMN). Domestic sales remain as expected for this time of year, but exports are lagging. Various factors are influencing markets. Milk production remains heavy and the flow of milk is driving cheese production. Some spot milk is moving in the Midwest at $5.00 under Class. Cheese plants with contracted milk supplies are paying producers at price levels not yet lowered to reflect current lower cheese prices. This is due to the lag in the milk pricing formulas, which is encouraging milk production.
International factors are slowing exports of cheese from levels earlier this year. Europe in particular is moving cheese aggressively into export channels at pricing that’s exerting downward pressure on U.S. cheese prices. Heavy cheese production is adding to concern with inventory levels.
If cheese prices stay near current price levels, this will continue to expand the volume of cheese going into aging programs, particularly aged cheddar and some hard Italian varieties.
As noted above, New Zealand-based dairy cooperative Fonterra reduced its forecast Farmgate milk price for the 2014/15 season from $5.30 per kgMS to $4.70 per kgMS. When combined with the previously announced estimated dividend range of 25-35 cents per share, this amounts to a forecast Cash Payout of $4.95-$5.05 for the current season.
Chairman John Wilson said dairy farmers were expecting this lower forecast, but the revision will put pressure on their farming business budgets.
“There is still considerable volatility in global dairy markets,” he said. “Right now we are seeing a number of factors that are delaying a sustained return to higher global prices.”
The global milk supply remains greater than demand, which has resulted in Global Dairy Trade prices for Whole Milk Powder falling 16.9 per cent since late September, while Skim Milk Powder prices have fallen 7.7 per cent.
“Falling oil prices, geopolitical uncertainty in Russia and Ukraine, and subdued demand from China as it continues to work through inventory are all contributing to ongoing volatility and weak demand,” Wilson said.
“Today’s revised forecast reflects the Board and management’s best estimates at this time. Given the uncertainty, we are advising farmers to continue to be cautious with budgeting and we will update them as the season progresses.”
Speaking of the “down under,” Australian milk production is beginning to trend downward but remains above year ago levels. The milk production forecast by some cooperatives remains around 2 percent above last year.