A story surfaced this week that Canada expects the United States to pull out of NAFTA. The White House quickly denied the story but FC Stone warned, “This could be big for dairy should it actually play out as year to date for 2017 Canada was 5.6 percent of our exports and Mexico was 26.4 percent, a massive 32 percent combined.”
The International Dairy Foods Assoc. (IDFA) offered some comfort in a press release concerning President Trump’s remarks at the American Farm Bureau Federation’s annual meeting last week.
“The President’s comments on the NAFTA seem to indicate a deepening understanding of the critical connection between trade agreements and the farming community. He has heard from rural America that trade is woven into the fabric of our businesses. We are pleased that he is listening and hopeful for positive momentum moving forward,” the IDFA stated.
The Trump Administration drew praise from the IDFA regarding the Administration’s announcement at the AFBF meeting of the recommendations made by the Interagency Task Force on Agriculture and Rural Prosperity.
Michael Dykes, D.V.M., IDFA president and CEO, commended the “prioritizing of the rural workforce development in a new commitment to bring prosperity back to rural communities.”
Announced at the annual meeting, “The administration’s task force recommendations highlight the critical connection between investing in the rural workforce and strengthening American manufacturing,” Dykes said.
“Our dairy foods companies, which are predominately located in rural communities, employ nearly 1 million skilled individuals, generate more than $39 billion in direct wages and have an overall economic impact of more than $200 billion, according to Dairy Delivers, IDFA’s economic impact tool.”
“With the training and educational investments, expanded apprenticeship programs and access to career development programs the President outlined today, dairy companies will be able to continue providing job opportunities in thousands of rural communities across the United States,” IDFA stated.
EU: No more skim milk powder?
Searching for a “silver lining” in dairy’s dark clouds can be difficult. Some of those clouds include rising global milk production and an abundance of milk powders in storage both at home and abroad, with record low prices at the CME recently.
There’s also uncertainty over what changes the EU will make in its intervention program, but it appears New Zealand is facing drought, China’s dairy imports are looking encouraging, and the first Global Dairy Trade of 2018 was up 2.2 percent, so that perhaps is the silver lining.
Jerry Dryer, analyst and editor of the Dairy and Food Market Analyst newsletter, said in the Jan. 8 Dairy Radio Now broadcast that the EU is indicating that it will stop buying skim milk powder (SMP), in effect, ending the world support program for SMP, possibly sending prices “very very low,” he warned.
He also reminded us it was the SMP/nonfat dry milk powder price that “led us into the stratosphere a few years ago when we eventually reached $25 per cwt. Class III milk. We have some rough sledding ahead of us on the powder side of the business, despite the increasing interest from China and the slowing of production in New Zealand because of drought.”
All of these international developments are putting a lot of downward pressure on U.S. milk prices, according to Dryer, particularly the European situation, but dairy farmers are also under a lot of price pressure and he predicts a dramatic slowing in milk production in the U.S., which should help firm up the market mid-year.
Should the United States continue to pressure Canada to end its supply management program as well as its new Class 7 milk pricing program which is dumping powder on the world market? Dryer replied, “We don’t have any business demanding that they change their supply management program, but we do certainly have a right to say, wait a minute, the Class 7 kind of pricing is illegal under the World Trade Organization regulations, let alone under the NAFTA.”
Lower milk production forecast
The USDA lowered its 2017 and 2018 milk production forecasts in its latest World Agricultural Supply and Demand Estimates report. The 2017 estimate was reduced, based on the most recent data and the 2018 projection was reduced due to slower anticipated growth in the dairy cow herd combined with continued slow growth in milk per cow.
The 2018 dairy product price projections were reduced due to slowing domestic demand and global competition. The 2018 Class III and Class IV milk price forecasts were reduced, based on the lower product prices. I’ll report more details next week.
California dairy producers have given a thumbs-up to the California Department of Food and Agriculture’s Quota Implementation Plan, should they approve a Federal Milk Market order in a future referendum.
CDFA conducted the referendum of milk producers in the state and reported that 703 valid ballots, out of a possible 1059, were received. The final tally showed that 66 percent of the state’s eligible producers participated, with 613 or 87 percent voting in favor and 90 or 13 percent were opposed.
The USDA has issued a Recommended Decision on a California Federal milk market order but has yet to issue its Final Decision. Once that happens, informational meetings will likely be held in the state, with a final producer referendum after that to approve joining the Federal order program.
California’s February Class I milk prices fell to the lowest level since July 2016. The CDFA announced the northern price at $15.47 per cwt., down 60 cents from January and $2.66 below February 2017. The southern price is $15.74, down 61 cents from January and $2.66 below a year ago. The February Federal order Class I base price will be announced by the USDA on Jan. 18.
Cash dairy prices also fell the second week of the new year as traders awaited the Jan. 12 World Agricultural Supply and Demand Estimates report, which included the latest milk production and milk price estimates.
The Cheddar blocks saw daily slippage until Jan. 12 when they reversed and gained 1.75 cents to close at $1.4550 per pound, still down 4 cents on the week and 27 cents below a year ago. Friday’s large crash was the barrels plunging to $1.2175, down 17.25 cents on the week, lowest barrel price since July 30, 2009, and 42.25 cents below a year ago. They’re also a whopping 23.75 cents below the blocks. Six cars of block traded hands on the week and 37 of barrel.
Discounted spot milk
Dairy Market News reports that Midwestern cheesemakers continue to receive offers of discounted spot milk, although above the discounted prices of previous weeks. Spot milk prices ranged $1.50 to $3 under Class. Some cheese producers are cutting back on production and taking time off before gearing up for the Super Bowl. Others have begun to ramp up and are operating seven days a week.
Cheese sales are generally meeting or ahead of seasonal expectations but the market prices are creating some anxiety among Central cheese contacts.
Western cheese sales are reportedly “within seasonal norms.” Orders for Super Bowl have started to pick up but some contacts are “not optimistic about the future development of the cheese market due to supplies outweighing current demand. Buyers are mainly purchasing what they need as they wait to see the direction of the market. The reopening of schools after the holidays is drawing some milk away from the vats. However, cheese production remains active and current cheese inventories are plentiful in the West.”
The spot butter fell to $2.1550 per pound on Jan. 11, lowest price since May 10, 2017, but it closed on Jan. 12 at $2.16, down 7.75 cents on the week and 65 cents below a year ago. Seven cars traded hands on the week.
Cream offers are aplenty for butter producers, according to DMN, and cream continues to flow into the upper Midwest from the West and Southwest. Butter producers have cut back on cream intakes in order to keep inventory in check.
Production has steadied after the holiday rush, and plant managers are focusing on the spring retail push. “Some contacts are positing some bearish sentiment of late and suggest some global bears are beginning to take their toll, and domestic butter may be more available in the near term.”
Plentiful cream and low multiples are prompting some Western butter makers to actively operate churns near full capacity, according to DMN. Domestic consumer demand has slackened, as expected, between the winter and spring holiday baking seasons. While some retailers are using the lull to restock shelves, others are urging butter makers to hold back on shipments until next month. Inventories are growing.
Cash Grade A nonfat dry milk closed on Jan. 12 at 66.75 cents per pound, down 1.25 cents on the week and 36.5 cents below a year ago. Fourteen carloads found new homes on the week at the CME.
On a brighter note; November export data showed strong volumes for cheese and whey, according to FC Stone’s Jan. 9 Early Morning Update.
“It looks like the relatively cheap US whey prices have taken some market share from Europe,” the Update stated. “Cheese exports were a little weaker than expected and with spot Gouda at $1.17 and mozzarella at $1.29 in Europe, U.S. cheese exports are probably going to stay on the weak side. Overall the data is mildly supportive relative to expectations, but that’s mostly because expectations have been beat down over the past 6 months.”
The Update reported that butter production “continues to lap previous year’s volumes,” but “The question moving forward is how strong demand is. Exports to the Middle East have picked up, increasing 39 percent versus last year.”
European butter market dropping
The Daily Dairy Report’s Sarina Sharp reported in the Jan. 6 Milk Producers Council newsletter that “the European butter market continues to drop, albeit at a much slower pace. Over the past two weeks the dollar has fallen more quickly than the foreign butter market, resulting in higher European butter prices in U.S. dollar terms.”
U.S. butter still stands at a slight premium to European product, according to Sharp, and “U.S. butter exports exceeded imports in November for only the second time this year, thanks to sky-high European butter prices this fall. Nonetheless, the difference was modest and U.S. butter imports were still 21.1 percent greater than year-ago volumes.”
“With one month of data yet to be reported for 2017, U.S. butter imports have eclipsed the record-breaking volumes of 2016. The Emerald Isle accounts for almost two-thirds of the total. Americans simply cannot get enough Irish butter,” according to Sharp.
Milk production costs going down
The USDA’s latest National Milk Cost of Production report shows November’s total milk production costs were down from October but up from a year ago.
Total feed costs averaged $10.70 per hundredweight (cwt.), up 4 cents from September, 14 cents below the October figure, and 36 cents above November 2016. Purchased feed costs, at $5.83 per cwt., were dead even with September, down 4 cents from October, but a penny above November 2016.
Total costs, including feed, bedding, marketing, fuel, repairs, hired labor, taxes, etc., at $22.89 per cwt., were up 7 cents from September, down 17 cents from October, but 72 cents above a year ago.
Feed costs made up 46.7 percent of total costs in November, down from 46.98 percent the month before and 46.6 percent a year ago.
Milk output is generally steady throughout most of the country, according to the USDA’s weekly production update. “Midwestern and Eastern freezing temperatures have, up to this point, had little effect on production. That said, contacts point out that single digit and subzero temperatures are creating some havoc with hauling milk and cream in those regions. Adding to that, general logistical problems are continuing into 2018, including dwindling trucker availability and electronic logging issues.”
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.