By LEE MIELKE

Mielke Market Weekly  

 

Euro currency hit a 12-year low against the U.S. dollar last week and has the potential to keep U.S. dairy exports low for the foreseeable future. I asked HighGround Dairy’s Eric Meyer if this would keep a lid on milk prices as well.

He pointed out that, while the U.S. had become an export leader in the past few years with growing market share, “because of our weak dollar, this change of events or ‘flipping’ to the Europeans, means their export numbers could go way up and could bring U.S. export numbers much lower than in years past. That certainly has the ability to keep a lid on prices from moving sharply higher,” he said. He warned “this could be a big bearish factor down the road for dairy producers.”

U.S. dairy exports are in their biggest slump since 2012, reports the U.S. Dairy Export Council (USDEC). Exporters shipped just 125,876 tons of milk powders, cheese, butterfat, whey and lactose in January, down 23 percent from a year ago and the lowest since December 2012. Total overseas sales were valued at $401.5 million, down 31 percent from last year and the lowest since July 2012. Congestion at West Coast ports contributed to the slowdown.

Sales to the Middle East/North Africa region (MENA), Southeast Asia and China were the lowest in more than four years. In January, the value of shipments to MENA was down 75 percent from a year ago, while exports to Southeast Asia were down 53 percent and China was down 40 percent.

In addition, sales to Mexico, our largest market, were off 20 percent. The only major markets to post increases over last year were South Korea, up 23 percent, and South America, up 27 percent. Moreover, exports of virtually every major product lagged year-ago levels. 

Overseas sales of nonfat dry milk/skim milk powder (NDM/SMP) totaled 34,948 tons in January, down 10 percent. Exports to Southeast Asia were down 47 percent, offsetting a 40 percent gain in shipments to Mexico. In the last two months, NDM/SMP exports were equivalent to just 37 percent of U.S. production, resulting in a record-high build-up of commercial inventories for this time of year.

Cheese exports have fallen steadily since June. January volume was 23,767 tons, off 26 percent from a year ago. More than a quarter of the sales went to South Korea, which posted a 37 percent year-over-year increase. However, sales to Mexico were down 22 percent. 

U.S. exports (total milk solids basis) were equivalent to 11.2 percent of U.S. milk solids production in January, down from the 15.4 percent proportion exported in 2013-14. January imports were equivalent to 3.4 percent of production.

 

 

Both fat and skim-solids exports for 2015 were reduced as export demand is hampered by a strong dollar and increased competition from other exporters. Fat basis imports are higher on expectations of greater butterfat imports. However, robust domestic demand is expected to support increased product use. Product price forecasts for butter and nonfat dry milk (NDM) are higher, supported by demand and price strength to date. Cheese prices are unchanged at the midpoint but the range is narrowed. Whey is lower on weaker demand. 

The Class III milk price was lowered on reduced whey prices. Look for a range of $15.95-$16.55 per cwt., down from the $16.30-$17.00 expected a month ago, and compares to $22.34 in 2014. As a point of interest, factor the announced January and February prices with Thursday’s futures settlements and the 2015 average is $16.32 per cwt.

The Class IV price is higher because of higher NDM prices and butter prices. It is projected to average $15.30-$16.00, up from the $15.10-$15.90 expected last month and compares to a $22.09 average in 2014.

 

 The USDA lowered its 2015 milk production forecast for the third time in a row in its World Agricultural Supply and Demand Estimates report issued Tuesday, March 10, blaming slower growth in output per cow that is more than offsetting faster herd expansion.

The report shows 2015 production and marketings projected at 211.1 billion pounds and 210.1 billion pounds, respectively. Both estimates are down 400 million pounds from a month ago. If realized, 2015 production and marketings would be up about 2.5 percent from 2014. 

 

Many Central butter churns are full as operators get ready for spring holiday retail and food service orders, according to DMN. The market tone is firm as demand is strengthening. Some butter manufacturers are busy focusing on print butter contract commitments. Inventories of butter are light to moderate as some manufacturers are unable to grow stocks with current interest. 

Western butter production to meet Easter season demand is said to be keeping print butter churning volumes strong. Bulk butter manufacturing is also strong. Both factors are seasonally expected, says DMN. The demand for cream is causing supplies to tighten, with cream moving into California from Idaho and Arizona to keep churns supplied. 

Cash Grade A nonfat dry milk fell below $1 per pound for the first time since Jan. 27, 2015, closing March 13 at 99.25 cents per pound, down 3.25 cents on the week, and that after dropping 13 cents the previous week. Ten cars found new homes on the week. NDPSR powder averaged $1.0463, down 1.2 cents, and dry whey averaged 50.58 cents per pound, up 1.8 cents and ended six consecutive weeks of decline.

The above year ago levels of milk have led to an increase in powder production, according to DMN. Dry buttermilk prices are mixed. Demand is steady to lower, and inventory levels are adequate to high. Due to higher butter churning, production of buttermilk is active. Dry whole milk prices are mixed. Dry whey prices are steady to lower in a weak market. Production levels are increasing and producers are accumulating inventory.

 

Cash block Cheddar cheese closed Friday the 13th at $1.57 per pound, up a penny on the week and 79.25 cents below a year ago but the highest level since Jan. 13, 2015. 

The Cheddar barrels finished at $1.5450, up a nickel on the week and 71.75 cents below a year ago. Seven cars of block traded hands on the week and five of barrel. The NDPSR-surveyed U.S. average block price hit $1.5589, up 0.6 cent, while the barrels averaged $1.5296, up 0.4 cent.

Buying interest for cheese in the upper Midwest is strong, even stronger than recent weeks for some plants, according to Dairy Market News (DMN). This is leading to increased cheese production following weeks of already strong production schedules. Some cheese buyers calling last week were surprising sales managers with unsolicited and unexpected requests for cheese to be delivered as early as this week and through the end of April. This has led to purchasing spot milk to be able to increase production schedules.

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.