As renegotiation of the 23-year-old North American Free Trade Agreement (NAFTA) got underway this week, the National Milk Producers Federation (NMPF) was critical of comments made Aug. 14 by Canadian Foreign Affairs Minister Chrystia Freeland to Parliament.

 

NMPF charged in a press release that “Canada seems to want it both ways, free trade with the United States in areas where Canada is competitive, but high protectionist walls when it comes to keeping out U.S. dairy imports.”

NMPF said Minister Freeland’s comments about the dairy trade elements of the NAFTA talks are “completely misleading.”

“For too long, Canada has relied on government controls on farm milk production to boost prices, while minimizing dairy imports to limit competition,” the NMPF stated. “By comparison, the United States has slashed its government involvement in dairy markets, and relies on exporting its products to global customers to a greater degree than ever before.”

“That’s why the United States and other major dairy exporting nations, including Mexico and Argentina, are so upset with Canada’s latest Class 7 pricing scheme that is designed to undercut world market prices and unfairly dump Canada’s surplus milk at the expense of the United States and other exporters.

Ironically, Canada’s so-called ‘supply management’ system is failing to manage supply.

“Despite having no domestic market for more milk solids, the government there has sharply increased farm level production quotas, resulting in an accompanying spike of almost 300 percent in Canadian milk powder exports in 2017 so far. These exports are only made possible because Canada manipulates domestic pricing through the Class 7 subsidy scheme,” NMPF charged.

“Canada cannot be allowed to maintain a system that establishes one of the highest milk prices in the world within its borders while using world markets as a dumping ground for a huge increase in its production. While it has the right to choose its own domestic farm policies, Canada doesn’t have the right to use those policy tools to manipulate global dairy markets to the benefit of Canada’s lucrative dairy industry, and the detriment of the rest of the world’s exporters.

“Regarding Minister Freeland’s comment that the United States should be grateful that it sells more dairy products to Canada than it imports, this is hardly an example of a ‘good deal' for farmers in the U.S. or consumers in Canada. Much of what the United States exports to Canada is ultimately shipped back out under Canadian import for re-export programs. Canada has been refusing to share details of imports and exports under those programs, but the reality is that much of the dairy the U.S.

ships to Canada doesn’t stay in Canada. “The Canadian supply management program was basically ignored in 1993 when NAFTA was first negotiated. As the next generation of NAFTA arrives, here’s hoping that Canada is finally ready to have its dairy sector play by the same set of rules everyone else has been operating under for years,” NMPF concluded.

Global Dairy Trade slipping

The Aug. 15 Global Dairy Trade (GDT) auction added to its Aug. 1 slippage as another 71.1 million pounds of product made its way to the auction block, down 1.1 million pounds from Aug. 1, but still a sizable amount of product. The weighted average for all products offered was down 0.4 percent, following the Aug. 1 drop of 1.6 percent.

Lactose led the declines, down 4.9 percent. Butter and anhydrous milkfat were down 1.3 percent and 1.2 percent respectively, after both led the declines last time with a 4.9 percent drop.

Whole milk powder was off 0.6 percent, following a 1.3 percent rise last time.

The biggest gain was rennet casein, up 2.9 percent. Cheddar cheese was up 1.4 percent, after it dropped 4.8 percent last time, and skim milk powder inched 0.3 percent higher, after dropping 3 percent.

FC Stone equated the GDT 80 percent butterfat butter price to $2.5379 per pound U.S. CME butter closed Aug. 18 at $2.6450. GDT Cheddar cheese equated to $1.8167 per pound U.S. and compared to Friday’s CME block Cheddar at $1.7550.

GDT skim milk powder averaged 89.27 cents per pound, U.S. and whole milk powder averaged $1.4255. CME Grade A nonfat dry milk price closed Aug. 18 at 83.25 cents per pound.

USDA overvalued production?

The USDA may have overestimated U.S. milk production months ago, according to FC Stone dairy broker Dave Kurzawski in an Aug. 14 interview. While USDA cited slower growth in milk per cow more than offsetting increases in dairy cow numbers, Kurzawski blamed an overestimating of milk production earlier this year and perhaps underestimating other factors, including the recent hot weather in California, which stretched up the coast into Washington State.

He also pointed to the long term ramifications on breeding and said, “If you’re west of the Rockies, it’s not been an easy year to make milk, and I think the USDA underestimated that.”

When asked about Class III futures being below or close to only $17 per cwt., Kurzawski countered, “With the inventory of cheese we have and the dynamic that has pushed a lot of milk discounted milk in the Upper Midwest into the cheese vat this year, with the amount of cheese that we have, you could make an argument that we should be a couple dollars below where we are.”

He looks for demand to strengthen in the coming months and with that cheese and butter prices so he remains optimistic on milk prices.

Cash cheese prices higher

Cash cheese prices strengthened the week of Aug. 14. The block Cheddar dipped to $1.7250 on Aug. 15, then rallied and closed Friday at $1.7550 per pound, up 1.25 cents on the week but 11 cents below a year ago.

The barrels finished at $1.75, up 16.25 cents on the week and the highest since November 2016, but 11.5 cents below a year ago. The spread shrank to just a half-cent. Fourteen cars of block traded hands on the week at the CME and 20 of barrel.

Milk availability varies in the Midwest, according to Dairy Market News (DMN). Some cheese manufacturers report getting few to no spot milk offers. Others maintain that spot milk, although no longer discounted, is still available.

Many report that cheese demand has picked up. Cheese production is steady to a bit slower. Barrel inventories are long. Cheese market tones have slightly improved, says DMN, but the overall tone remains uncertain.

Milk continues to be plentiful in the West and more cheese is being made. Demand is fair, but continues to lag production.

International interest continues to be low. Supplies are long, but holding relatively steady. Some contacts believe that manufacturers will slow production to control their inventories.

Cash butter continued its meltdown as a lot of product headed to the CME. It closed the week 3.75 cents lower, at $2.6450 per pound, 45.5 cents above a year ago when it was on its way to the year’s low point of $1.76 the week of Oct. 17. Sixty three cars traded hands on the week, 34 on Aug. 16 alone.

DMN said retail and food service orders for butter have maintained consistency.

Manufacturers continue to report that sales are at least slightly higher than those of 2016. As schools are nearing their return from break, food service expectations are strong for the near term.

Adding to the overall demand trend, international interests are prevalent. Butter output is steady. Cream availability, which can dwindle this time of year, has not been problematic. Western butter production is steady.

Cream volumes moving into butter churns are more than sufficient. Premiums for milkfat continue firming on a bullish market. Bulk butter supplies are large. However, the high demand for butter is helping to move some stocks outside storage.

Cash Grade A nonfat dry milk finished Aug. 18 at 83.25 cents per pound, down 1.75 cents on the week and 2.5 cents below a year ago, with 11 cars sold.

Milk per cow increasing

The USDA’s latest Livestock Dairy and Poultry Outlook points out that “Milk per cow has been increasing at a slowing rate in recent months. In June, it was 64.0 pounds per day, an increase of 0.7 percent over June 2016. This is a substantial difference from the start of the year; in January, milk per cow was 1.9 percent over January 2016.” It added that “Milk cows in June numbered 9.4 million head, 4,000 more than May and 78,000 more than June 2016.”

The Cattle Report, published semiannually by USDA National Agricultural Statistics Service, shows that milk-replacement heifers numbered 4.2 million head as of July 1. This is about 45 percent of the milk cow number, a typical percentage for the July 1 inventory.”

The Outlook said, “With recent growth in cow numbers, rising milk prices, relatively low feed prices, and an adequate supply of replacement heifers, the 2017 forecast for milk cows has been raised to 9.4 million head, 5,000 more cows than last month’s forecast.

“With only small yield increases in recent months, the 2017 forecast for average milk per cow is reduced to 22,945 pounds per head, 75 pounds less than last month’s forecast. The forecast for 2017 milk production is now 215.7 billion pounds, 600 million pounds less than last month’s forecast. Year over year, milk production is expected to increase by 1.8 percent (adjusted for leap year).”

As to feed prices, the Outlook stated, “For the 2016-17 marketing year, prices or corn and soybean meal are estimated to be $3.30-$3.40 per bushel and $320 per short ton, respectively. The 2017-18 price forecast for corn is $2.90-$3.70 per bushel, unchanged from last month’s forecast. The 2017-18 soybean meal forecast is $295-$335 per short ton, $5 lower than last month’s forecast at the midpoint of the range. The alfalfa hay price in June was $152 per short ton, $3 lower than May but $10 higher than June 2016.”

USDA’s latest Crop Progress report shows 62 percent of the U.S. corn crop rated good to excellent, the week ending Aug, 13, up from 60 percent the previous week but down from 74 percent in 2016.

Fifty-nine percent of the soybeans were rated good to excellent, down from 60 percent the previous week and down from 72 percent a year ago. Sixty one percent of the cotton was good to excellent, up from 57 percent the previous week but compares to only 48 percent a year ago.

Dairy margins strengthened over the first half of August, in spite of volatile milk prices, as lower feed costs more than made up for slight weakness in Class IV Milk, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.

The MW said, “Strength in barrel prices on the CME this week supported Class III prices, again driving them above $17.00 spot, as well as firming them through deferred 2018. Weakness in Class IV stems from pressure in powder in spite of consistency in butter prices. Margins are now indicated above the 80th percentile across the board.

Margins were driven higher as the USDA surprised feed markets with national yield forecasts that were much greater than expectations.”

June Dairy Month sells little June Dairy Month didn’t help fluid milk sales much. DMN reported packaged fluid sales totaled 3.7 billion pounds, down 0.8 percent from June 2016, according to USDA data.

Conventional product sales totaled 3.5 billion pounds, down 0.8 percent from a year ago; organic products, at 208 million pounds, were down 1.7 percent.  Organic represented about 5.6 percent of total sales for the month.

Whole milk sales totaled 1.2 billion pounds, up 3.9 percent from a year ago, up 2.4 percent year to date, and made up 32.6 percent of total fluid sales in the month. June skim milk sales, at 325 million pounds, were down 11.1 percent from a year ago.

Total packaged fluid milk sales for first half of 2017 totaled 23.9 billion pounds, down 2.2 percent from the same period a year ago. Year-to-date sales of conventional products, at 22.6 billion pounds, were down 2.3 percent; organic products, at 1.3 billion pounds, were up 0.8 percent. Organic represented about 5.4 percent of total fluid milk sales so far in 2017.

Cooperatives Working Together (CWT) accepted 11 requests for export assistance the week of August 14 from member cooperatives to sell 1.6 million pounds of cheese to customers in Asia and the Middle East. The product has been contracted for delivery through November and put CWT’s 2017 export sales at 46.99 million pounds of American-type cheeses and 3.01 million pounds of butter (82 percent milkfat) to 18 countries on five continents.