The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The bulls got fed again at last Tuesday's Global Dairy Trade (GDT) auction, where the weighted average for all products offered jumped 3.1 percent, following a 1.6 percent rise on April 4 and a 1.7 percent gain on March 21.
Skim milk powder led the gains, up 7.1 percent, following a.8 percent slippage last time. Cheddar cheese was up 6 percent, after falling 4.4 percent. Whole milk powder was up 3.5 percent, after rising 2.4 percent. Butter was up 2.9 percent, following a 1.6 percent loss in the last event.
Rennet casein led the declines, down 3.8 percent, and anhydrous milkfat slipped .5 percent, after it was up 2.5 percent last time.
FC Stone equated the average 80 percent butterfat GDT butter price to $2.1648 per pound U.S. CME butter closed last Friday at $2.09 per pound. GDT Cheddar cheese equated to $1.5705 per pound U.S. and compares to last Friday's CME block Cheddar at $1.5450. GDT skim milk powder was 92.70 cents per pound and whole milk powder averaged $1.3599 per pound U.S. CME Grade A nonfat dry milk price closed last Friday at 85½ cents per pound.
USDA's latest Livestock, Dairy and Poultry Outlook, issued April 17, echoed dairy projections in the April 11 World Agricultural Supply and Demand Estimates report. The outlook also examined the three most recent month's commercial disappearance data, reporting that December through February saw year-over-year domestic commercial disappearance (adjusted for leap year) decline 8.7 percent for butter, 9.6 percent for nonfat dry milk (NDM) and 15.8 percent for dry whey, but was about the same for cheese. Higher wholesale dairy product prices were cited as the likely factor contributing to the relatively low commercial use.
"Changing price relationships have likely contributed to the increase in cheese exports and the decrease in cheese imports, as U.S. wholesale domestic prices have declined relative to foreign export prices," the outlook reported. "U.S. domestic prices for butter and NDM have also become more competitive with foreign export prices in recent months."
Based on recent milk production data, the milk cow estimate was raised to 9.385 million head, 5,000 higher than last month's forecast, and the milk per cow estimate is now expected to be 35 pounds lower for the year, at 23,150 pounds per cow. With these changes, the milk production forecast for 2017 is now 217.3 billion pounds, 200 million pounds lower than last month.
Feed prices are still expected to be relatively low, according to the outlook. The 2016-17 corn price is $3.25 to $3.55 per bushel, unchanged from last month's forecast at the midpoint. The soybean meal price forecast is $310 to $330 per short ton, $10 less than last month's forecast at the high end of the price range. The alfalfa hay price in February was $129 per short ton, $1 higher than January but $8 lower than February of last year.
The latest Crop Progress report shows 6 percent of the U.S. corn crop is in the ground, as of the week of April 16, up from 3 percent the previous week, half of what it was a year ago, and 3 percent behind the latest five-year average.
Eight percent of the cotton is planted, up from 6 percent the week before, 1 percent ahead of a year ago but 1 percent behind the five-year average.
The Agriculture Department announced the May federal order Class I base milk price at $15.20 per hundredweight, down 85 cents from April but $1.50 above May 2016 and the lowest Class I price since November 2016. It equates to $1.31 per gallon, down from $1.38 a month ago and compares to $1.18 a year ago. The five-month Class I average rests at $16.47, up from $14.18 at this time a year ago and compares to $16.34 in 2015.
CME dairy prices rallied late in the post Easter week after most had lost ground earlier. Spurred on perhaps by last Thursday's Milk Production report, the block Cheddar closed last Friday at $1.5450 per pound, up 7 cents on the day and the week, and 12¼ cents above a year ago. The barrels, after dipping to $1.3825 last Thursday, gained 4½ cents last Friday to close at $1.4275, unchanged on the week and a quarter-cent above a year ago. Five cars of block were sold on the week at the CME and 38 of barrel, 22 on Friday alone.
Milk in Good Supply
Milk continues to be readily available for Midwest cheesemakers, according to Dairy Market News. A number of recently cut-off milk producers will now be sending their milk into Midwest cheese vats due to actions by Canada. Spot milk going into Class III production continues to range $1.50 to $5 under class. Cheese production, in order to keep up with milk supplies, is active. Demand is generally steady to improving but inventories are long.
Cheese output in the West is also active, with abundant milk supplies. Stocks for barrels are still "sloppy, but blocks supplies are mixed," said DMN, but "several fast food chains are making a move to use more natural cheese on their menus." Market participants are watching to see how that will impact demand.
HighGround Dairy warned in its latest Milk and Feed Market Update that "supply side fundamentals have become increasingly bearish. Production has continued to surge in the U.S. as herds in the Southwest and Midwest have grown at an aggressive pace, which has led to an abundance of milk."
Spot butter fell to $2.0625 per pound last Tuesday but closed last Friday at $2.09, up a quarter-cent on the week and 6 cents above a year ago, with 21 cars selling on the week.
DMN says butter production continues at active levels with cream available. Stronger-than-expected sales were reported from some manufacturers who expected a slowdown after spring holiday ordering, but orders remain heavy.
Western butter output is also steady. Butter makers are busy trying to find homes for the abundant supplies of milkfat. Cream is moving around the region and finding a place in churns, but often at discounted prices. Inventories are heavy. Some contacts anticipate softening butter prices in the near future however others see support coming from firm international butter prices and greater use of cream in ice cream and other Class II dairy products.
Cash Grade A nonfat dry milk closed last Friday at 85½ cents per pound, up a penny on the week and 10½ cents above a year ago, with five cars selling.
Thankfully, powder is moving south to Mexico, where drought has taken a toll on milk output, but political tensions keep those exports under suspicion.
Getting back to fluid milk, organic is a rising start in the dairy industry, according to a post on the April 13 Agri Marketing website. Citing a CoBank news release, the post states, "Despite the current excess supply environment, rising demand points to a bright future for the U.S. organic milk industry, leading a record number of dairies to transition to organic milk production."
"Organic milk generates the highest sales of any certified organic commodity, and steady demand growth will lift organic fluid milk market share and further stimulate product innovation," the report states.
"The substantial gap between organic and conventional milk prices, combined with more price stability, is driving the transition," said Ben Laine, CoBank senior dairy economist. "We are seeing increasing herd sizes for many existing organic dairies looking to take advantage of size efficiencies and price premiums."
Thinner Margins
Speaking of such, dairy margins deteriorated the first half of April, due primarily to weaker milk prices as feed costs held mostly steady, according to the latest Margin Watch from Chicago-based Commodity & Ingredient Hedging LLC.
"Margins remain above average from a historical perspective but have slipped below the 70th percentile of the previous decade for all but First Quarter 2018," the MW said. "Milk prices remain under pressure from a large dairy herd that is increasing domestic milk production," however, "feed costs are expected to moderate due to their own heavy supply outlook."
Lastly, the Progressive Agriculture Organization (Pro-Ag) says it will petition USDA for a national milk hearing to consider changing the method of determining the value of milk at the farm level. Pro-Ag manager, Arden Tewksbury, said they will ask USDA to consider the national average cost of producing milk, as determined by the Economic Research Service, as a starting price for all milk.
"The continued price decline at the farm level has convinced Pro-Ag that the average dairy farmer can no longer exist with the unrealistic prices they are receiving," a Pro-Ag press release stated. "Some people are urging the ill-fated Margin Insurance Program can be improved enough to solve the dairy farmers' financial problems. Pro-Ag takes a strong exception to the Margin Insurance Program as being the savior of dairy farmers."