U.S. Dairy Exports Showing Impact of Ongoing Trade War with China
Published: Friday, November 16, 2018
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Woeful milk prices here at home are reflective of the trade and tariff turmoil the industry has unwillingly been drawn into. The ongoing trade dispute hit dairy exports in September, according to the Nov. 2 Dairy and Food Market Analyst newsletter (DFMA).
"The USA shipped just 15.2 percent of its milk solids to foreign markets during the month, the second-lowest level in eight months and down from 16.4 percent exported in August," the DFMA stated. The two products hit hardest by the trade war was cheese and whey. "Total whey product exports were at the second lowest level in 29 months, with shipments to China at the lowest level in years," according to the DFMA. "Cheese shipments were at a 19-month low."
The good news, the DFMA says, is that declining international business has been offset by a reasonably good demand year in the USA. So far this year, domestic use of butter has increased by 1 percent; American cheese, up 2 percent; and dry whey, down .1 percent, according to DFMA's analysis of production, stocks and trade data through September.
Down on the farm, dairy margins continued to weaken the second half of October due to lower milk prices, though feed costs moderated slightly since the middle of the month, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.
"With the exception of spot fourth quarter, margins remain positive and above average from a historical perspective, though not particularly strong," the MW adds. "Milk prices have come under renewed pressure due to a negative monthly Cold Storage report from USDA as well as weakness in spot cheese at the CME. Both barrel and block Cheddar have traded progressively lower all month, with USDA reporting that barrel inventories are plentiful, while a number of block makers suggest cheese is moving well and inventories are balanced overall, demand has ebbed slightly, as the food service demand has settled a bit and some buyers wait out further declines.
"USDA reported total cheese inventories of 1.366 billion pounds in cold storage at the end of September, up .58 percent from last month compared to the average draw of 1.8 percent between August and September the past 10 years. Cheese inventories were also 4.46 percent higher than last year. Butter stocks totaled 283.1 million pounds, down 2.68 percent from August compared to the average draw of 11.2 percent over the past 10 years. Butter inventories are also up sharply from last year, with growth of 10.65 percent over 2017.
"September Milk Production totaled 17.376 billion pounds, up 1.3 percent from last year, although the dairy herd did contract 13,000 head from September 2017 and was down 12,000 head from August. On a positive note, feed prices did moderate with particular weakness in the soybean complex due to a large drop in export shipments to China. Ongoing harvest activities are also pressuring the cash market," the MW concludes.
The Agriculture Department lowered its 2018 and 2019 milk production estimates in the latest World Agricultural Supply and Demand Estimates report, due to lower cow numbers; however, stronger growth in milk per cow is expected to partially offset the smaller dairy cow numbers.
More Milk
Production and marketings for 2018 were projected at 217.9 and 216.9 billion pounds, respectively, down 200 million pounds from last month's estimates. If realized, 2018 production would still be up 2.4 billion pounds, or 1.1 percent, from 2017.
Production and marketings for 2019 were estimated at 220.9 and 219.9 billion pounds, respectively, down 500 million pounds on both. If realized, 2019 production would be up 3 billion pounds, or 1.4 percent, from 2018.
The 2018 fat basis import forecast was unchanged from the previous month, but was reduced for 2019 on lower imports of milk protein concentrates. Fat basis export forecasts for 2018 and 2019 were unchanged from last month. The skim-solids basis import forecasts for 2018 and 2019 were reduced primarily on lower expected imports of milk protein concentrates and casein. The 2018 and 2019 skim-solids basis export forecasts were unchanged.
Cheese and butter price forecasts for 2018 were lowered from last month on recent price weakness, but the nonfat dry milk (NDM) price forecast was unchanged. The whey price forecast was raised. Cheese and butter price forecasts for 2019 were lowered but NDM and whey price forecasts were raised.
The 2018 and 2019 Class III milk price forecasts were lowered from the last month based on lower cheese prices. Look for the 2018 average to be around $14.65 per hundredweight, down 25 cents from last month's estimate and compares to the 2017 average of $16.17 and $14.87 in 2016. The 2019 average is projected at $15.60, down 15 cents from what was expected a month ago.
The 2018 and 2019 Class IV milk prices were reduced from last month on lower forecast butter prices. The 2018 Class IV price is expected to average around $14.20, down a nickel from last month's estimate and compares to a $15.16 average in 2017 and $13.77 in 2016. The 2019 Class IV average is projected at about $14.85, unchanged from last month's prediction.
Cheese Prices Decline
Block Cheddar cheese closed the week at $1.38 per pound, down 7¾ cents, the lowest CME price since March 16, 2017, and 33 cents below a year ago. The barrels finished at $1.3050, 3½ cents lower, 44¾ cents below a year ago, but a closer to normal 7½ cents below the blocks. Twelve cars of block were sold on the week at the CME and seven of barrel.
Dairy Market News reports that spot milk loads bound for the cheese vat are "diminishing," and a growing number of cheesemakers say they will forego the spot market until after the Thanksgiving holiday, when discounts are expected to reappear. Milk was also less available week over week, and milk handlers report getting requests that are impossible to fill on a regular basis. Spot milk prices ranged from $1 to $2 over class. Some cheesemakers suggest that markets are negatively affecting sales. Others say little to no change has occurred since the price downslide began, and sales are steady to improved.
Western cheese output continues at a brisk pace, with ample milk flowing to the vat. "While teams playing on the gridiron have put fans into the mood for pizza and marketers say retail and food service cheese sales have been solid, manufacturers are eager to see a demand increase for the holidays," said DMN. "So far, buyers have stayed mostly on the sidelines and the sales bump has yet to fully materialize. Exports have also not met expectations. Price dips may prompt some immediate activity, but not to the level desired. As a result, inventories remain heavy and are not clearing as anticipated."
Butter saw a Friday close at $2.1925 per pound, down 10¾ cents on the week, lowest since Sept. 5, and 6¼ cents below a year ago. Only six cars traded hands on the week, down from 28 the previous week.
Cream availability remains sparse in the Central region, but there was a little more last week, according to DMN. "Bulk butter, like cream, is more available in the West. However, as trucking woes pervade the dairy industry, among other agricultural sectors, this is an added difficulty and expense for Midwestern butter makers. Butter markets are generally steady and range bound."
Divided Government
Last Tuesday's election was not indicative of a blue or red wave but perhaps a mixed splash. The increased division will certainly slow the Trump agenda. However, a nationwide Agri-Pulse phone poll of 600 commercial farmers and ranchers conducted by Aimpoint Research from Oct. 12-28 indicated that farmers overwhelmingly approve of the job President Donald Trump is doing but want the administration to focus more on exports and end the trade war with China.
Agri-Pulse editor Sara Wyant says, "President Trump mentions his support for farmers and his work on trade at just about every rural campaign rally, even as economic conditions on the farm are difficult for many. According to our research, farmers are still willing to give him the benefit of the doubt and appear optimistic that his trade and regulatory policies will pay off in the long run."
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