Dairy News
Long run of gains seen on Global Dairy Trade auction
Tuesday, 14/05/2019
The May 7 Global Dairy Trade auction registered its 11th consecutive session of gain and, while slowing, extended the longest run of gain since the GDT began in 2008. The weighted average of products offered inched 0.4 percent higher following a 0.5 percent rise on April 16 and 0.8 percent on April 2. Sellers brought 33.9 million pounds of product to the market, down from 35.6 million on April 16.
The gains were led by rennet casein, up 3.1 percent; skim milk powder, up 2.8 percent following a 0.2 percent gain on April 16; and anhydrous milkfat, up 1.4 percent after it jumped 4.2 percent last time.
The losses were led by buttermilk powder, down 10.3 percent; lactose, down 2.7 percent; Cheddar cheese, down 2.4 percent; and whole milk powder, off 0.5 percent after a 0.7 percent slippage. Butter was unchanged after it jumped 3.5 percent in the last event.
Cheese demand reports remain mixed in the central U.S., according to Dairy Market News. Some pizza cheese producers report that sales are slower than expected but ahead of last year. Spot milk prices remained steady as milk inventories have yet to meet flush levels of previous years. Reported spot milk sales were $1 over to $1.50 under Class. DMN says the average spot milk price was $2.50 under one year ago and $4.50 under two years ago during the week. Central cheese inventories are generally under control, while national stocks remain long. DMN adds that “some cheese analysts were caught off guard by the upward movement, as both blocks and barrels broached the $1.70 mark.”
Domestic demand is solid, but prices in a few trading venues are making it challenging to compete in some international markets. Without export assistance or price concessions, some U.S. cheese sellers are facing headwinds to make large sales overseas. Manufacturers suggest they can move enough cheese to keep their inventories in balance. In some cases, manufacturers even relay their cheese stocks are committed to comfortably snug.
The flow of cream into Central butter churns continued to slow last week. Many are “micro-fixing” (thawing frozen blocks into consumer-ready blocks or sticks). DMN says “there are a few producers willing to pay the increased price for cream in order to catch up on building stocks after some longer-than-expected plant closures during the prime churning season, mainly due to weather related closures.” Bulk butter is available. Buying interest is steady to slower while meeting most expectations. Butter market tones remain steady. Some contacts are bullish on butter market expectations, bracing for a market spike in the fall, akin to 2014 and 2015. Others suggest recent history would show us butter markets are hesitant to dramatically shift in any direction.
Dairy margins improved over the second half of April on strength in milk prices and renewed weakness in feed costs according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.
The MW reported that “deferred margins are now approaching the 80th percentile of the previous decade, offering attractive opportunities for dairies to secure forward profitability. Strength in milk is being driven on the supply side, with USDA’s latest monthly production report showing the first year-over-year decline for March since 2013.
“A combination of harsh winter weather and a continued decline in the milking herd sent U.S. milk output down 0.4 percent from 2018, to 19.1 billion pounds. The U.S. milking herd shrunk 10,000 head, to 9.344 million, down 86,000 cows from last year. Milking productivity continued to improve, with output per cow up 0.5 percent from last year, to 2,024 pounds per cow, but the improvement was not sufficient to offset the decline in the total milking herd.
“Heifer slaughter in March totaled 797,300 head, up 10.7 percent from last year on a daily average basis, with total first quarter slaughter up 9.5 percent from 2018. The USDA Cold Storage report was also slightly supportive for milk. March 31 butter stocks totaled 270.2 million pounds, up 11 percent from February but 1.4 percent below last year. U.S. total cheese stocks were 1.382 billion pounds, up 1.1 percent from February and 4.3 percent above last year but below the normal build of 1.3 percent on average between February and March over the past 10 years.”
The U.S. dry whey price is greatly influenced by the current African Swine Fever epidemic in China. Matt Gould, analyst and editor of the Dairy and Food Market Analyst newsletter, gave us some perspective on that in the May 13 Dairy Radio Now broadcast.
ASF is terminal to pigs, Gould said, and much of China’s pigs live on small farms where it’s very difficult to be bio-secure and thus to contain the disease. The clincher is that China has almost as many pigs in the country as the U.S. has people. That requires a lot of feedstuffs and, with indications that a third or more of China’s pig population will have to be eliminated, that’s a lot of feed not being consumed, he said, “Imagine losing a third of the U.S. population.”
The other wild card is the fact that the rest of Southeast Asia tends to be a heavy pork-consuming region and “we don’t really know where the spread of this disease stops and the farms in those regions aren’t really set up to be bio-secure, so for the foreseeable future it will continue to spread,” he warned.
On a brighter note, Gould talked about the fact that “we have high milk prices after four years of subdued prices.” But he cautioned that the rally is being driven by a decline in supply of milk less so than a surge in demand. He seeing prices topping out in the third or fourth quarter with the highest levels since we have seen since 2014, which were at an all-time record high. He doesn’t see us beating those prices but projects something around $18 or higher.
A group of 67 food and agriculture associations and companies have called on U.S. lawmakers to ratify the U.S.-Mexico-Canada Agreement. A press release from the International Dairy Foods Association stated that groups and companies from across the food and agriculture spectrum underscored in a letter that “the new agreement includes important improvements that will enable food and agriculture to trade more fairly and to expand exports of American agricultural products to Canada and Mexico, respectively.”
The letter stated that a recent analysis of the USMCA by the International Trade Commission found the deal to be “a boon for the U.S. economy, raising U.S. GDP by $68.2 billion and pumping an additional $2.2 billion, or 1.1 percent, into the U.S. economy through increases in agricultural and food exports.
“The food and agriculture industry welcomed the opportunity to modernize the North American Free Trade Agreement,” the letter says. “Since NAFTA was implemented, U.S. agricultural exports to Canada and Mexico quadrupled from $8.9 billion in 1993 to $39 billion in 2017.”