NEWS

Nerves were frayed this week over the collapse of banks

Lee Mielke

Nerves were frayed this week over the collapse of Silicon Valley Bank and New York’s Signature Bank, even as the Federal Deposit Insurance Corporation stepped in. The latest inflation indicator was only up 0.4% in February but 6% above a year ago as we await the Fed’s decision on further interest rate hikes. Torrential rains and snow was again hitting California resulting in flash flooding in some areas including dairy regions. Parts of New York saw heavy snowfall.Tight dairy margins are fraying US dairy producers and dairy cow culling remains strong in response. The Agriculture Department’s latest weekly data shows 66,879 head were sent to slaughter the week ending March 4, up 1,579 head from the previous week, but 621 head less than a year ago. Year to date slaughter stood at 606,100 head, up 21,700 or 3.7% from a year ago.StoneX points out that dairy cows are taking up a greater percent of the beef market share and blames tight dairy margins.The U.S. Department of Agriculture’s monthly Livestock, Dairy and Poultry Outlook, issued March 14, mirrored milk price and production projections in the March 8 World Agricultural Supply and Demand Estimates report, but the Outlook also stated that milk cows are projected to average 9.390 million head in 2023, 10,000 head higher than last month’s forecast.Cow numbers are expected to decline through the year however, as lower numbers of replacement heifers and higher expected cull-cow prices will likely contribute on the decline of the dairy herd. The milk per cow projection was unchanged from last month at an average 24,345 pounds per head.Dairy margins were mixed the first half of March, improving in some marketing periods while deteriorating in others, according to the latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC.“Class III milk futures prices recovered on strength in the cheese market, while soybean meal prices held steady and corn futures continued to sell off,” the MW stated. “January dairy exports were solid, with 466.1 million pounds of product shipped during the month, up 13.2% from last year and a record for the month.”“Exports to Mexico were almost 50% higher than last year as strength in the peso relative to the U.S. dollar has increased purchasing power for Mexican consumers who are experiencing a stronger economy relative to other developing markets.”“Cheese exports totaled 75 million pounds, a record for the month and up 15.6% from last year. NDM exports of 150.4 million pounds were likewise up about 15% from last year and the second highest January NDM export total on record.”January butter exports of 7.5 million pounds were down 3.7% from last year but still two million pounds larger than the five-year average. Exports to both Canada and Mexico who have a free trade agreement with the U.S. were solid although demand from Asian and Middle Eastern markets was weaker, highlighting the fragile nature of the global economy at present,” the MW stated. “Demand will be a big focus for the market as milk output continues to expand relative to last year,” the MW warned, “particularly in Central states as the spring flush begins.”“Excess milk has been cleared on the spot market for as much as $10 per cwt. below the class price from December through February as surging milk production in the Central region has overwhelmed processing capacity,” the MW concluded. For additional details log on to www.cihmarginwatch.com.Tuesday’s Global Dairy Trade Pulse saw 2.1 million pounds of Fonterra whole milk powder sold at $3,230 per metric ton, down 0.6% or $18 from last week's GDT.HighGround Dairy (HGD) stated, “The slight decline on the WMP price from the previous GDT auction reaffirms the bearish market sentiment as milk supplies begin to grow in the Northern Hemisphere while global demand remains lackluster.”Meanwhile, the U.S. Dairy Export Council states on its website that it yearly “summarizes key ‘signposts’ that pur analysts will be watching in the year ahead that will determine the direction of US dairy exports and global markets.”This year, they will focus on the major structural factors that will come into play, including the so called economic headwinds, namely inflation and consumer purchasing power.China’s import demand, when and if it returns was number two, followed by usage of dairy alternatives like palm oil and plant-based imitators. EU27 and UK milk production will be watched, according to the USDEC, as will farm input costs and availability here at home. Last but not least, inventories will be closely watched. USDEC concluded that they “Expect hand to mouth buying to be common, likely making markets and import demand more volatile in the year ahead.”Cash cheese prices in Chicago converged and strengthened this week, driven by demand, according to Matt Gould, editor of “The Weekly Wire” in the March 20 “Dairy Radio Now” broadcast.Domestic demand has been “so-so at best since December,” Gould said. He blamed consistently negative retail cheese sales which means more dependence on food service and exports. Price inflation is clearly seen at any McDonalds or Burger King, he said, “So that leaves exports for any hope of optimism.”Recent price declines have resulted in some short-term export bookings, he said, however “The international marketplace continues to be a place with headwinds.”“European cheese prices, particularly for mozzarella, which tends to go into the international food service market and gouda are well below U.S. prices,” he warned, “So our ability to even maintain market share this year is going to be a challenge.”“This is not going to be an explosive price year for dairy farmers,” he concluded, and the West is seeing the most auction notices. California is one of the states and is also being inundated by water. New Mexico, and to a lesser degree, Texas are also seeing an uptick in exists, according to Gould, who expects that to continue for the next several months.The U.S. Department of Agriculture supplied January dairy supply and utilization data this week. Starting with cheese, total utilization amounted to 1.198 billion pounds, up 0.7% from January 2022. Domestic use, at 1.123 billion pounds, was down 0.2%, while exports, at 75 million, were up 15.6%, an all-time high for January.Butter saw further weakness, at 156.4 million pounds, down 13.2%, lowest volume since July 2020, according to HGD, which blamed poor domestic consumption, down 13.6% from a year ago, while exports were down 3.8%.Total nonfat dry milk utilization dropped to 199.1 million pounds, down 3.8%, with domestic demand falling to 48.7 million, down 35.8%, lowest January reading since 2020. Exports climbed to 150.4 million, up 14.8% from a year ago, highest January level since 2020, according to HGD.Dry whey totaled 81 million pounds, up 0.1% from a year ago. Domestic use fell to 52 million pounds, down 4.1% and exports at 29 million were up 8.6%.Dairy markets didn’t have a lot to feed on this week in the way of USDA reports. Next week will have plenty, with the February Milk Production report, February Slaughter report and February Cold Storage data.After losing 17 cents the previous week, CME cheddar block cheese reflected some green this week, closing St. Patrick’s Day at $1.9975 per pound, up 21.75 cents on the week, but 13.25 cents below a year ago.The barrels, after jumping 19.50 cents the previous week, added another 19 cents this week, closing Friday at $1.96, seven cents below a year ago and a more typical 3.75 cents below the blocks. There were 13 sales of block on the week at the CME and 36 of barrel, down from 50 loads of barrel the previous week.Cheese market tones experienced a bullish push this week as prices climbed both for blocks and barrels, says Dairy Market News (DMN). “Markets are also under a more assured tone as the block to barrel price difference narrowed noticeably.” Cheesemakers in the Midwest say demand is hearty. Barrel makers relay more committed customers, while some retail Cheddar and Italian style cheese processors say they are concerned about lacking the production capacity to bolster summer/fall inventories, despite readily available milk. Spot milk prices met the $10 under class III mark again this week, as milk handlers continue to offer spot loads exclusively below class III, according to DMN.Looking west, varietal cheese demand from retail and food service purchasers is strong to steady. Second quarter bookings continue steadily, as some contacts report close to sold out inventories. Spot loads are available and overall spot demand is steady. Barrel sales are heavily active, while block sales are light. Barrel inventories remain more abundant than block inventories, despite the strong week for the barrel market. Export demand continues mixed. Some report strong to steady demand from Asian and Mexican markets, while others report current prices are uncompetitive with European and global pricing. Milk volumes are regionally plentiful to ample for cheesemakers to keep strong production schedules going, says DMN.Cash butter jumped 4.75 cents Monday, added two cents Thursday and closed Friday at $2.40 per pound, up 6.75 cents on the week, reversing two successive weeks of decline, but was 32.50 cents below a year ago. There were six sales reported for the week.Butter demand has strengthened due, at least in part, to the upcoming spring holidays, according to DMN. Cream availability, despite similar multiples week to week, has begun to tighten when compared to just a few weeks ago. That said, cream remains generally available for active churning, but demand from other end users, namely cream cheese and ice cream manufacturers, has butter plants reporting that offers have begun to subside. Butter market tones are uncertain, with views from range bound to more bearish potential due to the available cream and churning activity of recent months.Cream continues to be plentiful in the West but balanced to ample. Cream demand is steady to light. Some contacts note strong to steady production, while others note steady to lighter output and decreased processing capacity with equipment repairs taking place. Retail demand is light and some report a light start for the spring holiday season. Export demand is steady, although some report current domestic prices are taking away U.S. competitiveness.Grade A nonfat dry milk closed Friday at $1.1875 per pound, up 1.25 cents on the week but 67.25 cents below a year ago, with five sales on the week.Dry whey saw some ups and downs this week but finished Friday at 46.75 cents per pound, 2.50 cents higher, but 29.25 cents below a year ago, with three sales on the board for the week at the CME.March 16 class III futures settlements had the March price at $18 per hundredweight. April was at $18.60, May at $18.31, June at $18.53, July at $18.97 and August at $19.46. The peak was at $19.76 in October, spelling plenty of red ink on U.S. dairy farms across the country.National milk production is mixed, according to the USDA’s weekly update. Winter weather in the Mid-Atlantic and southernmost states of the Northeast has been mild and farm level milk output is nearing spring flush volumes. Southeast milk output is steady and increasing week over week in the Central states.Some bottling orders have paused due to the upcoming spring break weeks for schools. Spot milk loads were moving as low as $12 under class III. Farm level milk output is steady to lighter in Arizona and steady in New Mexico. Output is steady in the Oregon, Washington, Idaho and Colorado and steady to strong in California and Utah, according to the USDA.Lee Mielke is a graduate of Brown Institute in Minneapolis, Minnesota. He’s formerly the voice of the radio show “DairyLine,” and his column appears in agricultural papers across the U.S. Contact him at lkmielke@juno.com.