September 5, 2017 at 3:32 p.m.

Earthquake shakes New Zealand's industry

By Lee Mielke- | Comments: 0 | Leave a comment

The big story this week was the 7.8 magnitude earthquake in New Zealand's South Island (SI) just after midnight on November 14 local time. The quake hit near Hanmer Springs, 95km from Christchurch on the northwest coast of the SI and was followed by a series of aftershocks, including one of 6.8 magnitude.
FC Stone's Early Morning Update reported that the quake caused widespread disruption of the electrical grid, with large areas in the north of the SI without power and disruption to the road network with landslides and ruptured roads. A Fonterra press release reported that there was no major damage to any of their manufacturing sites but producer milking and milk pickups were affected.
In an unrelated, what you might call an "after shock" to the global marketplace, it was announced that the European Union (EU) Commission will propose the first sales of skim milk powder (SMP) from EU Intervention.
FC Stone reports that SMP Intervention stocks stand at 334,551 tons and the EU is proposing to allow eligibility for 21,150 tons to go to tender, stock that was in storage as of November 1, 2015. "This will go onto the agenda for the November 24 meeting and if passed the first tender is planned to take place December 13."
"The majority of the SMP that would be eligible is in Belgium, Lithuania, Poland, Ireland, France and the UK, which make up 20,235 tons of the total," FC Stone says, "and we estimate that the average age of the stock is currently 465 days. The EU tender process sets a window for companies to supply tenders for a volume that they will buy and the price. The EU then assesses the tenders and chooses what overall volumes or price levels they will accept and are under no obligation to sell any product in a given tender," says FC Stone.
Dave Kurzawski wrote in his November 18 Early Morning Update; "Buyers may breathe a sigh of relief with this news and it could mitigate buyer worry in the short-term and even flatten prices. In our opinion, however, building intervention stocks is bearish, removing intervention stocks is not. If they're able to move stock out of intervention, they're able to do so because there is a bid for product."
The earthquakes however did send some vibes into Tuesday's Global Dairy Trade (GDT) auction which saw a third consecutive session of gain, up 4.5 percent on the weighted average for all products offered. That followed an 11.4 percent rise November 1 and 1.4 percent on October 18.
Gains were registered in all products offered, led by buttermilk powder, up 13.3 percent, following a 5.4 percent decline in the last event. Cheddar cheese followed, up 11 percent, after inching up 0.9 percent last time. SMP was up 9.8 percent, after climbing 6.5 percent. Lactose was up 4.6 percent. Anhydrous milkfat was up 4.4 percent, following a 2.6 percent rise last time. Whole milk powder was up 3.2 percent, after leading the gains last time at 19.8 percent. Butter was up 1.1 percent, after a 4 percent increase last time and rennet casein inched 0.6 percent higher, after dropping 4.8 percent.
FC Stone equated the average GDT butter price to $1.9447 per pound U.S., up from $1.8710 in the November 1 event. CME butter closed Friday at $2.03 per pound. GDT Cheddar cheese equated to about $1.6768 per pound U.S., up from $1.5116 last time, and compares to Friday's CME block Cheddar at $1.91. GDT SMP, at $1.1620 per pound U.S., compares to $1.0564 per pound last time, and the whole milk powder average, at $1.5526 per pound U.S., is up from $1.5045 per pound in the last event. The CME Grade A nonfat dry milk price closed Friday at 90-cents per pound.
HighGround Dairy (HGD) predicted in its November 15 post-GDT analysis that the strong result would "Give the Fonterra board confidence to announce an upgrade to the '16/17 farmgate milk price forecast," and it did that on Thursday, raising it 75 cents, to $6.00 per kilogram milk solids.
"When combined with the forecast earnings per share range for the 2017 financial year of 50 to 60 cents, the total payout available to farmers in the current season is forecast to be $6.50 to $6.60 before retentions," according to HGD, adding that Chairman John Wilson said the increase "reflects improvements in pricing since September, following the gradual rebalancing of global supply and demand."
HGD adds that "Oceania skim milk powder was the big winner for this GDT auction, and will provide New Zealand processors with greater flexibility over optimization of a much smaller milk pool than was previously forecast."
U.S. dairy products continue to move overseas via the Cooperatives Working Together (CWT) program. Eleven requests for export assistance were accepted this week from Dairy Farmers of America, Foremost Farms and Northwest Dairy Association (Darigold) to sell 1.6 million pounds of cheese and 308,647 pounds of butter to customers in Asia, the Middle East, and Oceania.
The product has been contracted for delivery through February 2017 and raised CWT's 2016 export sales to 45.8 million pounds of American-type cheeses, 11.75 million pounds of butter (82 percent milkfat) and 21.3 million pounds of whole milk powder to 23 countries on five continents.
As it always does, USDA's monthly Livestock, Dairy, and Poultry Outlook, issued November 16, echoed dairy projections contained in the November 9 World Agricultural Supply and Demand Estimates report (WASDE).
The Outlook stated that USDA's National Agricultural Statistics Service (NASS) reported that milk cow numbers fell in September to 9.338 million head, a drop of 3,000 head from August. Notably, this drop is from a lower base than reported in the October Milk Production report, due to NASS downward revisions in milk cow numbers for July and August." The 2017 forecast for milk cows was lowered 25,000 head to 9.37 million.
Milk per cow fell seasonally in September from the previous month, but increased year-over-year to 1,817 pounds. Milk production in September totaled 17.0 billion pounds, an increase of 2.1 percent from September 2015.
Feed price forecasts were raised slightly this month but remain low relative to milk prices. The 2016/17 corn price was forecast 5 cents higher at both ends of the range, at $3.00-$3.60 per bushel; the 2016/17 soybean meal price was forecast $5 higher at each end of the range, at $305-$345 per short ton.
Meanwhile; Chicago-based Commodity & Ingredient Hedging LLC's latest Margin Watch (MW) reports that U.S. dairy margins have improved since the end of October due to a combination of higher milk prices and lower feed costs.
"Margins through Third Quarter 2017 are at or above the 80th percentile of the past ten years, offering dairies opportunities to secure forward coverage at relatively attractive levels," the MW stated. "Milk prices continue to be supported by strength in cash cheese trade at the CME, although the market has come off some in recent sessions."
"Milk prices were also recently supported by two earthquakes that hit central New Zealand, which produces about 13 percent of that nation's milk. The resulting disruption to the milk market led to higher trade at the GDT auction, with Fonterra indicating reduced milk collections as it revised it volume estimates significantly lower. However, recent increases in the U.S. dollar index following the election and subsequent currency adjustments are making U.S. dairy products less competitive in the global market."
Referencing USDA's November WASDE report, which increased yield and production estimates for corn and soybeans, the MW concluded that "While higher projected demand offset some of the impact from the larger supply, both corn and soybean ending stocks were revised up from October. The result was mild pressure on both corn and soybean meal, although attention has increasingly shifted from supply to the demand side of the ledger."
Warning of the growing U.S. milk supply and the questionable solution being exports; Kara O'Connor, Wisconsin Farmers Union Government Relations Director, gave a somber heads up in the November 16 Wisconsin State Farmer.
O'Connor pointed out that the National Agricultural Statistics Service shows that Wisconsin lost 201 dairy farms in the first half of 2016, an average of 33 dairy farms per month, or one per day. She asks; "How many dairy farms are in your county? How long until all but a handful are gone?"
Chicago Mercantile Exchange prices strengthened the third week of November as traders anticipated Friday afternoon's October Milk Production report. The 40-pound Cheddar blocks closed Friday at $1.91 per pound, up 2 1/2-cents on the week and 34 cents above a year ago. The 500-pound Cheddar barrels sunk to $1.6675 Thursday but rallied Friday, jumping 8 1/4-cents, to $1.75, a half-cent lower on the week, after plunging 10 1/2-cents the previous week, but are 24 3/4-cents above a year ago. The spread grew to 23-cents on Thursday, a gap not seen since May 2013, but still finished at an abnormally high 16 cents. Only three cars of block traded hands on the week and 49 of barrel, 21 on Friday.
"Midwest cheese production is active as manufacturers are working hard to get orders filled before the holidays," according to Dairy Market News (DMN). "Some processors were planning to operate through all of Thanksgiving week, while others were adjusting schedules to keep their plant running and give employees a day off for the holiday."
DMN adds that "Cheese makers report some ripples in demand and milk supply due to the Thanksgiving holiday. Available spot loads of milk had been a little short the previous weeks, but some manufacturers say milk is getting freed up by reduced holiday production schedules at a few facilities. A few contacts suggest cheese orders are mixed. In some cases, shoppers are eager to get orders secured before the holiday rush. Others think demand is easing and starting to show signs of the holiday pipelines getting filled."
Western contacts say a lot of milk is going into cheese. "Production is active and seasonal retail sales are strong. Manufacturers report good demand for branded cheese. Buyers are placing regular orders for fresh commodity blocks. Some manufacturers report inventories for fresh blocks are low or highly committed through the end of the year. Favorable pricing several weeks ago, and tight supplies in other international cheese producing regions have helped draw stocks down. Cheese inventories are still long for barrels and a few processors are carrying heavier amounts of cheese in their aging programs," DMN said.
Spot butter's return to $2 per pound was tested, slipping to $1.98 Tuesday, then regained a nickel Wednesday. The November 18 close of $2.03 per pound is up 2 cents on the week but is 85 1/2-cents below a year ago. Twenty five cars exchanged hands on the week at the CME.
"Central region Class II processors continue pulling substantial amounts of cream ahead of the year-end holiday," reports DMN. "As a result, light to moderate cream availability is somewhat curtailing butter production. Most Thanksgiving orders from retailers are reportedly in the final stages."
"Western butter output is running strong as butter makers work hard to meet remaining 2016 commitments. In some cases, processors are feeling a pinch and wondering if there is time to get enough butter made. Demand is solid and sales are drawing down supplies. Some manufacturers are anticipating a slowdown of seasonal butter demand in the next few weeks," according to DMN.
Grade A nonfat dry milk saw a 90 cent per pound close Friday, up 2 1/4-cents on the week and 12 cents above year ago. Seventeen cars were sold on the week.
Checking demand; fluid milk consumption inched a little higher in September and follows a 2.1 percent jump the month before. September packaged fluid milk sales totaled 4.1 billion pounds, up 0.2 percent from September 2015, according to DMN.
Conventional product sales totaled 3.9 billion pounds, unchanged from a year ago; organic products, at 218 million pounds, were up 5.3 percent. Organic represented about 5.3 percent of total sales for the month.
Whole milk sales totaled 1.2 billion pounds, up 6.0 percent from a year ago, with year to date running 5.0 percent above a year ago and making up 28.7 percent of total fluid sales. Skim milk sales were down 11.2 percent from a year ago and down 11.0 percent year to date.
Total packaged fluid milk sales for the eight months of 2016 totaled 36.5 billion pounds, down 0.5 percent from the same period a year ago. Year-to-date sales of conventional products, at 34.6 billion pounds, were off 0.8 percent; organic products, at 1.9 billion pounds, were up 5.5 percent. Organic represented about 5.3 percent of total fluid milk sales so far in 2016.
The figures represent consumption of fluid milk products in Federal milk order marketing areas and California, which account for approximately 92 percent of total fluid milk sales in the U.S.
Last but not least, a Happy and Blessed Thanksgiving to you all. We truly have much to be grateful and thankful for in America. Indeed, may God "shed His grace on Thee."[[In-content Ad]]


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