The “Mielke” Market Weekly

Butter inventory rises

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U.S. butter stocks jumped in April. The U.S. Department of Agriculture’s latest cold storage report shows April 30 inventory at 361.3 million pounds, up 44.1 million pounds or 13.9% from the March count. This was revised up 624,000 pounds and was 29.8 million pounds, or 9.0%, above April 2023.

Churns have been running well ahead of a year ago the past four months, and April likely followed that. Cheese vats weren’t quite as busy. HighGround Dairy reported that the March to April butter climb was “the most significant build for the month since 2020 which was an outlier due to the start of the COVID-19 pandemic. Eliminating that year results in the largest March to April increase since 2016.” HGD added that the cheese data was “neutral.”

American type cheese stocks climbed to 839.2 million pounds, up 10.6 million or 1.3% from the March level, which was revised up 3.1 million pounds but down 2.7 million pounds, or 0.3%, from a year ago.

The “other” cheese category holdings slipped to 598.4 million pounds, down 5.3 million or 0.9% from March’s count, which was revised 7.2 million pounds lower. Stocks were down 6.7 million pounds or 1.1% from a year ago.

The total April 30 cheese inventory stood at 1.46 billion pounds, up 5.6 million pounds, or 0.4%, from the March count, which was revised 5.1 million pounds lower at 8.8 million pounds, or 0.6%, below a year ago. 

Chicago Mercantile Exchange butter headed south the first day of trading following the Memorial Day holiday as a result of the cold storage data, plunging 12 cents, the first time it was below $3 per pound since May 14. But butter wasn’t down for the count. It rallied Thursday, regaining 5.50 cents, and added 6 cents Friday to close at $3.09, still 3.25 cents lower on the week but 64.50 cents above a year ago. There were nine loads that traded hands on the shortened week.

Speaking in the June 3 “Dairy Radio Now” broadcast, StoneX broker Dave Kurzawski addressed the message on butter he interpreted from the cold storage report. “We may not have a supply problem on butter so much as we have a problem on the supply of available futures contracts,” Kurzawski said.

This rally really began at the end of January, he said, and has been driven primarily by the futures market.

“Understandably, end users want coverage,” Kurzawski said. “South of $3 per pound would be ideal, but the spot market has been the follower.”

“When we have a legitimate bull market on a product, typically the spot market will lead the rally,” he said. “The market is saying we have a supply demand imbalance. We can argue about what that imbalance is. It exists. We’re going to put the spot price, the actual product price, the highest price on the board and the futures will be at a discount to dis-incentivize anybody who makes that product from putting it away. Make the product today; then bring it to the market today. That’s the absolute best price you can get. That didn’t happen the past three months.”

Kurzawski said he expects more downside on butter but sees the report as relatively neutral on cheese. As to nonfat dry milk, he said, “The old habit of looking at world prices and global demand and saying it’s been bearish the past 8-12 months and will continue that way, those old habits die hard.” 

“The market’s been pretty sideways,” he said. “Globally, it’s been sideways to a little bit firmer as we’re starting to see that on prices in the GlobalDairy Trade, but the reality is you will have more buyers, unfortunately at $1.25 in the U.S., or $1.28, than you do at $1.18 because there’s a fear of missing out like we saw in cheese in April.”

Dairy Market News reported that butter plants were running normally despite the holiday weekend. Cream was and is available. Multiples were steadily moving in the mid- to upper-1.10s, which mirrored previous months. Butter makers and cream handlers do not expect cream availability, and therefore churning, to last much further into the waning spring weeks. Components have started to tighten at the farm milk level. Butter makers are not overly concerned about the falling price, said DMN, and are comfortable with their stocks and current demand.

Butter production is strong in the West as manufacturers work to build stocks to cover planned downtime for churn maintenance during the next month. Cream demand is strengthening, and cream volumes are generally available throughout the region. Retail and food service butter demand is strong domestically while demand from international buyers is moderate, said DMN.

Block Cheddar lost 6 cents on the week, the third week of decline, closing Friday at $1.81 per pound, lowest since May 3 but still 38 cents above a year ago. 

Barrels finished at $1.94, down 4 cents on the week, 42.75 cents above a year ago, and 13 cents above the blocks. There were 14 sales of block on the week and eight sales of barrel.

Recent production hurdles have been reported by a number of cheesemakers, according to DMN. Multiple plants were on both holiday and unexpected downtime the week before Memorial Day and over the weekend. Some took an extra half-day off, while others were down for multiple days. Demand tones were consistent with the past few weeks to the past month and are “healthy.” 

Retail and food service cheddar/Italian cheesemakers say demand from regional and eastern customers is hearty. Milk remains ample and spot prices mid-week were holding in a similar range to the previous week. Market tones have turned bearish, said DMN, but longer-term outlooks are “steadier to even bullish.”

Most cheese manufacturers in the West noted strong production. Some parts of the region are seeing stronger milk components compared to a year ago, and that is helping keep production strong and balancing milk supplies. Milk output is weakening in some parts, but upcoming summer school breaks are expected to ease bottling demand and increase milk availability for Class III manufacturers. Domestic cheese demand is steady while exports are steady to weaker. 

CME nonfat dry milk fell to a Friday finish at $1.1675 per pound, 0.75 cents lower on the week and a quarter-cent below a year ago, on nine sales.

Whey slipped to 39.50 cents per pound Wednesday but closed Friday at 41.50 cents, up 1.50 cents on the week and 15.75 cents above a year ago, on 11 sales.

Dairy cow slaughter for the week ending May 18 totaled 47,000 head, down 1,000 from the previous week and 7,900 or 14.4% below a year ago. Year to date, 1,112,700 have been culled, down 169,300, or 13.2%, from 2023.

HGD said, “A weekly total of under 50,000 head is notable as it typically only occurs during holiday weeks. Further, this was the lowest value for the week in over 15 years. 2008 was the last time this figure was smaller. Milk prices have dramatically improved in second quarter, which has likely caused farmers to change their culling practices.”

The latest Crop Progress report shows 83% of U.S. corn was in the ground as of the week ending May 26, up from 70% the previous week, 3% ahead of a year ago, and 1% ahead of the five-year average. Fifty-eight percent emerged, 8% behind a year ago. Sixty-eight percent of the soybeans were planted, 10% behind a year ago, but 5% ahead of the five-year average. Thirty-nine percent emerged, 11% behind a year ago.

In its May 29 Early Morning Update, StoneX reported, “The harsh storms and severe weather patterns we’ve seen this year are brought on by the changing seasons combined with a stronger-than-normal jet stream above the northern hemisphere, bringing not only tornados and severe thunderstorms but also significant rainfall in the corn belt. As El-Nino begins to fade, the question of if — and if so, when — La-Nina will develop becomes the focus.”

The Global Dairy Trade Pulse auction Tuesday saw 3.6 million pounds of product sold, down from 3.75 million May 14. Of the total offered, 94.4% sold. There were 888,454 fewer pounds of instant whole milk powder and 771,610 pounds more regular WMP sold versus the last Pulse. There was 8,818 pounds more skim milk powder sold.  

Much of global trade is influenced by China, whose dairy purchases continue to lag. Part of the explanation may be in an article by the Daily Dairy Report’s Sarina Sharp in the May 24 Milk Producers Council newsletter. 

Sharp wrote, “USDA’s on-the-ground analysts in Beijing raised their estimates of Chinese milk output. They now show roughly 7% growth in Chinese milk production every year from 2020 through 2023 and project Chinese milk output to grow another 1.3% in 2024.” 

The May 28 Daily Dairy Report added, “China’s dairy herd has grown faster than anticipated, up 3% year over year in 2023, as producers keep low-producing cows in the herd and large herds expand. A recent report from the USDA Global Agricultural Information Network said, “Growth in raw milk production continues to outpace consumption, creating an oversupply in the Chinese market.” The DDR added that “China’s increased milk production this year will be pulled into manufacturing, and that will weigh on dairy product imports.”

In politics at home, the U.S. House Agriculture Committee approved its version of the 2024 Farm Bill, one that comes with a $1.5 trillion price tag over the next decade. The National Milk Producers Federation praised Chairman Glenn Thompson and committee members from both parties for approving a bill that “includes critical dairy priorities that will help support and grow this industry,” according to Gregg Doud, NMPF president and CEO.

“Provisions benefiting dairy urged by NMPF include extending the Dairy Margin Coverage program through 2029; update production history for participating dairies to be based on the highest production year of 2021, 2022, or 2023; and extend the ability for producers to receive a 25% premium discount for locking five years of coverage.” 

The bill would restore the “higher of” Class I mover to, as NMPF said, “Reinstate orderly milk marketing and require plant cost studies every two years to provide better data to inform future make allowance conversations. It also supports the bipartisan, House-passed Whole Milk for Healthy Kids Act to reverse the under consumption of nutritious milk in our schools, and boosts funding for dairy trade promotion programs and protect the use of common food names worldwide.”

The bill supports voluntary, producer-led conservation programs, such as the Environmental Quality Incentives Program, with dedicated funds for livestock operations and language encouraging states to prioritize methane-reducing practices and improves the certification of Third-Party Service Providers with technical expertise related to conservation planning to better assist producers participating in National Resources Conservation Service programs.

Meanwhile, on the Senate side, the May 24 “Daily Dairy Report” said, “Democrats on the Senate Ag Committee expressed concern about any cuts to Supplemental Nutrition Assistance Program (SNAP) benefits. The bill does not call for outright cuts to food stamp benefits. Rather, it authorizes a return to the pre-2021 SNAP formula, which adjusted for inflation but did not account for gaps between the overall rate of inflation and the rising cost of a healthy diet.”

Michael Dykes, D.V.M., president and CEO of the International Dairy Foods Association, said, “IDFA was pleased to see the House Agriculture Committee’s Farm Bill expand the SNAP Healthy Fluid Milk Incentive (HFMI) to include the full suite of nutritious milk options.”

He said, “Congress created the SNAP HFMI pilot program in the 2018 Farm Bill to test the most effective ways of incentivizing SNAP participants’ purchases of healthy fluid milk. Since then, HFMI pilots operating under the name ‘Add Milk!’ have been running in more than 700 retail outlets in 19 states, including locations in rural communities, counties with persistently high poverty rates, Opportunity Zones, low-income and low access census tracts, and Tribal Nations and surrounding tribal communities.”

“The program has been very effective in doubling the purchasing power of SNAP participants through the use of electronic incentives,” Dykes said. “The House Farm Bill recognizes this success by expanding the program to incentivize nutritious milk options like 2% and whole milk, and by providing more certain funding to ensure increased access and continued success of the program.”

The bill also makes the Dairy Forward Pricing Program permanent, which IDFA said “would eliminate the gap in forward pricing programs for proprietary plants and their producers that occurs if farm bills are delayed.”

The measure also allows schools to serve whole milk and reduced fat milk to students, pursuant to the Chairman’s Whole Milk for Healthy Kids Act, which IDFA supported. It also mandates biennial cost surveys to ensure make allowances accurately reflect the cost of manufacturing dairy products, a consensus priority across the industry.

“Unfortunately,” concluded the IDFA, “The bill also includes a provision that circumvents USDA’s mandate to complete the ongoing Federal Milk Marketing Order (FMMO) hearing process, by restoring the ‘higher-of’ formula for the calculation of the price of Class I (fluid) milk. The USDA process to make changes to the FMMO through a Federal Order Hearing has been underway for well over one year, and USDA will soon announce its proposal.” 

“IDFA believes Congress should not intervene on one select issue, especially one that is included in the current USDA FMMO Hearing process and one that has significant impacts across all policies in the FMMO and like many of the hearing proposals, affects many parts of the dairy supply chain,” IDFA said.

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