The bulls were fed the week of Aug. 13. Barrel cheese marched higher, commercial dairy product disappearance looked solid, the U.S. and Mexico appeared to be coming together in their trade spat, and even China’s commerce ministry stated that its commerce vice-minister had been invited by the U.S. to discuss economic and trade issues. And, for the first time ever, the USDA announced that it will purchase $50 million in pasteurized fluid milk.
    Speaking in the Aug. 20 Dairy Radio Now broadcast, HighGround Dairy’s Lucas Fuess added that reports of heat stress in the Western U.S., Europe, Australia, and Japan is a cause for concern that feeds the bulls, and CME barrel cheese trading above the blocks for the first time since Dec. 19, 2017, bows well for prices and “we could have a trade deal with Mexico yet this month.”
    “We’re in a seasonal time of the year here in mid-August where people are looking to the holidays, trying to make sure that there will be sufficient inventories and this is causing pricing to climb as we move into fall,” Fuess said.
    He was hesitant to predict how high cheese will go, reminding us that U.S. milk production remains fairly strong and we have considerable inventories so “by no means is there a shortage of cheese in the U.S.”
    The milk purchased by the Agriculture Department will be distributed through food assistance programs and food banks, according to a press release from the International Dairy Foods Association (IDFA). Purchases are expected to reach 12-15 million gallons of fat free, low-fat, reduced-fat, and whole milk as part of the initiative, which is not part of the funding the Administration allocated to support farmers and producers negatively impacted by unfair trade practices.
    Meanwhile, the Agriculture Department left its 2018 milk production estimate unchanged in the latest World Agricultural Supply and Demand Estimates. 2019 output was raised on slightly higher cow numbers and increased milk per cow.
    2018 production and marketings were projected at 217.9 and 216.9 billion pounds respectively, unchanged from last month’s estimates. If realized, 2018 production would be up 2.4 billion pounds or 1.1 percent from 2017.
    2019 production and marketings were estimated at 220.9 and 219.9 billion pounds respectively, up 300 million pounds on both. If realized, 2019 production would be up 3.0 billion pounds or 1.4 percent from 2018.
    Fat basis 2018 exports were raised from the previous month on higher sales of butter and other fat-containing products. The fat basis import forecast also raised on higher expected imports of butterfat products. The 2018 skim-solids basis export forecast was lowered on weaker sales of nonfat dry milk (NDM) and the imposition of tariffs by China on lactose and other dairy products. The import forecast was unchanged however.
    Cheese, butter, NDM and whey price forecasts were raised for 2018. Prices for cheese, NDM and whey were also raised for 2019 as demand strength is expected to carry into next year. The 2019 butter price forecast was unchanged.
    The 2018 Class III and Class IV milk price forecasts were raised from last month to reflect the higher dairy product price forecasts. The 2019 Class III price forecast was raised on higher forecast cheese and whey prices.
    Look for a 2018 Class III average of $14.50-$14.70 per hundredweight (cwt.), up from the $14.30-$14.60 predicted a month ago and compares to the 2017 average of $16.17 and $14.87 in 2016. The 2019 average is now expected at $14.95-$15.95, up from the $14.70-$15.70 projected in last month’s report.
    The Class IV price forecast was raised on the stronger forecast NDM price. It’s projected to average $13.95-$14.25, up from the $13.65-$14.05 expected a month ago and compares to $15.16 in 2017 and $13.77 in 2016. The 2019 average was projected at $13.75-$14.85, up a dime from last month’s estimate.
    U.S. corn production was forecast at 14.6 billion bushels, according to USDA’s Crop Production report, down less than 1 percent from last year. Based on conditions as of August 1, yields are expected to average a record high 178.4 bushels per acre, up 4.4 bushels from last month’s estimate and 1.8 bushels above 2017. If realized, this would be the highest yield on record for the U.S.
    The WASDE states; With supply rising faster than use, ending stocks are raised 132 million bushels to 1.7 billion. The season-average corn price received by producers is down 20 cents at the midpoint at a range of $3.10-$4.10 per bushel.
    Soybean production was forecast at a record 4.59 billion bushels, up 4 percent from last year. Based on conditions as of Aug. 1, yields are expected to average 51.6 bushels per acre, up 2.5 bushels from last year.
    The WASDE says “As higher production more than offsets lower beginning stocks, soybean supplies for 2018/19 are projected at a record 5.04 million bushels, 5 percent above last month. With larger supplies, crush and exports were raised 15 and 20 million bushels, respectively. Ending stocks are projected at 785 million bushels, up 205 million from last month. The U.S. season-average soybean price for 2018/19 is forecast at $8.90 per bushel at the midpoint, down 35 cents from last month. The soybean meal price forecast, at $295 to $335 per short ton, is down $20 at the midpoint. The soybean oil price forecast was unchanged at 28 to 32 cents per pound.”
    FC Stones adds that if USDA’s soybean carryout is realized, “It will be burdensome, if not a glut supply. Clearly, the USDA published a worst-case scenario that includes the idea that the trade spat with China won’t go away soon. There are traders who think trade agreements will be in place by the US November elections; clearly the USDA is thinking otherwise. We could make the case that the USDA had to publish a worst-case scenario to alert participants as to just how bad things could get. Given the fact that half of US soybeans are destined for export, it’s hard to argue against the huge carryout estimates.”
    Cotton production is forecast at 19.2 million 480-pound bales, down 8 percent from last year. Yield is expected to average 911 pounds per harvested acre, up 6 pounds from last year.
    The latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC. says “Dairy margins were largely steady over the first half of August, with the exception of spot Third Quarter where margins strengthened back above breakeven due to rising milk prices. Much of the strength in the nearby milk market appears to be seasonal, with back-to-school buying for lunch programs boosting fluid milk consumption,” according to the MW.
    Meanwhile, U.S. cheese demand appears to be solid. American cheese demand was up 1.4 percent in June from a year ago and up 6.2 percent from May, according to the latest Livestock, Dairy, and Poultry Outlook.
    Demand for the “other” cheese category was up 1.9 percent from 2017 and up 2.98 percent from May. That put total cheese use up 1.7 percent from a year ago and 4.3 percent above May. Year to date American cheese use is up 2.6 percent and other than American cheese is up 1.97 percent, putting total cheese use up 2.2 percent than at this time a year ago.
    Butter demand was up 3.5 percent from a year ago and, on a month-to-month basis, it increased 11.3 percent but FC Stone points out that June butter imports were the highest since 2004 and perhaps a cause of June’s price weakness. Spot butter fell 28 cents in June though it has since recovered most of that.
    “Butter still looks poised for more upside as cream tightens and gets pulled out of butter production and put towards other products,” says FC Stone. “We do have what appears to be plenty of inventory in cold storage warehouses, but to the extent that those inventories are 82 percent salted bulk butter that can be brought to the exchange is debatable right now.”
    Nonfat dry milk use plunged 19 percent in June but is up 11.1 percent year to date while butter use is up 2.4 percent.
    Mid-August cash dairy prices roller-coasted a bit. Block Cheddar, after hitting $1.66 per pound Monday, closed the third Friday of August at $1.6550, down a quarter-cent on the week and 10 cents below a year ago as traders awaited Monday’s July Milk Production report and Tuesday’s GDT. The barrels climbed to $1.6750 Wednesday, highest price since November 15, 2017, but finished Friday at $1.67, up a nickel on the week, 8 cents below a year ago, and 1 1/2-cents above the blocks. 6 cars of block traded hands on the week and 40 of barrel.
    Cheese demand remained on par with previous weeks, according to Dairy Market News. Spot milk prices ranged 50 cents under to $2 over Class III. Some cheese producers report that they will not take any spot milk over Class, as current sales points do not warrant adding to production and inventories. Market tones are somewhat positive, but a few contacts suggest buyers are “skeptical of the increased prices, particularly for barrels.”
    Western cheese output remains active with plenty of milk to run through the vats, but “the seasonal easing of milk production and the restart of school milk bottling has taken some of the pressure off.” “Some processors say they have not seen any change in demand the last few weeks. Buyers seem to be on vacation or not very motivated to get extra coverage. Other contacts suggest that there is light at the end of the summer doldrum tunnel. Food service demand is picking up as schools start up and pizza manufacturing pulls a bit more cheese. Inventories remain heavy, but contacts are hopeful domestic and international cheese demand can pick up to the point of cutting into the stock piles of cheese.”
    Butter climbed to $2.3875 Tuesday, highest CME price since June 11, 2018, but closed Friday at $2.3050, down 3 1/2-cents on the week, ending five consecutive weeks of gain, and 34 below a year ago. 22 sales were reported on the week.
    DMN reports that, “As cream prices shifted downward this week, churn activity increased. Plant managers sought out spot cream at a more vigorous clip than in the past month. Retail butter sales are reportedly ahead of last year’s figures, and meeting or better than expectations.”
    Western butter output is steady. Contacts say that spot loads of cream going into butter have not increased significantly. Good demand from ice cream and cream cheese processors has incited some butter plants to sell cream. Butter inventories are unchanged from a week ago and sales are steady to weakening.
    Cash Grade A nonfat dry milk closed Friday at 86 1/4-cents per pound, highest CME price since August 1, 2017, up 3 1/4-cents on the week, and 3 cents above a year ago, with 14 carloads exchanging hands.
    Spot dry whey hit a new high at 44 1/2-cents per pound, up a quarter-cent.
    The California Department of Food and Agriculture announced its September Class I milk price at $16.87 per hundredweight for the north and $17.14 for the south. Both are up 73 cents from August but $1.78 below September 2017.
    That put the nine month average at $16.21 for the north, down from $17.93 at this time a year ago and compares to $15.78 in 2016. The southern average, at $16.48, is down from $18.20 a year ago and compares to $16.05 in 2016.
    As reported last week, the USDA’s Risk Management Agency (RMA) announced a new insurance plan for dairy producers that insures against unexpected declines in quarterly milk sales. Sign-up for the new product begins Oct. 9, with the first available coverage starting the first quarter of 2019.
    “Expanding the Federal crop insurance program to markets that need it is key to an effective farm safety net,” says Bill Northey, Under Secretary, Farm Production and Conservation. “Because of cooperation with partners like the American Farm Bureau Federation, we are able to offer this new product in a way that it can be flexible based on the needs of dairy producers.”
    The new plan, called Dairy Revenue Protection, provides insurance for the difference between the final revenue guarantee and actual milk revenue if prices fall. It also provides a greater choice of prices, from those that focus on cheese to fresh milk, protein or butterfat. Coverage levels are available from 70 to 95 percent of revenue and protection is available in all counties in all 50 states. Those interested in purchasing Dairy Revenue Protection must do so through an agent selling on behalf of an approved insurance provider.
    In politics, the National Milk Producers Federation called on the U.S. Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers (ACE) this week to permanently rescind the 2015 version of the Waters of the U.S. (WOTUS) rule, and recodify the prior version of the regulation in order to provide certainty for dairy farmers.
    In comments submitted to the agencies, NMPF outlined its support for both agencies proposal to “repeal the current definition of WOTUS and rewrite it to reflect common-sense approaches to protecting the environment” and joined numerous other farm and food organizations to submit an additional 22 pages of comments that provided an extensive legal and technical assessment of what the two agencies did wrong three years ago in an attempt to update the regulation.
    Cooperatives Working Together member export sales this week totaled 341,717 pounds of Cheddar cheese and 2.097 million pounds of whole milk powder. The product is headed to Asia, Central and South America through December.