Increases in milkfat limited the losses in the Oct. 16 Global Dairy Trade auction (GDT) where the weighted average of products offered slipped 0.3 percent, following the 1.9 percent descent Oct. 2 and 1.3 percent on Sept. 18, but it was the fifth consecutive decline. Sellers brought 92.5 million pounds to sell, down slightly from the last event.
    Gains were led by butter and anhydrous milkfat, same products that led the declines last time. Butter was up 2.4 percent, following a 5.9 percent plunge last time. Anhydrous milkfat was up 1.0 percent, after dipping 4.4 percent. Lactose rounded out the gains, up 1.5 percent, after inching up 0.6 percent last time.
    The declines were led by Cheddar cheese, down 1.8 percent, after it was down 1.2 percent in the last event. Rennet casein was down 1.7 percent and whole milk powder was off 0.9 percent. Skim milk powder was virtually unchanged.
    FC Stone equates the 80 percent butterfat butter price to $1.8204 per pound U.S. CME butter closed Friday at $2.26. GDT Cheddar cheese equated to $1.5440 per pound and compares to Friday’s CME block Cheddar at $1.4975. GDT skim milk powder averaged 89.66 cents per pound and whole milk powder averaged $1.2378. CME Grade A nonfat dry milk closed Friday at 87 1/4-cents per pound.
    Cooperatives Working Together (CWT) members received eight offers of export assistance this week to help sell 1.448 million pounds of Cheddar cheese for delivery in Asia, the Middle East and North Africa from November through March.
    CWT’s 2018 assisted sales total 49.72 million pounds of American-type cheeses, 12.96 million pounds of butter (82 percent milkfat) and 52.19 million pounds of whole milk powder to 36 countries on five continents.
    The U.S. Trade Representative Robert Lighthizer notified Congress Wednesday that the Trump Administration intends to negotiate three separate trade agreements with Japan, the European Union and the United Kingdom.
    The announcement drew praise from the International Dairy Foods Association (IDFA), stating that “Each of these countries offers abundant opportunities for increased U.S. dairy exports.” IDFA president and CEO Michael Dykes, also called for “greater market access levels for dairy in Japan, the UK and the EU.”
    “Japan is U.S. dairy’s fourth-largest market, representing sales of more than $290 million last year. The UK currently imports $3.4 billion worth of dairy, but imports from the United States represent only 0.25 percent of that value.”
    “The EU has the potential to be a large export market for the United States. In 2017, the EU exported nearly $1.5 billion in dairy products to the United States, but U.S. companies exported only $116 million in dairy products to the EU.”
    “As we enter into these negotiations, it will be important for our negotiators to reduce existing tariff and nontariff barriers to U.S. exports in these key markets,” Dykes said.
    CME spot cheese prices plunged ahead of Friday afternoon’s September Milk Production report and Monday’s Cold Storage report. The cheese was down for the third consecutive week and to the lowest levels since June 27, 2018.
    The Cheddar blocks closed at $1.4975 per pound, down 11 1/4-cents on the week and 17 1/4-cents below a year ago. The barrels fell to $1.2675, down 9 1/4-cents on the week, 37 1/4-cents below a year ago, and 23 cents below the blocks. There were 17 cars of block that exchanged hands on the week and 34 of barrel.
    Midwestern cheese production is active, according to Dairy Market News. Spot milk prices are at a premium, from 50 cents to $2.00 over Class III, thus nonfat fortifying is reportedly at its peak. Cheese market tones are bearish. There were expectations of an amalgamation of barrel and block prices after last week’s record-breaking price gap but that has not been the case.
    Western cheese manufacturing is active because of higher milk availability. Class III plants are running at or close to full capacities despite solid milk intakes from other Classes of milk. Retail and food service sales of cheese have declined slightly, but are still at a good level. Supplies of cheese depend on the type, but barrel inventories are higher than blocks. Contacts believe some processors are producing more domestic barrel cheese to compensate for weaker exports. Others say they are still seeing Cheddar interest in the export market. The present large spread between block and barrel cheese prices is reflecting the uncertainty of the cheese market, according to DMN.
    The USDA announced their Solicitation for Trade Mitigation Purchase of Process Cheese on October 15. The announcements were for December to March delivery totaling about 6 million pounds of processed and 2 million of natural cheeses. There will be another round of announcements in January that will cover process and chunks, plus the first announcement on fluid milk purchases. The January announcements will be for April to June delivery and the purchases will be distributed to “various food nutrition assistance programs.”
    FC Stone says “We don’t have definitive clarity yet on whether this is new spending or simply shifting ongoing purchases to the 2018 Trade Mitigation Program (it seems to be new spending), but that will have implications for how impactful this solicitation is for US cheese prices.”
    Cash butter jumped 4 cents Monday, then roller-coastered to a Friday close at $2.26 per pound, up a penny on the week but 9 cents below a year ago. 42 carloads found new homes on the week at the CME.
    DMN says cream remains tight for churning in the Central region but varies by plant. Plants able to locate financially feasible cream have churns running actively. Others are buying increasing amounts of bulk butter. Some have found Western loads at more favorable prices than within the region. Butter markets are mostly steady. This was the first week of the newly imposed kosher requirement on the CME cash spot market.
    Western butter output is active with generally plentiful cream supplies. Production of heavy fat, holiday consumer products is increasing and processors expect tighter supplies of cream soon. Manufacturers report steady food service and bulk butter demand. Some eastern buyers are making butter purchases in the West to meet their needs, but trucks and truckers are costly and in tight supply.
    Spot Grade A nonfat dry milk closed Friday at 87 1/4-cents per pound, up a half-cent on the week and 13 1/4-cents above a year ago, with 7 sales reported.
    The EU Commission reported the sale of 26,033 tons of skim milk powder out of Intervention October 18. The lowest price on this tender was in the mid-60 cent range. FC Stone reminds us that all of the product on offer is specifically product that was produced before July 1, 2016.
    Cash dry whey saw a Friday close at a new high of 57 1/2-cents per pound, up 1 1/4-cents on the week, with 2 cars finding new homes this week.
    It’s not news to dairy producers how tough things are on the farm. FC Stone’s Dave Kurzawski wrote about it in his October 16 Early Morning Update and talked about it in the October 22 Dairy Radio Now broadcast.
    “$16.00 milk is (generally speaking) a ‘good’ milk price, particularly given the industry’s intense focus on income over feed margins,” he said. “However, it’s becoming abundantly clear to us that ‘income over feed’ scenarios don’t tell the full story. To truly understand what dairy farmers are facing you must look at income over feed plus rising fixed costs.”
    “Fixed costs have been, and continue to, rise for US dairy farmers for some time now,” he argued. “Labor costs, maintenance costs, energy, and costs to service debt are materially higher than this time last year.”
    “Yes, other US dairy businesses face the same challenges,” he concluded, “But dairy producers, by and large, are price takers. They can’t pass along those increased operational costs. This fact is putting more pressure on dairy farmers than would normally meet the eye with a simply income over feed analysis.”
    Penn State’s October Dairy Outlook points out that Class III futures prices for the first six months of 2019 are up over a dollar compared to the first six month prices of 2018. “This is good news, especially considering the general oversupply of dairy markets,” the Outlook states. “However, even with the nice boost in Class III prices, most farm gate prices are still below the cost of production in Pennsylvania.” I think it safe to say that’s much the case elsewhere.
    “The Penn State Dairy Extension Team’s cash flow work with dairy producers shows that the average farm gate price for January-June 2018 was $15.10 per cwt. However, the range of farm gate prices was nearly $4.00 per cwt (High of $17.00 per cwt, low of $13.10 per cwt). That variation in price occurred due to milk components, the type of markets to which the milk was shipped (mostly fluid, or mostly Class III and IV) and the level of extra location adjustment and marketing adjustment taken by the cooperative to which the milk was shipped.”
    “Unfortunately, this has been a particularly challenging growing season, especially in saturated Pennsylvania. Starting with the miniscule harvest windows for small grain forages, forages have been tough to get harvested at optimal quality and dry matter. This has caused some quality and supply issues in the hay markets, causing statewide greater price fluctuations. The end of the season harvests for corn silage and grains are also proving challenging not only to get into fields to harvest, but quality issues are becoming an increasing concern. Though there are some drops in feed prices nationally, Pennsylvania’s feed costs are currently not decreasing at the same pace,” the Outlook concludes. “Hopefully this is a temporary fluctuation and not a long-term trend.”
    Meanwhile; the USDA’s monthly Livestock, Dairy, and Poultry Outlook, issued Oct. 17, mirrored dairy projections in the Oct. 11 World Agricultural Supply and Demand Estimates report.
    It reported that milk cows numbered 9.4 million head in August, an increase of 5,000 from July, and “appears that the increase came mainly from fresh milk cows entering the herd because federally inspected dairy cow slaughter was relatively high for August at 279,700 head, 5.3 percent above August 2017.” The report adds that weekly federally inspected dairy cow slaughter in September was above 2017 but was only slightly above in the second half of the month.
    “Milk per cow was 1,946 pounds in August (62.8 daily pounds per head), 1.4 percent above August 2017. Milk per cow typically declines seasonally from July to August, with an average decline of 1.2 percent for the 20 years from 1997 to 2017. This year, the decline from July to August was only 0.5 percent.”
    The Agriculture Department announced the November Federal order Class I base milk price at $15.52 per cwt., down 81 cents from October, 89 cents below November 2017, and equates to $1.33 per gallon, down from $1.40 in October.
    The 11 month average stands at $14.82, down from $16.41 a year ago. It is California’s first Federal order Class I base price. As in the other milk market orders of the country, this is the price that is added to the individual Class I differential to determine that order’s Class I milk price.
    Part of the reason the Class I price is not strong is due to fluid milk sales which continue to show a troubled side of the industry. The USDA’s latest tracking data shows August sales at 3.95 billion pounds, down 1.8 percent from August 2017.
    Conventional product sales totaled 3.7 billion pounds, down 2.0 percent from a year ago; organic products, at 222 million pounds, were up 2.1 percent and represented about 5.6 percent of total sales for the month.
    Whole milk sales totaled 1.3 billion pounds, up 1.4 percent from a year ago, up 1.8 percent year to date, and made up 32.5 percent of total fluid sales in the month and 31.9 percent for the year so far. Skim milk sales, at 304 million pounds, were down 10.9 percent from August 2017, down 9.7 percent year to date, and made up just 8.0 percent of total milk sales for the year so far.
    Total packaged fluid milk sales in the eight month period climbed to just under 31 billion pounds, down 2.1 percent from the same period a year ago.
    Conventional products year to date totaled 29.3 billion pounds, down 2.2 percent; organic products, at 1.7 billion pounds, were up 0.5 percent. Organic represented about 5.6 percent of total fluid milk sales January through August.
    In politics; not much progress is being made in finalizing the 2018 Farm Bill, according to Bob Gray editor of the Northeast Dairy Farmers Cooperative’s newsletter. “Negotiations have stalled over the SNAP work requirements in the House version of the bill,” he writes. “Since both the House and Senate are out of session until the November 6th mid-terms are over, don’t expect to see much progress over the next three or four weeks.”
    Gray adds however; “There’s rumors circulating of a farmer-aid legislative package that could be paired with additional hurricane relief, which Congress is likely to pass before the end of the year. To date, USDA has already set aside up to $12 billion to help producers through programs like direct payments, commodity purchases and marketing activities. Additionally, there’s ongoing discussions that additional trade-relief funds could be tied to the farm bill itself, if leaders of the Ag committees open up the final legislation to new amendments. However, it’s more likely that any aid for farmers would hitch a ride on any number of must-pass appropriations bills Congress is likely to take up after the midterms.”