The Agriculture Department announced the February Federal order Class III benchmark milk price at $13.89 per hundredweight, down 7 cents from January but 49 cents above February 2018 and the first month that the Class III price topped the previous year’s price since November 2017. It equates to $1.19 per gallon, down from $1.20 in January and compares to $1.15 a year ago.
    Class III futures late Friday morning portended a March price at $15.22; April, $15.12; May, $15.19; and June at $15.50, with a peak of $16.33 in September.
    The February Class IV price is $15.86, up 38 cents from January, $2.99 above a year ago, and the highest Class IV price since August 2017.
    Dec. 31 butter stocks totaled a surprising 179.3 million pounds, up a whopping 16.6 percent from November and 6.2 percent above December 2017, according to the delayed USDA Cold Storage report issued Feb. 22.
    FC Stone dairy broker Dave Kurzawski says that’s a shocking 42 million pounds heavier than their pre-report expectations and over 1,000 truckloads but adds the caveat that “these numbers are more than 60 days old. If the number was incredibly burdensome we think the markets would have felt it already. This leads us to think revisions following a government shut-down are likely.” The January Cold Storage report will be issued March 7.
    The U.S. had less cheese on hand than expected. American cheese stocks were up 7 percent from a year ago and Kurzawski says “What’s a little odd is that the usual build from November to December was nonexistent.”
    He points out that in 7 of the past 12 year’s stocks, we’ve had some by less than 5 million pounds, but not generally in what we would call aggressively weak market prices like we saw in December.”
    “Ultimately, we want to see the December Dairy Products numbers to figure out whether it was better demand or slower production that knocked the numbers lower than we expected,” explained Kurzawski.
    The USDA issued its delayed December Dairy Products report on Feb. 28 and pegged December cheese output at 1.09 billion pounds, up 1.0 percent from November but 1.2 percent below December 2017, ending 68 consecutive months that cheese output exceeded that of a year ago. Total cheese output for 2018 hit 12.93 billion pounds, up 2.1 percent from 2017.
    Italian cheese totaled 479.4 million pounds, up 3.0 percent from November and 2.0 percent above a year ago. Year to date (YTD) Italian hit 5.5 billion pounds, up 2.8 percent from 2017. Mozzarella, at 378.7 million pounds, was up 3.7 percent from a year ago, with output for the year at 4.3 billion pounds, up 4.1 percent.
    American type cheese totaled 424.6 million pounds, up 0.6 percent from November but 4.4 percent below a year ago, with the year’s total at 5.2 billion pounds, up 1.7 percent from 2017.
    Cheddar cheese, the kind traded at the CME, totaled 306.3 million pounds, up 4.5 million pounds from November but 20.8 million or 6.3 percent below a year ago. Output for 2018 totaled 3.7 billion pounds, virtually unchanged from 2017.
    U.S. churns produced 171 million pounds of butter, up 25 million pounds or 17.0 percent from November but 0.1 percent below a year ago. Total butter output for 2018 was at 1.88 billion pounds, up 2.0 percent from 2017.
    Yogurt output hit 344.9 million pounds, was down 2.2 percent from a year ago, with YTD output at 4.4 billion pounds, down 2.0 percent.
    Dry whey totaled 74.5 million pounds, down 13.4 percent, with YTD at 1.0 billion pounds, down 2.8 percent. Dry whey for human consumption totaled 73.2 million pounds, up 0.2 percent from November but 13.3 percent below a year ago. Stocks totaled 65.1 million pounds, up 1.0 percent from November but 32.9 percent below those a year ago.
    Nonfat dry milk production totaled 142.6 million pounds, up 8.3 percent from November but 13.3 percent below a year ago. YTD output hit 1.7 billion pounds, down 5.0 percent. Stocks slipped to 275.3 million pounds, down 14.2 million pounds or 4.9 percent from November but 44.7 million pounds or 14 percent below the 2017 levels.
    Skim milk powder totaled 50.8 million pounds, up 69.9 percent from November and 1.8 percent above a year ago. Skim milk powder output totaled 544.0 million pounds in 2018, up 2.7 percent from 2017.
    Cheese traders took the Cheddar blocks higher for the fifth week in a row, closing Friday at $1.61 per pound, up 1 1/2-cents on the week, highest they have been since October 2018, and 5 cents above a year ago. The barrels finished at $1.41, up a half-cent on the week, 6 1/2-cents below a year ago, and 20 cents below the blocks. There were 2 sales of block on the week and 30 of barrel.
    Cheese demand reports vary, according to Dairy Market News, but a growing segment of Midwestern cheesemakers reported a seasonal shift slower. A lot of them are not on the spot milk market and those who are open to extra milk are generally finding it at a discount. Cheese inventory is unchanged but long. Continuing winter weather was causing issues with delivery of milk, cheese and whey in the region. Plant managers report that long-haul trucking has been somewhat difficult to manage as snow and ice led to closed roads in Wisconsin and Minnesota.
    Milk is readily available in the West and vats are at or near capacity. Cheese makers are employing several strategies to control the size and type of inventory, with some placing more cheese into aging programs as a hedge while cheese prices are low. Others are making more barrels and a few have slowed production to conduct maintenance and limit the growth of stocks. Inventories are still heavy and manufacturers want to keep stocks in check as the spring flush nears. Cheese is moving well through contracts, but extra business is hard to come by. Demand from a few export channels is strong for some, says DMN.
    Butter closed Friday at $2.2875 per pound, up 2 3/4-cents on the week, highest since Feb. 1 and 8 3/4-cents above a year ago, with 5 cars sold.
    Central butter plant managers continue reporting widely available cream for the churns, as production marches on but demand is picking up ahead of the spring holidays. Salted and unsalted loads are both selling at premiums and 82 percent butterfat orders have increased. Butter inventories are plentiful, but contacts suggest they are in a good place ahead of increasing seasonal demand.
    Western churning continues at a full and fast pace so some processors have stopped buying cream as they do not have enough capacity. Mechanical issues at one plant caused the manager to stop butter production and redistribute their cream to whoever could take it. Butter supplies are plentiful and stocks continue to increase but butter sales are generally stable, according to DMN.
    Spot Grade A nonfat dry milk saw a close Friday at 98 1/2-cents per pound, down 1 1/4-cents on the week but 32 1/4-cents above a year ago, with 30 carloads exchanging hands on the week.
    Dry whey saw some ups and downs but finished Friday at 36 cents per pound, 1 1/4-cents higher on the week, with a whopping 47 cars sold at the CME.
     Dairy cow culling was down a bit in December but well above a year ago. The Agriculture Department’s latest Livestock Slaughter report shows an estimated 261,200 head slaughtered under federal inspection, down 6,800 from November but 13,900 or 5.6 percent above a year ago. A total 3.15 million head were culled from the nation’s dairy herd in the year, up 164,600 or 5.5 percent from 2017.
    Culling data is indicative of what’s happening economically on U.S. dairy farms. Margins were relatively flat over the first half of February with values still projected below breakeven over the first half of the year, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.
    The MW pointed out that December milk production totaled 18.2 billion pounds, up 0.5 percent from 2017 with both October and November production revised down 0.2 percentage points from preliminary projections. As a result, fourth quarter milk production was up only 0.5 percent from 2017, the lowest year-over-year growth for any quarter in five years.
    “While the milking cow herd as become more efficient to allow for modest production gains, the report reflected continued contraction with a drop of 3,000 head from November to December at 9.351 million. This was the smallest since November, 2016 and down 49,000 head from the previous year,” the MW stated.
    “A tough margin environment is prompting more producers to cull cows. Dairy cow slaughter reached above 70,000 head for the latest week of slaughter data ending Jan. 19. This was the largest single week of dairy cow kill since January 2013. Fourth quarter dairy cow slaughter was up 8 percent from 2017, and some weeks towards year-end were as much as 14 percent higher than year-ago comparable figures,” the MW reported.
    “Feed markets meanwhile continue to be subdued, with hopes for a trade deal between the U.S. and China. The March 1 deadline was expected to slide in order for a summit to be scheduled between Presidents Trump and Xi in Mar-a-Lago towards the end of March. A Bloomberg report cited that China has pledged to secure $30 billion of new U.S. agricultural trade annually, above and beyond pre-trade war levels,” the MW concluded.
    Meanwhile; a rise in the U.S. All Milk price average offset some higher feed prices to nudge the January milk feed price ratio slightly higher. The Agriculture Department’s latest Ag Prices report puts the January ratio at 2.05, up from 2.04 in December and compares to 2.18 in January 2018.
    The U.S. All-Milk price averaged $16.60 per hundredweight (cwt.), up 20 cents from December and is 50 cents above January 2018.
    The national average corn price averaged $3.56 per bushel, up 2 cents from December and 27 cents per bushel above January 2018. Soybeans averaged $8.63 per bushel, up 6 cents from December but 67 cents per bushel below a year ago. Alfalfa hay averaged $180 per ton, up a dollar from December and $28 per ton above a year ago.
    Looking at the cow side of the ledger; the January cull price for beef and dairy combined averaged $54.20 per cwt., up $2.40 from December, $9.10 below January 2018 and $17.40 below the 2011 base average of $71.60 per cwt.
    Milk cows averaged $1,140 per head in January, down $90.00 per head from October 2018, and $380 below January 2018. Cows averaged $1100 in California, down $100 from October and $400 below a year ago. Wisconsin cows averaged $1120 per head, down $60.00 from October and down $350 per head from January 2018.
    Globally; New Zealand-based Fonterra Co-operative announced Feb. 27 an increase to its 2018/19 forecast Farmgate Milk Price range to $6.30-$6.60 per kgMS, up from $6.00-$6.30. The coop cited concerns over on-going hot, dry weather being experienced since the beginning of the year.
    Fonterra also updated its forecast milk collection for the full season, to 1,530 million kgMS, up 2 percent from last season but down 1 percent from its previous forecast.
    Fonterra Chairman John Monaghan stated; “Global supply remains above last season’s levels, but growth has slowed due to challenging weather conditions in some of the world’s largest milk producing regions, in particular, Australia’s milk production is forecast to be down 5-7 percent on last season and the EU’s growth has slowed and is now forecast to be up less than 1 percent.”
    In other trade news, HighGround Dairy (HGD) reports that China continues to diversify their supplier list as increased product flows in from South America and Belarus. China will begin allowing dairy products in from Russia as well into the second half of 2019 but HGD says that should not impact Oceania’s market share.
    “Anhydrous milkfat imports neared five-year highs (March 2014), according to HGD, counterbalancing concerns of lower fat demand as butter fell back slightly. 2018 was a record year for butter imports into China, leaving room for losses into January due to strong procurement throughout second and third quarter 2018.”
    HGD concludes that “Milk powder charts look shockingly strong as both skim milk powder and whole milk powder imports moved to record highs. China’s demand trends are expected to remain supported, yet diverse, for much of the year but move seasonally lower next month. China’s robust milk powder imports set a strong tone for 2019 and recent GDT auction data suggests they are have not disappeared from the market with strong purchases during the shoulder of New Zealand’s season,” according to HGD.