The nation’s June Federal order bench mark milk price crept to the highest level it has seen in six months, but that’s not saying much. The Agriculture Department announced the June Class III price at $15.21 per hundredweight, up just 3 cents from May but $1.23 below June 2017 and 78 cents above California’s comparable 4b cheese milk price. It equates to $1.31 per gallon, down from $1.41 a year ago.
    That put the six-month average at $14.41 down from $16.12 a year ago but compares to $13.48 in 2016. Class III futures late Friday morning portended a July Class III at $14.22; August, $14.74; September, $15.21; October, $15.47; November, $15.51; and December at $15.46 per cwt.
    The Class IV price is $14.91, up 34 cents from May but 98 cents below a year ago, yet is the highest Class IV since September 2017. Its six month average is at $13.67, down from $15.08 a year ago and compares to $13.18 in 2016.
    California’s comparable Class 4b cheese milk price is $14.43, down 47 cents from May, $1.17 below a year ago, and 78 cents below the comparable Federal order Class III price, highest differential since December 2017. The 4b’s six month average stands at $14.05, down from $15.12 a year ago and compares to $12.75 in 2016.
    The 4a butter-powder price is $14.22, up 16 cents from May, $1.69 below a year ago, but the highest 4a price since October 2017. The 4a average for the year now stands at $13.37 and compares to $14.85 a year ago and $12.92 in 2016.
    While the cheese market at the Chicago Mercantile Exchange may have recovered a little lost ground, particularly on barrel cheese, that was not the case in the July 3 Global Dairy Trade (GDT) auction where the weighted average of products offered dropped 5.0 percent, biggest drop since March 7, 2017.
    That followed a 1.2 percent slippage on June 19, a 1.3 percent loss on June 5. Sellers brought 58.5 million pounds of product to sell, highest total since December 19, 2017.
    With the global market becoming a dumping ground for powder from Canada, the EU, and now India, it should come as no surprise that powder led the declines.
    Whole milk powder fell 7.3 percent, following a 1 percent decline on June 19. Skim milk powder was down 4.6 percent after slipping 1.1 percent last time. Cheddar cheese was down 4.3 percent, after it fell 3.6 percent last time, and butter was down 4.0 percent, after inching 0.8 percent higher. Anhydrous milkfat was off 1.7 percent, and follows a 2.5 percent decline last time.
    Only two offerings showed positive movement; buttermilk powder was up 6.4 percent and rennet casein was up 3.6 percent.
    FC Stone equates the GDT 80 percent butterfat butter price to $2.3850 per pound U.S. CME butter closed Friday at $2.17. GDT Cheddar cheese equated to $1.6843 per pound U.S. and compares to Friday’s CME block Cheddar at $1.5425. GDT skim milk powder averaged 86.77 cents per pound and whole milk powder averaged $1.3175. CME nonfat dry milk closed Friday at 77 1/4-cents a pound.
    The dairy markets have been trading off headlines for some time and reality is beginning to set in, according to HighGround Dairy’s Alyssa Badger. She talked about those headlines and how New Zealand-based Fonterra’s latest predicted farm milk price may be wishful thinking in the July 9 Dairy Radio Now broadcast.
    She pointed to whole milk powder (WMP), Fonterra’s flagship product, and said it has seen a $3,000.00 per metric ton price level that’s been in place for some time, but the GDT index fell below that price, dipping 7.3 percent, the most aggressive fall since First Quarter last year. That, says Badger, jeopardizes Fonterra’s latest predicted farm milk price of $7.00 per kilogram.
    “The last time Fonterra was able to pay that kind of price was 2013-2014, when WMP was selling above $5,000.00 per metric ton, as was skim milk powder (SMP). Now we have WMP priced below $3,000 and SMP below $2,000.”
    “The $7 is over-priced,” Badger charged, “Plus we’re seeing weaker butterfat prices around the world, so it will be hard to justify that price.”
    She admits that SMP and NFDM stocks have fallen in the Northern Hemisphere but India will be adding more to those from Canada and the large inventories in Europe. Most of India’s product will go to the Middle East and North Africa, she said, and impact U.S. sales to those regions. The U.S. is also being hit from China as we have been shipping larger volumes there but now face a 25 percent tariff on nearly all dairy products exported to China. That, plus our relationship continues to be questionable with Mexico, Badger concluded. Meanwhile, the Trump Administration says it will defend farmers in the tariff-trade war.
    USDA’s Dairy Products report shows May cheese output totaled 1.09 billion pounds, up 1.7 percent from April and 1.4 percent above May 2017. Year-to-date output stands at 5.36 billion pounds, up 2.5 percent from this time a year ago.
    Wisconsin produced 287.5 million pounds of that cheese, up 1.1 percent from April and 0.5 percent above a year ago. California output totaled 216.8 million pounds, up 2.9 percent from April but 1.3 percent below a year ago.
    Idaho provided 77.4 million pounds, down 9.5 percent from April and 2.1 percent below a year ago. Minnesota, at 62.5 million, was up 0.9 percent from April and 0.6 percent below a year ago. New Mexico produced 75.5 million pounds, up 2.3 percent from April and 14.2 percent above a year ago.
    Italian cheese output totaled 457.2 million pounds, up 0.4 percent from April and 1.1 percent above a year ago. Year to date (YTD) Italian is at 2.3 billion pounds, up 2.8 percent from a year ago. Mozzarella, at 356.3 million pounds, was up 1.7 percent, with YTD at 1.78 billion pounds, up 2.8 percent.
    American type cheese production totaled 442.7 million pounds, down 0.1 percent from April and 0.1 percent below a year ago, with YTD at 2.16 billion pounds, up 1.3 percent. Cheddar output, the cheese traded at the CME, totaled 317.5 million pounds, down 0.4 percent from April and 3.0 percent below a year ago, with YTD Cheddar at 1.57 billion pounds, down 1.9 percent.
    U.S. churns produced 167.9 million pounds of butter, down 4.2 percent from April but 2.8 percent above a year ago. YTD output is at 877.5 million pounds, up 4.3 percent.
    California butter output totaled 50.7 million pounds, down 5.2 percent from April but 10.6 percent above a year ago. Pennsylvania, at 8.6 million pounds, was up 0.2 percent from April but 4.3 percent below a year ago.
    Yogurt output amounted to 373.9 million pounds, down 2.9 percent from a year ago, with YTD hitting 1.9 billion pounds, down 3.1 percent.
    Dry whey totaled 85.6 million pounds, up 3.2 percent, with YTD output at 441.3 million pounds, up 6.5 percent. Stocks totaled 78.9 million pounds, up 15.2 percent from April but 7.8 percent below those a year ago.
    Nonfat dry milk production totaled 160.4 million pounds, down 2.1 percent from April and 4.5 percent below a year ago. YTD stands at 821.1 million pounds, up 2.8 percent. Stocks slipped to 271.4 million pounds, down 2 million pounds or 0.7 percent from April and are 8.7 million pounds or 3.1 percent above a year ago.
    Skim milk powder production totaled 50.4 million pounds, up 1.9 percent from April but 1.9 percent below a year ago. YTD skim is at 225.3 million pounds, down 10.2 percent from a year ago.
    Cash markets were mostly lower in the 4th of July holiday shortened week, thanks to the GDT and global trade uncertainty.
    The Cheddar blocks closed Friday at $1.5425 per pound, down 1 1/4-cents on the week and a penny below a year ago. The barrels finished at $1.2450, down 14 1/2-cents on the week, 13 cents below a year ago, lowest CME price since July 30, 2009, and a whopping 29 3/4-cents below the blocks. Only 3 cars of block traded hands on the week at the CME and 35 of barrel.
    Cheese demand is slipping, according to Midwestern producer’s reports to Dairy Market News, and there is concern over the markets. Barrel prices did rebound but “there were noted reverberations felt by cheese sellers after such a swift drop. Buyers are more apprehensive and no one on either side of the buyer seller relationship wants to be on the wrong side of the next market fracas.” Milk supplies in the region have yet to taper and were as low as $5 under Class.
    Some Western manufacturers are cutting output but abundant milk supplies are keeping cheese output active. Trade issues are unsettling the market and the spread between blocks and barrels remains wide.
    DMN also reports that European Union cheese output is up. “In the first four months of 2018, total production increased 2.1 percent. Despite extensive production, the market has been absorbing all the available offers of cheese. Currently, cheese supplies are at lower levels due to a growth in domestic consumption. In addition, export trades have been higher, and sales are taking place at firmer prices. Some reports suggest that the current trade dispute may create even more international sales for EU cheese.”
    Back home, FC Stone blames increased processing capacity for the barrel surplus in the country, “but also ample milk supplies with accelerating increases in milkfat and protein components adding to cheese yields. Now include the prospect of less mozzarella exports. Some plants in the country will be running more barrels in lieu of those mozzarella export orders. Those surplus barrels will ultimately find a buyer at the CME as the market of last resort,” FC Stone warns.
    The bleeding butter price paused Friday at $2.17 per pound, down 9 3/4-cents on the week, lowest CME price since February 22, 2018, and 41 1/2-cents below a year ago, with 22 cars exchanging hands on the week.
    DMN says butter sales have softened according to some producers and cream has been available further into the summer this year than expected but butter makers say they are continuing to pack away supplies for the fall.
    Western butter stocks are heavy and more than enough to meet customer needs. Some processors intend to slow output by selling cream in the spot market.  
    Grade A nonfat dry milk closed Friday at 77 1/4-cents per pound, up 2 1/2-cents on the week but 9 1/2-cents below a year ago, with 7 sales reported for the week.
    Friday’s dry whey closing was at 39 cents per pound, 1 3/4-cents lower on the week, with 3 cars sold at the CME.
    “Nearby dairy margins continued to deteriorate the balance of June, while the deferred margins held a bit steadier,” according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.
    The MW states that “Trade relations between the U.S. and China, as well as the NAFTA partnership, continue to suffer as the early July deadlines for retaliatory tariffs are set to commence on multiple products including cheese and many dairy products, as well as meats and oilseeds. There has not been any reported progress amongst the partners, and it is likely the proposed tariffs will take place. This week President Trump indicated his intentions to reset the NAFTA talks after the U.S. mid-term elections this fall, in line with the new Mexican administration,” according to the MW.
    The latest Crop Progress report shows that 79 percent of the nation’s corn is rated good to excellent, as of the week ending July 1, up from 68 percent that week a year ago. The report shows 71 percent of the soybeans are rated good to excellent, up from 64 percent a year ago. Looking at the cotton crop, 43 percent is rated good to excellent, down from 54 percent a year ago.
    In politics, I share part of a discussion of the new Farm Bill by Geoff Vanden Heuvel, Director of Regulatory and Economic Affairs for California’s Milk Producers Council. He writes in his June 29 member newsletter that the Class I price formula will be changed in both the House and Senate versions.
    “Currently the Class I formula uses the ‘higher of’ either the Class III cheese/whey value or the Class IV butter/powder value to determine the base price every month for determining Class I price levels.”
    “Processors have complained for years that this ‘higher of’ feature makes hedging Class I milk prices very difficult. Some time ago they approached the producers with the suggestion that instead of using the ‘higher of,’ the Class I formula would use the average of those two values. The producers expressed a willingness to consider this if the processors would support raising the Class I price level to offset the loss of the ‘higher of’ feature. It was determined that since the implementation of the ‘higher of’ formula in 2000 this feature added an average of 74 cents to the Class I price.”
    “The processors are willing to support raising the Class I price by 74 cents in exchange for changing the ‘higher of’ to the average and both the Senate and the House Farm Bills order USDA to make this change in the Federal Order Milk Pricing formulas,” according to VandenHeuvel.