U.S. milk prices are beginning a slow rebound but have a long way back to profitability. The Agriculture Department announced the January Federal order (FO) Class III benchmark price at $13.96 per hundredweight (cwt.), up 18 cents from December but 4 cents below January 2018. It equates to $1.20 per gallon, up from $1.18 in December and compares to $1.20 a year ago.
    The January Class IV price is $15.48, up 39 cents from December, $2.35 above a year ago, and the highest Class IV price since September 2017.
    California, now a federal order, saw its January 4b cheese milk price at $13.37 a year ago and that was 63 cents per cwt. below the FO Class III.
    A drop in the U.S. All Milk price average could not be offset by some lower prices on feed and thus pulled the November milk feed price ratio down after three months of advances. The Agriculture Department’s latest Ag Prices report shows the November ratio at 2.18, down from 2.20 in October and down from 2.54 in November 2017.
    The index is based on the current milk price in relationship to feed prices for a dairy ration consisting of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. In other words, one pound of milk today purchases 2.18 pounds of dairy feed containing that blend.
    The U.S. All-Milk price averaged $17.00 per cwt., down 40 cents from October and $1.20 below November 2017. New Mexico again had the low at $15.30, followed by Kansas at $16.00. California, at $16.44, was down 2 cents from October; and Wisconsin was at $16.90, down 70 cents from October.
    The national average corn price averaged $3.41 per bushel, unchanged from October but 26 cents per bushel above November 2017. Soybeans averaged $8.37 per bushel, down 21 cents from October and 85 cents per bushel below a year ago. Alfalfa hay averaged $178 per ton, down $3 from October but $25 per ton above a year ago.
    Looking at the cow side of the ledger; the November cull price for beef and dairy combined averaged $52.70 per cwt., down $5.10 from October, $10.70 below November 2017, and $18.90 below the 2011 base average of $71.60 per cwt.
    Cheese and butter started February with some strengthening. Block Cheddar closed Feb. 1 at $1.50 per pound, highest CME price since October 30, 2018, up 11 cents on the week, reversing four weeks of decline, up 8 1/4-cents on the month and 3 3/4-cents above a year ago. The barrels finished at $1.30, up 18 cents on the week, a quarter-cent lower on the month, 2 1/2-cents below a year ago, and 20 cents below the blocks. 14 cars of block traded hands on the week, 29 on the month. 28 cars of barrel traded on the week, 82 on the month.
    The Daily Dairy Report’s Sarina Sharp wrote in the Jan. 25 Milk Producers Council newsletter that “U.S. cheese is a bargain. Despite punitive tariffs, U.S. cheese continues to move to Mexico in large volumes. According to Mexican Customs data, our southern neighbor imported 4 percent more cheese in 2018 than in 2017, and the U.S. accounted for 75 percent of the total, up from a 72 percent share in 2017 and a 67 percent stake in 2016.”
    “The U.S. Dairy Export Council (USDEC) notes that the figures could have been better. In the absence of the steel and aluminum tariffs, USDEC’s representative in Mexico estimates that Mexican cheese imports would have climbed 10 to 12 percent from 2017, and that the U.S. could have improved its marketshare further. Recently, foreign buyers including Mexico have had opportunity to purchase U.S. cheese at better prices than those that contributed to last year’s growth, and U.S. cheese exports are likely to rise accordingly,” Sharp said.
    Back home, a number of Midwestern cheese producers report slightly higher demand when compared to recent weeks, according to Dairy Market News. Super Bowl, along with upcoming basketball playoffs, have proven positive for mozzarella and provolone producers in the region. Some cheesemakers saw more spot milk available this week and loads ranged from $2.75 under to 50 cents over Class III. “That said, the impact of current Siberian-like cold weather have some cheese plant managers expecting fewer discounts near term.”
    Western cheese output remains at or near full capacity. Inventories are reported to be long, “but there seems to be a consensus that this may be a new norm.”Market participants are eager to get updated statistics on cheese production and inventories. They expect large cheese stocks in the warehouse, but are not sure how large and at what point inventories become burdensome. The USDA is rescheduling its missed reports from the government shutdown however the missing December Cold Storage report was not yet listed at our deadline.
    Storage numbers are only part of the story, according to some contacts who report that “manufacturers are placing a bit more cheese into aging programs to extract greater value out of the cheese and deal with available milk. The action may move stock numbers higher, but it better meets consumer demand trends,” says DMN. Cheese makers say domestic demand has been steady and the lower CME cheese prices have generated some interest in export markets.
    DMN cautions; “Developing new export business is challenging when foreign buyers expect heavy inventories to automatically mean lower prices. With increasing CME prices, a few expect more resistance to U.S. cheese offers.”
    Cash butter climbed to $2.2925 per pound Wednesday, highest CME price since November 2, 2018. It closed Friday at $2.29, up 4 1/2-cents on the week, 7 1/4-cents above its January 2 perch, and 17 1/2-cents above a year ago. Fifteen cars traded hands on the week at the CME and 34 on the month.
    Cream remains abundant for Central butter producers who expect similar availability to last through February, according to DMN. Butter sales are a little lower than expected in some cases, but somewhat steady overall.
    Western butter inventories remain abundant while prices are higher compared to last year, says DMN. “Contacts believe the increased costs of managing inventories could be a contributing factor for the high value of butter.” They also report that “last year’s holiday sales haven’t been as robust compared to previous years. In addition, with easily accessible cream, butter output continues to be strong, adding to the pile of post-holiday stocks. Nevertheless, some butter vendors are reporting solid first quarter sales to the point where their sales are almost above current production levels. U.S. butter prices are competitive in the global market, so sellers hope that export demand will react to the prices.”
    Cash Grade A nonfat dry milk closed Friday at $1.0025 per pound, down a penny on the week, up 5 1/4-cents on the month, and 28 cents above a year ago, with 5 cars finding new homes on the week and 49 in the month of January.
    Dry whey continued to weaken, closing at 36 1/4-cents per pound, down 4 1/4-cents on the week, lowest price since May 23, 2018, on 19 sales reported.
    U.S. fluid milk sales, while not increasing, are at least not falling as much as they have been. USDA data shows November sales at 4.1 billion pounds, down just 0.1 percent from November 2018 and follows a 0.3 percent decline in October.
    Conventional product sales totaled 3.9 billion pounds, virtually unchanged from a year ago; organic products, at 218 million pounds, were down 1.8 percent and represented about 5.3 percent of total sales for the month.        
    Whole milk sales totaled 1.3 billion pounds, up 3.3 percent from a year ago, up 1.7 percent year to date, and made up 31.7 percent of total fluid sales in the month and 31.8 percent for the year so far.
    Skim milk sales, at 308 million pounds, were down 8.0 percent from November 2017, down 9.7 percent year to date, and made up just 7.9 percent of total milk sales for the year so far.
    Total packaged fluid milk sales in the 11 month period climbed to 43.0 billion pounds, down 2.0 percent from the same period a year ago. Conventional products year to date totaled 40.7 billion pounds, down 2.2 percent; organic products, at 2.4 billion pounds, were up 0.5 percent. Organic represented about 5.5 percent of total fluid milk sales January through November.
    The figures represent consumption of fluid milk products in Federal milk order marketing areas and California, which account for approximately 92 percent of total fluid milk sales in the U.S. Many in the dairy industry blame increased plant-based beverage consumption for exacerbating falling milk consumption.
    Getting back to the export market; the USDEC’s latest Dairy Outlook looks positive for 2019. Alan Levitt, vice president of communications and market analysis reported in the Feb. 4 Dairy Radio Now broadcast; “We start 2019 with some optimism but we face headwinds through the first half of the year.”
    Previous years always had concerns over the milk supply growth and intervention stocks, he said, and “that put us in a buyer’s market and kept a lid on global prices, but we start 2019 with much lower milk production growth from the major suppliers so less exportable surplus and we don’t have intervention stocks”
    Levitt said milk production growth from the top five milk suppliers is expected to be flat in the fourth quarter, maybe down as much as 1 percent in the first quarter of this year, and possibly close to flat for the full year “so that provides a different vive for trading sentiment in 2019, something we haven’t seen in a few years.”
    But he cautioned; “That doesn’t mean a crazy rally right away, in fact the first half of the year it doesn’t look like there’ll be much price movement or strengthening but we’re finally moving toward a better balance.” He adds that “Just because intervention stocks have been drawn down, it doesn’t mean they’ve been consumed, they’ve just moved further down in the pipeline so at some point, all of that has to be used up.”
    Levitt looks for a record milk production season in New Zealand “so they’ll have plenty to export” and, while it was 20 degrees below zero in the Central U.S. as we spoke, “in a few months we will be in the spring flush in the northern hemisphere so we’ll have more supply coming on and buyers are aware of that.” He says things may be a little tighter by the second half of the year and prices may improve.
    The elephant in the room is still the tariff wars and that has to be resolved. Though China has made some overtures to resolve differences, Levitt said the U.S. has lost marketshare in China to Europe and others suppliers though he says “We’re holding our own on cheese exports to Mexico.” He added that we face a new trade agreement between Japan and the EU that started Feb. 1.
    A study by the USDEC projects that new trade agreements between Japan and other countries will put U.S. dairy exports at a competitive disadvantage, resulting in lost U.S. sales of $5.4 billion over 21 years.
    “The Japanese dairy market, the fourth-largest export destination for U.S. dairy exports, is expected to continue to grow in years to come,” says USDEC. “With a level playing field, the U.S. could roughly double its market share, according to the study, which was conducted by Tokyo-based Meros Consulting. However, without swift and effective action by the U.S. to secure a strong trade treaty with Japan that exceeds Japan’s agreements with Australia, New Zealand and the EU, the U.S. could see its market share drop in half over the next decade.”
    In other trade news; Cooperatives Working Together accepted 17 offers of export assistance this week to help members capture sales of 4.3 million pounds of cheese; 169,756 pounds of butter and 1.1 million pounds of whole milk powder. The sales are to customers in Asia, Central America, the Middle East, Oceania and South America and will be delivered now through July.
    CWT’s 2019 sales total 11.7 million pounds of American-type cheeses, 707,684 pounds of butter (82 percent milkfat), and 2.249 million pounds of whole milk powder to 16 countries. They are the equivalent of 140.6 million pounds of milk on a milkfat basis, according to the CWT.
    In politics; new legislation that might aid fluid consumption drew praise this week from the National Milk Producers Federation (NMPF) and the International Dairy Foods Association (IDFA). “The Whole Milk for Healthy Kids Act of 2019” (H.R. 832)  would allow whole milk in school nutrition programs and “reflects research showing that such products benefit children and gives school administrators one more tool with which to develop healthy eating habits.”
    “Whole milk provides yet another way for children to receive dairy’s nutritional benefits as part of a healthy eating pattern,” said NMPF’s Jim Mulhern. “This bill encourages the proper nutrition they need to lead healthy lives.”
    Meanwhile; the government’s reopening for three weeks after the 35-day partial shutdown prompted NMPF to call on Agriculture Secretary Sonny Perdue to quickly implement the 2018 Farm Bill’s dairy provisions which were delayed.
    “Dairy farmers just completed a fourth consecutive year of depressed milk prices and are facing an uncertain outlook for 2019,” wrote NMPF’s Jim Mulhern. “We believe that the significant dairy policy reforms we worked successfully with Congress to enact in the new farm bill will be critically important to helping farmers better manage difficult periods of low margins.” He said that dairy programs should be fast-tracked because of the nature of farm bill reforms.