Powder and cheese lifted the July 16 Global Dairy Trade auction (GDT), ending four consecutive declines. The weighted average of products offered jumped 2.7%, following a 0.4% loss on July 2, 3.8% on June 18, 3.4% on June 4, and 1.2% on May 21. Sellers brought 55.1 million pounds of product to the market, up from 54.5 million in the last event and the highest since Feb. 19.
    All products traded were in the black, led by skim milk powder, up 3.8%, following a 3.2% rise last time. Whole milk powder was up 3.6%, after holding steady. This was the first positive move in eight auctions. GDT Cheddar was up 3.3%, following three consecutive events of loss, down 1.5% on July 2. Butter and anhydrous milkfat were both up 1.7% following losses of 4.8 and 1.9% respectively.
    FC Stone equated the GDT 80 percent butterfat butter price to $1.9199 per pound U.S., up 3 cents from the July 2 event. CME butter closed Friday at $2.3975. GDT Cheddar cheese equated to $1.7548 per pound, up 5.1 cents from the last event and compares to Friday’s CME’s block Cheddar at $1.78. GDT skim milk powder averaged $1.1365 per pound, and compares to $1.1020 last time. Whole milk powder averaged $1.3944, up from $1.3465. CME Grade A nonfat dry milk closed Friday at $1.0075 per pound.
    FC Stone adds “While mounting concerns over fresh milk supply could be a factor, today it seems more of a U.S. issue. We can mount questions around supply of milk in Europe this summer or New Zealand this fall, but that doesn’t seem to be a driving factor at the moment. Instead, we surmise that the demand side of the equation, perhaps stemming from Asian protein replacement demand as continued Swine Flu issues mount, is a larger issue today.”
    U.S. dairy exports set a record in 2018, with volume reaching 15.8% of U.S. milk solids production, well above the five-year average of 14.7%. But the U.S. Dairy Export Council (USDEC) estimates exports might have reached 17%, had retaliatory tariffs not been in place. USDEC’s goal is 20% of solids production.
    “Fortunately, the U.S. and Mexico have lifted their retaliatory tariffs, paving the way for Congress to ratify the U.S.-Mexico-Canada Agreement (USMCA), a high priority for the U.S. dairy industry and all of U.S. agriculture,” says USDEC. “While talks between China and the United States are continuing, we are less than optimistic that we will see Chinese tariffs lift soon. Tariffs as high as 45% on U.S. dairy products and ingredients are having a negative effect.”
    “Since the tariffs were enacted last July, the volume of combined U.S. dairy exports to China has dropped 43% compared to the same period of time before tariffs went into effect,” according to the USDEC.
    The U.S. market however is chugging along irrespective of the tariffs and FC Stone’s Dave Kurzawski said in the July 22 Dairy Radio Now broadcast that “The bigger story is the domestic bull market that is emerging for all dairy products.” He adds that “the roots are in languishing U.S. milk production,” which he blamed on the previous years of poor dairy prices and farms exiting the business.
    “The U.S. market is trading on its own accord,” Kurzawski explained, and while he admits we want to look at exports and we know exports are important to the U.S. dairy industry long term, “the short term scenario is, it doesn’t matter what the butterfat price in Europe is doing, the U.S. butterfat price is going to do its own thing, as will U.S. cheese. The U.S., market is focused on the other 85% of the business, the domestic market.”
    He admits some regions of the country are doing fine in milk output but rising temperatures could change that, plus “there’s lots of buyers for milk in the Midwest, they’re competing for that milk, and that’s going to continue for the next at least six months,” he concluded.
    Cooperatives Working Together (CWT) member cooperatives accepted 21 offers of export assistance from CWT this week to help capture sales of 3 million pounds of Cheddar, 35,274 pounds of anhydrous milkfat, 108,027 pounds of cream cheese and 2.585 million pounds of whole milk powder.
    The products will go to customers in Asia, Central and South America, the Middle East, and North Africa, now through December and raised CWT’s 2019 exports to 33.99 million pounds of American-type and Swiss cheeses, 189,598 pounds of anhydrous milkfat, 4.21 million pounds of butter (82% milkfat), 3.25 million pounds of cream cheese and 35.36 million pounds of whole milk powder. They will go to 26 countries and are the milk equivalent of 697.2 million pounds of milk on a milkfat basis, according to CWT.
    Mid-July CME block Cheddar closed the week at $1.78 per pound, down a half-cent on the week and third consecutive week of decline, but is 26 cents above a year ago. The barrels saw a Friday close at $1.7050, down 3 1/2-cents, but 43 1/2-cents above a year ago when they fell 15 1/4-cents, and are 7 1/2-cents below the blocks. 28 cars of barrel was the only cheese sold on the week.
    CME traders were anticipating Friday afternoon’s Cattle Report plus Monday’s June Milk Production and Cold Storage reports. Dairy Market News reported that a growing number of Midwest cheese producers are concerned about farm milk availability.
    Offers are down due to the heat as farmers report in some cases, dramatic milk-per-cow output declines however some cheesemakers are still finding discounted spot milk. Prices ranged from $1.25 under to 75 cents over Class. Cheesemakers are concerned about more 90 plus degree temperatures in the upper Midwest. Cheese sales reports have been mostly positive. Specialty cheesemakers continue to prepare for fall demand increases, while pizza cheese and curd producers suggest retail/food service demand remains healthy. Cheese production has slipped overall, but remains mostly steady.
    Western cheesemakers report plenty of milk is available and production is active. And, while the perception of demand may not be all that was hoped for, it is enough to keep inventories in check and buyers say they do not have trouble getting the cheese they need. Grilling season has been ongoing, but with hotter weather, consumers may take their eating experiences indoors until the football seasons kick off, the next big push for cheese consumption. Food service demand is good, but not great. Retail demand is steady, but not extraordinary. Exports have perked up with lower U.S. prices and export assistance programs.
    Cash butter finished Friday at $2.3975, down 1 1/2-cents on the week but 14 3/4-cents above a year ago, on a hefty 51 sales for the week.
    Some Midwestern butter plants scheduled downtime for maintenance this week. This is timely, says DMN, “as cream multiples on the spot market have become fiscally beyond their reach. Ice cream production increases have naturally merged with the increasing temperatures, which have begun to noticeably affect farm milk output. These two factors are undoubtedly prompting butter makers to relay a tightness on cream markets, and they expect it to remain so.”
    Western butter markets are mixed. Retail sales are variable from one manufacturer to another. While some commercial demands are sluggish, others are good. Butter output has slowed because more cream is moving to ice cream and other Class II production and a number of butter makers have stopped producing butter altogether, opting to sell their cream. Worldwide, butterfat is available at more affordable prices compared to the U.S. Spot loads are becoming tighter. Sources say numerous butter buyers are anxious about a possible upsurge in prices and are insuring coverages for future weeks.  
    Grade A nonfat dry milk ended the week at $1.0075 per pound, down 2 cents and the lowest CME price since April 22, but is still 22 1/4-cents above a year ago. 3 cars found new homes on the week.
    Cash dry whey closed Friday at 34 cents per pound, up 1 3/4-cents on the week but 8 cents below a year ago. 5 cars traded places on the week at the CME.
    The Agriculture Department’s monthly Livestock, Dairy, and Poultry Outlook, issued July 17, mirrored milk price and production projections in the July 11 World Agricultural Supply and Demand Estimates report.
    The Outlook also stated “Based on May data, the forecast for the size of the milking herd for 2019 has been raised 5,000 head to 9.34 million. Based on recent milk yields, higher expected milk cow numbers, and higher feed price forecasts, the milk per cow forecast for the year has been lowered 10 pounds to 23,365. The overall milk production forecast for 2019 is 218.2 billion pounds, unchanged from last month’s forecast.”
    “The forecast for the size of the milking herd in 2020 was unchanged at 9.355 million head. However, recent yield data and relatively high expected feed prices have motivated a slight decrease in forecasted yield per cow to 23,710 pounds.”    The Agriculture Department announced the August Federal order Class I base milk price at $17.89 per hundredweight, up 71 cents from July, $3.74 above August 2018, and the highest Class I price since January 2015’s $18.58.
    It equates to $1.54 per gallon, up from $1.22 a year ago. The Class I average stands at $16.34, up from $14.54 a year ago and 3 cents shy of 2017’s average.
    Meanwhile, dairy margins were flat to slightly weaker over the first half of July as lower milk prices and a decline in projected feed costs largely offset one another, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.
    The MW stated “The milk market has been supported through June by strength in the cash cheese market; however, a recent correction in cash blocks and barrels at the CME has caused Class III futures to correct in early July.”
    “Concern is growing that high prices may begin to discourage dairy product demand at the same time producers are incentivized to increase milk production. The forward curve would appear to reflect this thinking as Class III prices in early 2020 are trading at more than a dollar discount to fall values. USDA released the July WASDE report which updated estimates for milk production as well as dairy product imports and exports,” much of which I reported here last week.
    The MW added that “Lower feed demand from China due to the African Swine Fever outbreak has been a major drag on whey exports this year, and that trend is expected to continue into 2020.”
    The USDA’s latest Crop Progress report shows 17% of U.S. corn is silking, as of the week ending July 14, up from 8% the previous week but 42% below a year ago and 25% behind the five year average. 58% of the crop is rated good to excellent, down from 72% a year ago.
    95% of U.S. soybeans are emerged, up from 90% the previous week and 5% behind a year ago, and 4% below the five year average. 54% are rated good to excellent, down from 69% a year ago.
    56% of the cotton crop is rated good to excellent, up from 41% a year ago.
    The June Consumer Price Index (CPI) for the all food category was 258.1, up 1.9% from 2018. The dairy products index is 217.4, up 0.6%. Fresh whole milk was up 2.7%, cheese was down 1.2%, and butter was up 0.8%.
    In politics; the National Milk Producers Federation marked the one-year anniversary this week of then-FDA Commissioner Scott Gottlieb’s famous observation that “almonds don’t lactate” by reminding the agency “it still has not resolved the issue and that citizens who heeded its call for comments with thoughtful responses deserve answers.”
    “An almond doesn’t lactate, I must confess,” Gottlieb said last July 17, admitting that FDA has been lax in enforcing its own rules on the use of dairy terms on products containing no dairy ingredients. “Have we been enforcing our standard of identity? The answer is, probably not,” he said, while pledging agency action in “something close to a year.”
    “FDA’s longstanding inaction on enforcing its own standards of identity is perpetuating the marketing of products using milk and dairy terms when those products don’t match the nutritional content of the dairy products they are imitating,” said Jim Mulhern, NMPF president and CEO.
    “Dairy farmers have never called for bans on fake-food competitors, nor have they called for market censorship. They do want the FDA to enforce its own rules defining what a product is and what it isn’t, in keeping with similar standards enforced in other countries around the globe. The clock is still ticking. We are not going away,” Mulhern concluded.