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Hurricane Harvey likely to result in higher gas prices
Hurricane Harvey stole the headlines during the last week of August. Our thoughts and prayers are with those directly affected, but it likely will result in higher gasoline prices for the rest of us in the country.
FC Stone’s Dave Kurzawski wrote in his Aug. 30 Early Morning Update, “So far it appears any impact on the dairy markets as a result of  the storms of Harvey are very limited and those we’ve spoken with in Texas on the production side are far away from the flooding issues.” But, a storm of sorts still hit the dairy industry in the form of falling prices, cheese in particular.

The good news is that the August Federal order Class III benchmark milk price was announced by the USDA at $16.57 per cwt., up $1.12 from July but is 34 cents below August 2016. It is the highest Class III price since February 2017 and equates to $1.42 per gallon, up from $1.33 in July. The eight-month average stands at $16.09, up from  $14.13 at this time a year ago, $16.07 in2015, and $22.49 in 2014.

Class III futures late morning on Sept. 1 portended a September price of $16.11; October, $16.23; November, $16.08; and December at $15.96. That would result in a 2017 average of $16.09, up from $14.87 in 2016 and $15.80 in 2015 The August Class IV price is $16.61, up a penny from July, $1.96 above a year ago, and the highest Class IV price since November 2015 The Class IV average is now at $15.46, up from $13.57 a year ago and $13.53 in 2015.

California’s comparable Class 4b cheese milk price is $16.26, up 97 cents from July and the highest since December 2016, but is 8 cents below a year ago and 30 cents below the Federal order Class III price. Its eight month average is at $15.28, up from $13.44 a year ago,

$14.58 in 2015, and $20.30 in 2014. The 4a butter-powder price is $16.68, up 27 cents from July and the highest 4a since November 2014, $2.69 above a year ago. It’s eight month average, at $15.27, is up from $13.22 a year ago 
and $13.38 in 2015.

Western United Dairymen’s Annie AcMoody points out that, in Federal Milk Marketing Orders, the Class III price is based on blocks and barrels.

In California, the price of barrels does not have an impact on the price cheese manufacturers pay for milk. When block prices are so much higher, it increases the price of cheese milk higher than what barrel producers can get on the market.

Dairy prices dropped

Dairy prices dropped the last week of August as traders weighed the heavy stocks and anticipated the Labor Day holiday. The block Cheddar closed Sept. 1 at $1.54 per pound, down 11 cents on the week after losing 10.5 cents the previous week, 14 cents below a year ago, and 24.75 cents below the Aug. 1 level.

The barrels closed at $1.52, down 3.75 cents, 12 cents below a year ago and down 14 cents on the month. Twenty cars of block traded hands on the week at the CME and 21 of barrel.

The lower prices and weakening dollar lead many to believe exports should be multiplying. Dairy Market News says milk 
is “fairly available for cheese processing in the Midwest,” and spot milk prices are at $1 under to $1 over Class.

Processors report pre-holiday spot milk availability, which is expected to reduce following the long weekend but cheese orders are mixed. Contacts expect with current market prices experiencing down trends, some buyers are waiting for further declines. The optimism of the markets has diminished. Even with shifts in production and fairly bullish demand, contacts suggest market prices will be negatively affected by the current inventory levels of barrel cheese.

Western cheese producers are not having trouble finding milk and cheese output is robust. Cheese demand is mixed and inventories are building slightly. With school startups and the unofficial end of summer at hand,

Consumer grilling demand is slowing, but cut and wrap demand is solid. Contacts suggest some requests for mozzarella and other pizza cheeses have yet to develop, leading some to speculate that end users bought supplies earlier in the summer.

FC Stone’s Dave Kurzawski said, “It continues to be the case that we have an adequate to heavy supply of milk in many regions of the U.S. except for arguably California. Producers have been  ncentivized to expand following the aftermath of the 2013-2014 bull market. Many parts of the country are struggling with an oversupply of milk currently as processing capacity has not kept pace.”

Cash butter was also caught in the downdraft, closing Friday at $2.5075 per pound, lowest since June 9. That’s down 12 cents on the week, 45.75 cents above a year ago, and down 17.5 cents on the month but the cheapest butter on the planet. Twenty eight cars exchanged hands on the week.

Butter demand reports continue to be positive, says DMN. Central producers are reporting more interest in unsalted butter, as global prices are markedly higher than domestic rates. Butter production remains active and the market tone has been fairly steady. Even so, contacts who thought the $3 CME market price was a near term possibility have tempered their expectations. Domestic demand is strong while imports are lower. As a result, inventories are firming in some areas but remain in good balance in other areas, according to DMN.

Grade A nonfat dry milk saw little change, closing Sept. 1 at 86.25 cents per pound, up 1.75 cents but three-quarter cents below a year ago on seven sales. FC Stone said, “We are still sitting on large (powder) stocks domestically and in the EU which is keeping the market in check. Mexico inquiries are picking up slightly, although competition in the export markets is fierce. Domestically there may be more milk than normal seasonally heading to the dryers as there’s plenty of milk floating around and cheese plants are full.”

Dairy exports future?

President Trump could trip up U.S. dairy exports, according Matt Gould, editor and analyst with the Dairy and Food Market Analyst Newsletter. Speaking on the August 28 Dairy Radio Now, Gould referenced Trump’s threat to pull the U.S. out of the North American Free Trade Agreement (NAFTA), a trade agreement that Gould said is “an extremely important agreement for the U.S. dairy industry.”

“About a third of our milk powder exports go to NAFTA countries, Mexico and Canada,” he said, “while smaller percentages of other products end up there.”

When asked if ending NAFTA would halt U.S. dairy exports to those countries, Gould said he couldn’t predict how that would unfold but “It certainly would produce disruption as those countries may seek other countries to supply their needs.” He emphasized that, whether U.S. exports are terminated or slowed,

“It would be troublesome and that why it’s an issue to watch.”
He added that, while the U.S. is renegotiating NAFTA, the other dairying regions of the world are negotiating new agreements. Europe just announced a trade agreement with Japan, he said, and New Zealand is pushing forward with the Trans Pacific Partnership and “What happens in these trade agreements is that it opens market access and demand possibilities in other parts of the world.”

Cooperatives Working Together (CWT) accepted seven requests for export assistance this week from a member cooperative to sell 487,222 pounds of cheese to customers in Asia, the Middle East and Oceania.

Higher corn and soybean prices and steady All-Milk price reversed last month’s upturn in the milk feed price ratio. The July ratio is 2.29, down from a revised 2.31 in June but up from 2.16 in July 2016, according to the USDA’s latest Ag Prices report.

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 2.29 pounds of dairy feed containing that blend.

The U.S. average All-Milk price remained at $17.30 per hundredweight (cwt.), unchanged from June but $1.20 above July 2016.

Prices ranged from a low of $16 in Michigan to $22 in Florida. California’s $16.65 was up a dime from June, $1.71 above a year ago, and 45 cents below Wisconsin’s. America’s Dairyland averaged $17.10, down 80 cents from June but 40 cents above a year ago.

July corn averaged $3.49 per bushel, up 6 cents from June but 11 cents per bushel below July 2016. Soybeans averaged $9.42 per bushel, up 32 cents from June and $78 cents per bushel below July 2016. Alfalfa hay averaged $152 per ton, down $2 per ton from June but $14 per ton above July 2016.

Looking at the cow side of the ledger; the report shows the July cull price for beef and dairy combined averaged $77.30 per cwt., up 80 cents from June but $4.20 per cwt. below July 2016, and $5.70 above the 2011 base average of $71.60.

Prices received for milk cows in July averaged $1,620.00 per head, down $20 from April and $110.00 below July 2016. Wisconsin averaged $1650 per head, down $60 from April and $170 below July 2016. The California average, at $1,600 per head, was unchanged from April but $100 below July 2016.

Corn yields down

Season ending rains are benefiting crops, according to FC Stone’s Ryan Cox in the Aug. 28 Early Morning Update. He adds that the ProFarmer (PF) crop tour estimated corn yields at 167.1 bushels per acre versus USDA’s August number of 169.5. Cox says “The past two years PF was an average of 4.25 bushels per acre below the USDA’s final number, hence the name ‘Pro’ Farmer. They are estimating soybean yields at 48.5 versus USDA’s August number of 49.4 yield.”

Iowa estimates showed 179.8 corn yields versus 188.2 yields last year. Minnesota corn yield estimates were 191.5 versus 188.2 last year. “If PF is accurate in their estimates, then the board prices for corn likely have little downside risk,” he said. USDA’s Crop Progress report shows 62 percent of U.S. corn was rated good to excellent, the week ending August 27, unchanged from the previous two weeks but down from 75 percent in 2016.

Sixty-one percent of the soybeans were rated good to excellent, up from 60 percent the previous week and down from 73 percent a year ago. Sixty-five percent of the cotton was good to excellent, up from 63 percent the previous week but compares to only 48 percent a year ago.

Margin Protection Program Dairy farmers will be allowed to opt out of the Margin Protection Program (MPP) in 2018. The National Milk Producers Federation (NMPF) praised the announcement, stating that in its current form the MPP “has been a disappointment to many dairy farmers” and “is why NMPF has been working with the USDA and Congress to make significant improvements to the program.”

“Simply put, the way the program was enacted in the 2014 Farm Bill, it does not meet the needs of America’s dairy farmers today, and declining participation levels amply illustrate farmers’ disenchantment with the MPP, NMPF stated. Farmers who choose to opt out of the MPP will then be able to enroll in the Livestock Gross Margin program for 2018.

“Looking ahead,” NMPF said “Congress must make more resources available to the MPP, so that the program provides a more effective, affordable safety net, one that provides support when farmers need it. We are currently working with lawmakers to secure program improvements that will restore farmers’ faith in the value of the MPP. We also will continue to work with USDA and Congress to develop additional risk management options for dairy producers.”

NMPF also called on the USDA to “ensure that consumers receive clear, accurate information about the foods they eat,” as it prepares to develop a regulatory standard for the labeling of bioengineered food ingredients. In comments filed with USDA’s Agriculture Marketing Service, NMPF said it supports a “strict, science-based approach in determining how foods made using bioengineering should be regulated.”