Welcome to 2019. As of midnight Dec. 21 a partial shutdown of the government went into effect due to the failure of a House-passed continuing resolution in the Senate. At issue is President Trump’s insistence of funding a border wall with Mexico.

The Agriculture Department announced a contingency plan for its services. It will continue to publish its weekly National Dairy Products Sales Report but will not produce the monthly NASS Milk Production, Cold Storage, or Dairy Products reports. Monthly milk price announcements will also continue.

The first casualty on the dairy side was the Dec. 27 Ag Prices report, which would have included the latest Milk Feed Price Ratio. By the way; the last time a shutdown impacted dairy programs was October 2013.

There has been a lot of media reports of the heavy stocks of cheese in the U.S. and volumes are the highest they have been in 15 to 20 years but is the situation as bad as it sounds?

The answer gets a bit complicated because it’s hard to compare the present to the past due to the “olden days” when Uncle Sam’s Price Support program was purchasing cheese and storing it.

 Analyst Jerry Dryer also points out that the cheese market has grown and there is a lot more cheese in aging programs today, such as sharp Cheddar, plus other varieties that used to be imported but are now being produced here.

The Dec. 27 Daily Dairy Report says that while U.S. milk production so far is up 1 percent from 2017, cheese output through October exceeded 2017s record-breaking volume by 2.5 percent.

The DDR adds, “Even as milk production has topped year-ago volumes by ever narrowing margins, the rate of growth in U.S. cheese output has not slowed. Compared to the same month in 2017, U.S. cheese production is up 3 percent in July, 3.1 percent in August, 2.9 percent in September, and 3 percent in October.”

Another factor the DDR points out is that “While convincingly higher Class IV prices would argue that milk should be directed to butter and powder rather than cheese and whey, most processors don’t have either the flexibility or the incentive to move milk that way.” The bottom line is that the U.S. is producing more than it’s consuming and until exports resume milk prices are going to suffer.

FC Stone’s Dave Kurzawski stated in the Dec. 31 Dairy Radio Now broadcast that he’s happy to put 2018 to bed and hopes 2019 to be a better year. He believes the biggest long term risk we currently face is the ongoing trade talks with China. Leaders are expected to meet again the week of Jan. 7.

 If the trade talks go south, Kurzawski sees escalating tariffs ahead but if they are productive, “That will shape perceptions by fund managers and market participants in all commodities, including dairy, for what kind of price movements we can face in 2019.”

He expects better demand to resume as it was in the early part of 2018 when it was better than expected, but then came the tariff wars. “The economy is strong,” Kurzawski said, “although we’re currently in a corrective mode in the stock market but overall, the underlying fundamentals are there and to some degree inflationary, but is somewhat supportive of dairy prices and producers out there can certainly use some better prices and some better margins as we enter 2019.”

He warned that we posted a lot of production, particularly on cheese, and our biggest trading partner on that front, Mexico, slowed purchases in the second part of this year. But Kurzawski is encouraged by the drawdown we have seen on nonfat dry milk powder the past six to eight months and he believes the market is starting to pay attention to that as the powder market and Class IV market in general has been getting some lift because “we’re moving through inventory and we might start seeing it on cheese in the first half of 2019.”

Meanwhile; Penn State’s monthly Dairy Outlook reported that projected feed costs remain a mixed message. “Nationally, the price of corn, alfalfa hay, and soybean meal declined in the second half of 2018.”

“Pennsylvania has seen a similar decline in soybean meal and for the most part, corn grain. Alfalfa hay average prices for Pennsylvania markets increased in August, September, and October primarily due to inventory issues driven by weather adversity.”

The Outlook warned that “These localized issues will probably continue into the first half of 2019. Overall feed costs in 2019 will likely be static, but have the potential to increase, driving milk margins even tighter. Due to the persistent precipitation through the second half of 2018, forage nutrient content and quality issues (mold growth, abnormal fermentation) are concerns on many of Pennsylvania's dairy farms.”

CME Cheddar block cheese closed the last Friday of 2018 at $1.43 per pound, up 4 cents on the Christmas holiday shortened week but 11 cents below a year ago, as traders anticipated the first Global Dairy Trade auction of 2019 on January 2. The barrels finished Friday at $1.29 per pound, down a half-cent on the week, 15 1/4-cents below a year ago, and 14 cents below the blocks. 5 cars of block traded hands on the week at the CME and 18 of barrel.

Cheese production was somewhat busy during the holiday week, reports Dairy Market News. Plant managers reported that holiday-priced milk was flowing in, from flat to $4 under Class. Cheese demand has met expectations in general, within the Midwest. Some plants report current stocks are minimal while others relay shifting production away from slower selling varieties. Some Midwestern contacts are concerned about the number of dairy farms closing after feed rations dry up, particularly the more remote and or rural cheese operations with milk supplies coming from smaller, nearby dairy farms. Cheese markets have regained some of the momentum they lost during the fall but current market tones are “less-than-bullish as stocks outweigh demand, nationally,” DMN warned.

Lastly, the United States has rightfully earned its place among the best cheese-making countries of the world. U.S. cheesemakers won 89 medals in a recent prestigious international competition. U.S. cheeses ranked third overall in total medal counts since 2011, only behind Spain and the UK and ahead of better known cheese-making countries like France and Italy.

The 2018 edition of the World Cheese Awards was held in November in Bergen, Norway where a record-breaking 3,500 cheeses from six continents were entered. An international panel of 230 experts from 29 nations ranked U.S. cheeses among the best in the world, according the U.S. Dairy Export Council.

Now, if we can only clear the way for global trade to be free and fair, badly needed dollars can go into the pockets of the hard working dairy farmers that make that cheese possible. May that be reality in 2019.

The views and opinions expressed in this column are those of the author and not necessarily those of Farm World. Readers with questions or comments for Lee Mielke may write to him in care of this publication.