Block cheddar closed August 3 at $1.5875 per pound, up 6-3/4 cents on the week and the highest since June 18, but 11 cents below a year ago. The barrels finished at $1.475, down 4-1/2 cents, 5-1/2 cents below a year ago, and 11-1/4 cents below the blocks, with three cars of block sold on the week and 52 of barrel.

FCStone’s Dave Kurzawski wrote in his August 2 Early Morning Update: “The relationship between blocks and barrels has been exacerbated by trade wars, as less cheese exports means more surplus milk will move into barrel production that will have to find a home domestically.”

He talked about the reasons for the block/barrel relationship in the August 6 Dairy Radio Now broadcast, especially on other export destinations for U.S. dairy products that might help offset losses to Mexico and China.

His first point was that the United States will not likely lose 100 percent of its trade with either country. If we lose, say, 20 percent of our sales with Mexico, for example, and if other countries increased their purchases by 6 percent, we would offset that loss.

“I think we can certainly do that out of Southeast Asia, Indonesia, Vietnam, even Japan potentially, maybe the Middle East,” Kurzawski concluded. “It’s not an insurmountable number. It is a number that remains to be seen. We don’t know if that’s going to be the case, to fully offset it.

“I think it will be responsive to price, so if the U.S. can maintain a little bit of discount to the world prices going forward, I think we have a seat at the table to move product globally in a bigger way.”

Dairy Market News reports that some Midwest specialty cheese producers plan to cut production by a day per week during their slower period, while pizza cheese-makers are gearing up for heavier sales as schools and colleges prepare to open their doors, and football season draws near. Cheese producers are “slightly anxious, but hopeful regarding some steadiness moving forward in the cheese markets.”

Western cheese output is steady, and manufacturers have plenty of milk. Even with summer heat suppressing milk volumes and components, cheese output has been active. Inventories were at record levels in June. Cheddar stocks, according to DMN, are in “relatively good balance, while mozzarella and hard Italian cheeses are long.

“Cheese purveyors describe demand as not good enough, but are hopeful that as schools start up and football seasons begin, institutional food service sales may improve and pizza sales may start to draw down mozzarella stocks.”

Cheese output totaled 1.06 billion pounds, down 1.9 percent from May but 1.8 percent above June 2017. Year-to-date output stands at 6.4 billion pounds, up 2.2 percent from a year ago. June was the 63rd consecutive month that output exceeded that of a year ago.

Milk labeling saga

In politics, the Senate, in an 84-14 vote, defeated a proposed amendment to an appropriations bill that would have prohibited the U.S. Food and Drug Administration (FDA) from enforcing dairy standards of identity on product labels. At issue is the practice of manufacturers of plant-based beverages calling them “milk.”

The National Milk Producers Federation praised the action, stating, “We are very pleased with the Senate’s overwhelming rejection of Sen. Mike Lee’s (R-Utah) blatant attempt to interfere with the ability of the Food and Drug Administration to enforce standards of identity for dairy products and other foods.

“We fought this amendment because it would have undermined the decades-long policy, established by Congress, that the FDA should regulate food names in order to promote honesty and fair dealing in the interest of consumers.”

Price & stocks update

The Agriculture Department announced the July Federal order Class III benchmark milk price at $14.10 per cwt., down $1.11 from June, $1.35 below July 2017 and the lowest Class III since February 2018. It equates to $1.21 per gallon, down from $1.31 a month ago and $1.33 a year ago.

The seven-month Class III average is at $14.37, down from $16.02 at this time a year ago and compares to $13.73 in 2016. Late-Friday morning Class III futures portended an August price at $14.82, September $15.63, October $16.19, November $16.28 and December $16.12.

The July Class IV price is $14.14, down 77 cents from June, $2.46 below a year ago, and the lowest since April 2018. Its seven-month average is at $13.73, down from $15.30 a year ago and compares to $13.42 in 2016.

California’s July Class 4b cheese milk price is $14.09, down 34 cents from June, $1.20 below a year ago, a penny below the FO Class III price (smallest differential since February’s 2 cents) and the lowest 4b price since March 2018. Its seven-month average is at $14.06, down from $15.14 a year ago, and compares to $13.02 in 2016.

The July Class 4a butter-powder milk price is $13.72, down 50 cents from June and $2.69 below a year ago. Its seven-month average is at $13.42, down from $15.07 a year ago and compares to $13.11 in 2016.

You’ll recall that preliminary USDA data reported June 2018 50-state milk production at 18.3 billion pounds, up 1.2 percent from June 2017. USDA’s latest Dairy Products report shows where that milk went.

Churns produced 143.5 million pounds of butter, down 14.7 percent from May but 3.1 percent above a year ago. Year-to-date output is at 1.02 billion pounds, up 4.1 percent.

CME butter finished Friday at $2.32 per pound, up 5-3/4 cents, and it is the fourth consecutive week of gain – but 41 cents below a year ago. Butter-makers continue to sell cream to the spot market instead of churning.

Butter producers maintain that retail and foodservice sales are meeting summer expectations. Fall outlooks are mixed but most lean bullishly, with suggestions that the lack of churning currently will lead to “a balanced, if not favorable, supply-demand ratio.”

Tighter cream stocks are restricting Western butter manufacturing as ice cream- and butter-makers compete for available cream. Issues with truck availability combined with higher temperatures are making it tougher to move cream in some areas.

Some processors are selling part of their cream to take advantage of the higher premiums and to save on storage. As a result, butter stocks, although still abundant, are not building. Butter demand is mixed, according to DMN.

Nonfat dry milk production totaled 148.2 million pounds, down 7.3 percent from May and 9 percent below a year ago. Year-to-date output stands at 968.8 million pounds, up 0.8 percent. Stocks climbed to 301.9 million pounds, up 31.2 million, or 11.5 percent, from May and 4.1 million pounds, or 1.4 percent, above a year ago.

Skim milk powder production totaled 58.9 million pounds, up 16.9 percent from May and 49.1 percent above a year ago; 2018 skim is at 284.2 million pounds, down 2.1 percent from a year ago.

Kurzawski said, “The startling number out of this report was the powder stocks number over 300 million pounds … We assumed demand slowed in June, but not by this much. Using our estimates, today’s report suggests domestic disappearance for June was down 42 percent from last year.

“Something doesn’t quite add up there; either there will likely be a revision for the June number or we’ll see sharply higher July demand.”

A slightly higher U.S. All Milk price average and lower feed prices pushed the June milk feed price ratio up for the first time in six months. The Agriculture Department’s latest Ag Prices report shows the June ratio at 1.98, up from 1.90 in May but down from 2.31 in June 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, 1 pound of milk today purchases 1.98 pounds of dairy feed containing that blend.

The U.S. All-Milk price averaged $16.30 per cwt., up a dime from May but $1 below June 2017. Michigan was on the bottom, with $14.80, unchanged from May; California was at $15.63, down 3 cents from May; and Wisconsin was at $16.50, down 20 cents from May.

June corn averaged $3.58 per bushel, down 9 cents from May but 15 cents above June 2017. Soybeans averaged $9.55 per bushel, down 29 cents from May but 45 cents above a year ago. Alfalfa hay averaged $181 per ton, down $8 from May but $27 over a year ago.

Looking at the cow side of the ledger, the June cull price for beef and dairy combined averaged $66.30 per cwt., up a dime from May, $10.20 below June 2017 and $5.30 below the 2011 base average of $71.60.

The Daily Dairy Report’s Sarina Sharp added, “The price being paid across the country for quality Holstein springers has averaged $1,200 per head over the past month, putting the cost of replacement heifers at lows not seen in decades.”

CWT gets export aid

Cooperatives Working Together (CWT) member cooperatives accepted offers of export assistance from CWT that helped them capture contracts to sell 908,305 pounds of cheddar cheese and 14.495 million pounds of whole milk powder to customers in Asia and Oceania. The product has been contracted for delivery through December.

CWT’s 2018 exports now total 45.446 million pounds of American-type cheeses, 12.085 million pounds of butter (82 percent milkfat) and 27.106 million pounds of whole milk powder to 29 countries on five continents. These sales are the equivalent of 889.245 million pounds of milk on a milkfat basis.

The totals were adjusted due to cancelations, according to the CWT.

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.