The dairy market had little fodder from the USDA this week as to reports it regularly monitors. Many of the market players were in Arizona anyway for the International Dairy Foods Association annual Dairy Forum.

FC Stone dairy broker Dave Kurzawski summed up the meeting briefly in his Jan. 30 Early Morning Update stating that people at the forum “seemed net bullish on proteins, net bearish on fat, and net confused on cheese.”

“The X factor at the conference centered on the coronavirus outbreak. The idea of a new pandemic is a scary one. And it gets a lot of airtime. And people’s heads generally go to the worst place imaginable. But people still gotta eat, so we’re not talking about a catastrophic hit to global dairy demand. Slightly weaker global economic growth could knock 2-10% off prices from whatever level they would have been at without coronavirus,” Kurzawski stated.

Meanwhile, the University of Wisconsin’s Dr. Mark Stephenson and Dr. Robert Cropp, in their recent podcast, said the December Cold Storage report indicated that cheese stocks were “in the comfortable zone again,” although they admitted that January saw volatility in cheese, especially in the barrel market.

The situation is not so positive for butter, they said, and they predicted continued softness in butter prices but said there’s been a convergence in prices with the EU and Oceania.

As to the December Milk Production report which showed output was only up 0.7%, Cropp called it “a positive for milk prices,” considering where cow numbers are and the small increase in output per cow, which he attributed to forage quality issues.

Stephenson pointed out that while Class III futures prices had deteriorated a month or so ago, they have since come roaring back, but Cropp said it remains to be seen whether they will remain strong and suggested farmers take advantage of the opportunity to put a floor under prices with some risk management.

Stephenson suggests that the next big piece of information the market will be looking for is “the flush” and warned that, if it’s a big flush, prices will fall and if not and inventory is tight, early buying will occur.

Cropp agreed, adding that he doesn’t believe the flush will be a big one, due to feed issues and farms still exiting the business. He disagrees with the USDA’s 2020 milk prediction estimate of a 1.7% increase in milk output from 2019. He said cheese exports are good, world milk output looks soft, and while that can all change, he believes things swill stay pretty much in balance and support prices.

But the U.S. dairy industry continues to consolidate and move westward, according to the Jan. 27 Daily Dairy Report. The DDR stated that “the dairy herd east of the Mississippi River has steadily declined over the past four years. Producers in these states milked 2.77 million cows in the final quarter of 2015, but the total dropped 5% to 2.63 million head in the fourth quarter of 2019.

“In 2016 through early 2018, dairy producers in states west of the Mississippi added cows at a pace that more than offset losses east of the river, and the U.S. dairy herd grew,” the DDR stated.

“Western expansion paused in the second half of 2018 and in early 2019,” the DDR says, “which allowed the industry to trim the herd to a size that better matched demand. Now, dairy producers in states west of the Mississippi are adding cows again, and after reaching a low in August, the national dairy herd is beginning to expand,” according to the DDR.

DDR editor and analyst Sarina Sharp also talked about it in the Feb. 3 Dairy Radio Now broadcast and said she thinks the industry added too many cows in the period leading up to 2016. “We continued to add more cows than we could support with demand in 2017 and into the first half of 2018,” she said, “and most of those cows were added in the Western states.”

She also pointed to the shift in consumption which impacts processing needs throughout the country. As fluid milk consumption declines, Sharp says, more milk is going to storable goods and goods that can be transported less expensively than fresh milk with all the water in it.

“Fluid milk is processed close to the population centers, which favored the east coast,” she said, “but now that consumption is more in the form of dairy products, and that shifts the advantage to producers who are located near a commodity style plant and that represents a bigger milk use in the west,” she concluded.

Midwestern cheesemakers report that 2020 sales are meeting or beating expectations. Markets remain in flux because of the large block-barrel price spread but regional demand for both “is anything but unstable,” says Dairy Market News. Milk prices are holding just under Class for the most part, on slow trading and stocks are generally balanced regionally and “mostly positive.”

Ample milk is keeping western vats busy. Contacts say demand is “moderate” and cheese is moving well through current contracts but “there is a capacity to sell more cheese.” Retail and food service shipments for “the national cheese day, also known as the Super Bowl, have been made.” Contacts are hoping for strong reorders to carry the cheese market into spring and the distant grilling season, according to DMN.

“While the December cold storage report suggested that total cheese inventories were pulled down a bit nationwide, western inventories did not follow that pattern.” American cheese stocks grew in the west and other natural cheese inventories were fairly stable.

“To churn or not to churn,” is the question facing butter plant managers, says DMN. Cream availability is abundant, widely available from the Western region, the mountain states, and locally. “As some butter producers continue to run full bore, locking away stores for the spring, others are checking production activity owing to both scant seasonal demand and current market bearishness.”

The western butter market is experiencing some pressures, partly caused by abundant stocks and not so much demand. Orders from retailers are stable but international sales seem almost idle. Lower prices have impelled some to buy more butter for short-term coverages while other end users and buyers are taking a step back as they believe that butter will be available for some time and prices could potentially decline. Cream supplies are widely accessible to butter makers at affordable prices so the churns are running, says DMN.

Speaking of exports, Cooperatives Working Together member cooperatives accepted three offers of export assistance this week from CWT that helped them capture sales contracts for 152,119 pounds of Cheddar and Monterey Jack cheese, and 3,307 pounds of cream cheese. The product is going to customers in Asia and Central America and will be delivered through April.

CWT-assisted export sales for the first two weeks of 2020 total 756,186 pounds of American-type cheeses, 244,713 pounds of butter (82% milkfat), 607,374 pounds of cream cheese and 330,393 pounds of whole milk powder. The product is going to seven countries and is the equivalent of 19.6 million pounds of milk on a milkfat basis.

Milk production nationwide is steady to increasing, according to the USDA’s weekly update. ”Relatively tame winter weather is keeping cows comfortable across much of the country, but below normal temperatures have kept milk output in check in Florida. Milk flows are above projections in the Pacific Northwest and mountain states and increasing throughout the West and Midwest. Heavy milk and cream volumes are keeping processors busy. Class I sales are steady to higher as educational institutions settle into regular routines and the remaining colleges return from winter break. Cream supplies are readily available,” reports DMN.

Looking down under, the Jan. 23 Daily Dairy Report says December milk production in New Zealand totaled 2.7 million metric tons, down 0.5% from the previous year. “The data suggests that the world milk supply has been slow to respond to higher prices at the end of the year. Given challenging weather conditions in Oceania and anemic growth in the Northern Hemisphere, it seems that higher dairy product prices could persist to encourage additional supply.”

In politics, the U.S. Environmental Protection Agency and the Department of the Army Corp of Engineers released a new final Waters of the United States rule the week of January 20.

The National Milk Producers Federation praised the action saying it “puts an end to years of contentious rulemaking and will provide a common-sense approach to regulating waters of the U.S.”

“The EPA and the Department of the Army published a final rule on October 22 to repeal the 2015 Clean Water Rule: Definition of ‘Waters of the United States’ to restore regulatory text that existed prior to the 2015 Rule.”

“That final rule became effective Dec. 23,” according to the NMPF, but “in the interim between repealing the 2015 Rule and introducing a new one, the agencies implemented pre-2015 Rule regulations, as informed by applicable agency guidance documents and consistent with Supreme Court decisions and longstanding agency practice.”

“This action was a temporary fix as the agencies continued their work in crafting the WOTUS replacement issued Jan. 23,” stated NMPF in a press release, and “NMPF has engaged with EPA on this issue for years, in meetings and in numerous written comments, seeking improvements to the 1986 WOTUS rule, which lacked clarity for farmers.” NMPF says it will “carefully review the new rule.”

Agriculture Secretary Sonny Perdue stated that “President Trump is restoring the rule of law and empowering Americans by removing undue burdens and strangling regulations from the backs of our productive farmers, ranchers, and rural land-owners. The days are gone when the Federal Government can claim a small farm pond on private land as navigable waters.”