The Dec. 31, 2018, butter stocks totaled a surprising 179.3 million pounds, up a whopping 16.6 percent from November and 6.2 percent above December 2017, according to the delayed U.S. Department of Agriculture Cold Storage report issued Feb. 22.
FC Stone dairy broker Dave Kurzawski says that’s a shocking 42 million pounds heavier than pre-report expectations and over 1,000 truckloads but adds the caveat that “these numbers are more than 60 days old. If the number was incredibly burdensome, we think the markets would have felt it already. This leads us to think revisions following a government shut-down are likely.” The January Cold Storage report will be issued March 7.
The U.S. had less cheese on hand than expected. American cheese stocks were up 7 percent from a year ago and Kurzawski says, “What’s a little odd is that the usual build from November to December was nonexistent.”
He points out that in seven of the past 12 years’ stocks, we’ve had some by less than 5 million pounds but not generally in what we would call aggressively weak market prices like we saw in December.
“Ultimately, we want to see the December Dairy Products numbers to figure out whether it was better demand or slower production that knocked the numbers lower than we expected,” explained Kurzawski.
HighGround Dairy says “the butter data could be viewed as bearish while cheese potentially bullish, but so much time has elapsed since this data was applicable and between mid-December and January, butter prices grinded higher while cheese prices collapsed. It is HighGround’s view that the market has moved on, and while it is nice to finally know what happened in December, this report will not have any impact on near-term prices.”
Cheese inventory is unchanged and long. Continuing late-winter weather was causing some issues with delivery of both milk, cheese and whey in the region. Plant managers suggest long-haul trucking is somewhat difficult to manage currently, as snow and ice have led to closed roads in Wisconsin and Minnesota.
Dairy cow culling was down a bit in December but well above a year ago. The Agriculture Department’s latest Livestock Slaughter report shows an estimated 261,200 head slaughtered under federal inspection, down 6,800 from November but 13,900, or 5.6 percent, above a year ago. A total 3.15 million head were culled from the nation’s dairy herd in the year, up 164,600, or 5.5 percent, from 2017.
The culling data is indicative of what’s happening economically on U.S. dairy farms. Margins were relatively flat over the first half of February, with values still projected below breakeven over the first half of the year, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.
The MW pointed out that December milk production totaled 18.2 billion pounds, up 0.5 percent from 2017 with both October and November production revised down 0.2 percentage points from preliminary projections. As a result, fourth quarter milk production was up only 0.5 percent from 2017, the lowest year-over-year growth for any quarter in five years.
“While the milking cow herd as become more efficient to allow for modest production gains, the report reflected continued contraction with a drop of 3,000 head from November to December at 9.351 million. This was the smallest since November 2016 and down 49,000 head from the previous year,” the MW stated.
“A tough margin environment is prompting more producers to cull cows. Dairy cow slaughter reached above 70,000 head for the latest week of slaughter data ending Jan. 19. This was the largest single week of dairy cow kill since January 2013. Fourth-quarter dairy cow slaughter was up 8 percent from 2017, and some weeks towards year-end were as much as 14 percent higher than year-ago comparable figures.
“Feed markets, meanwhile, continue to be subdued, with hopes for a trade deal between the U.S. and China. The March 1 deadline was expected to slide in order for a summit to be scheduled between presidents Trump and Xi in Mar-a-Lago toward the end of March,” the MW concluded.
The Consortium for Common Food Names warned last week that the U.S. dairy industry and the U.S. economy could be hit with $9.5 billion to $20 billion in revenue losses if the European Union is successful in expanding restrictions on the use of generic terms like parmesan, asiago, feta and others.
That’s according to a new study conducted by Informa Agribusiness Consulting, commissioned by the CCFN and the U.S. Dairy Export Council. The study provides timely information in light of U.S.-EU trade negotiations, according to the CCFN, and examines the potential impact the EU’s aggressive geographical indications agenda would have if imposed on a broad variety of U.S. cheeses and markets.
“Seizing the common names that U.S. marketers have used for generations would confuse and alienate both domestic and international consumers, leading to a dramatic drop in demand for U.S. cheese. Prices could fall 14 percent, and consumption of U.S.-produced cheeses could drop by 306 million to 814 million pounds in the first three years,” according to the CCFN.
“At the same time, EU cheese exports could see a surge of 13 percent, thereby exacerbating the existing $1.4 billion U.S.-EU dairy trade deficit. The impact of GI restrictions would also have grave effects on the broader dairy industry through plummeting milk prices and shifting demand, as well as on the broader U.S. economy. Informa’s study reveals that between 108,000 and 223,000 jobs could be at risk, while GDP could fall $12 billion to $25 billion over three years,” the CCFN stated.
“The threat is serious and mounting; the EU is very clear in its intentions and the scope of its GI restrictions continues to expand,” said CCFN Executive Director Jaime Castaneda. “Already, we have seen European groups attempt to seize usage of specific names in the U.S. market, including parmigiano, asiago, romano and gruyere. And in key export markets around the world, the EU is abusing GI policies to dismantle competition and erect barriers to trade. Only collaborative actions between the U.S. government and impacted industries will stop the EU’s increasingly aggressive efforts and ensure that other countries hold the line against the EU.”
U.S. Dairy Export Council President and CEO Tom Vilsack says the dairy industry has an “amazing” story on sustainability that the public needs to know.” In an interview with “Greenbiz,” Vilsack stated: “In my lifetime, we’ve seen about a five-fold increase in productivity of a cow in terms of milk produced,” citing information from The Innovation Center for U.S. Dairy. So more milk is being produced with less water, less land and less inputs than when I was born.”