Even as the impeachment drums kept beating in the second full week of the New Year, the Trump Administration racked up at least two small victories on the trade front. First was the signing of the Phase 1 agreement with China and the second was Senate passage of the US-Mexico-Canada agreement.
The International Dairy Foods Association praised the Phase 1 signing, saying it begins to “restore a positive, mutually beneficial trade relationship, and dairy producers and processors across the U.S. are grateful. To put the importance of this development in perspective for America’s dairy industry: Over the next decade, China represents a $23 billion market opportunity for US dairy, and it is essential to our producers and companies that we have a trade relationship with China that further levels the playing field for American dairy and provides expanded market access for our growing industry.”
The U.S. Dairy Export Council and National Milk Producers Federation stated that the signing “makes important advances on nontariff issues harming U.S. dairy trade. While promises of additional Chinese purchases of U.S. agricultural products in the next two years are encouraging, the benefits for the dairy industry remain unclear. Given that China’s retaliatory tariffs remain a significant impediment to U.S. dairy sales in China, the USDEC and NMPF stress that work with China is not complete until the retaliatory tariffs against all U.S. dairy exports are fully lifted.”
The Senate, by an 89 to 10 vote, approved the USMCA, sending it to the President for his signature. The USDEC and NMPF urged U.S. officials to “carefully monitor Canada and Mexico’s USMCA commitments once the trade deal takes effect to ensure its provisions are enforced accordingly so that the dairy industry is able to reap the full benefits of the agreement”
“USMCA makes important strides to break down trade barriers, opening the door to new opportunities and supporting the flow of high-quality American dairy products to two valuable export markets,” said Tom Vilsack, president and CEO of USDEC. “The strong enforcement measures included in the final agreement give officials the tools necessary to hold our trade partners accountable and ensure the gains secured by USMCA are completely realized.”
Meanwhile, as I reported last week, the Agriculture Department lowered its milk production forecasts for 2019 and 2020 in its latest World Agricultural Supply and Demand Estimates report, based on slower expected growth in milk per cow.
2020 production and marketings were estimated at 222.0 and 221.0 billion pounds respectively, both down 400 million pounds. If realized, 2020 production would still be up 3.7 billion pounds or 1.7% from 2019.
The 2020 cheese, butter and whey price forecasts were reduced on demand weakness and relatively high stocks. The NDM price forecast was raised from December on continued strength in demand from export markets.
The forecast Class III and Class IV milk price averages were lowered from the previous month. Look for the 2020 average at around $17.35 per hundredweight, down 30 cents from what was projected in December, but tops the 2019 average by 39 cents and compares to $14.61 in 2018.
The Class IV projection was lowered a nickel from last month’s estimate, now put at $16.90, and compares to the 2019 average of $16.30 and $14.23 in 2018.
The 2019 fat basis import forecast was unchanged from last month, but the 2020 import forecast was reduced on lower expected cheese and butterfat imports. The fat basis export forecast for 2019 and 2020 was raised on recent trade data and strong sales of cheese and other dairy-containing products.
Skim-solids basis 2019 and 2020 import forecasts were unchanged. Skim-solids basis export forecasts for 2019 and 2020 were raised on strong global demand for nonfat dry milk.
The latest dairy commercial disappearance data shows total November cheese was down 0.4% from November 2018 and down 1.8% from October, though October was at a record high. Butter was down 8.6% from a year ago and only up 0.5% from October. Nonfat dry milk and skim milk disappearance was up a whopping 28.3% from a year ago and dry whey was off 4.6%.
FC Stone dairy broker Dave Kurzawski pointed out in the Jan. 20 Dairy Radio Now broadcast that, on a milk equivalent basis we were down 2.4%, but he gave it some perspective, reporting that 2019 domestic disappearance of milk solids was up 2.8% year to date. On a 12 month rolling average of November 2018 to November 2019, it was up 3%, he said and called that “astronomical demand numbers,” and “that’s the story.”
The November data was maybe a “glitch on the radar,” perhaps driven by the rally in prices across the complex, with the exception of butter, he said, “Prices rallied in October so you probably had some people step away from it but does that really say anything about what’s going on in demand?” He admitted there’s troubling data on fluid milk but said “The rest of demand is really strong.”
Meanwhile, history was made the week of Jan. 13 in the dairy market as a new block cheese futures contract was launched. Kurzawski said the contract could help dairy producers, perhaps more so for a select group; however the spirit behind the contract is to “Give confidence to hedgers that the tools they use at the Exchange will benefit them by managing risk and as that happens it will help grow markets overall and as markets grow overall dairy farmers will benefit.”
Football/Super Bowl cheese orders have kept demand healthy into January and will support orders in the near term, predicted HighGround Dairy in their “Monday Morning Huddle.” But, they warned that “Milk production is plentiful across most areas of the country, pushing larger volumes into cheese plants who have resumed normal full week operating schedules post-holidays.
“While cheese production is strong, decent demand has mostly kept pace to support an overall balanced market, preventing prices from declining further. Looking ahead, it is likely that demand will drop slightly lower on a normal, seasonal basis throughout first quarter, and there is potential for cheese markets to continue to move lower as milk output remains strong throughout the next several months.”
FC Stone adds that the December Milk Production report is issued Jan. 23 but December component data is available and reports that it was basically flat against last year. “Feed quality issues may be impacting things in a more meaningful way,” according to FC Stone.
Midwestern cheesemakers tell Dairy Market News, “In spite of confused markets, week to week sales are mostly steady if not slightly improved. It is prime time for mozzarella and provolone sales, with football playoffs prompting retailers to push cheese/pizza advertisements.” Spot milk prices remain “solely discounted.” However, discounts are slighter and moving a bit closer to Class. Market tones are far from healthy, says DMN, citing the block to barrel price gap.
Western cheesemakers report cheese is moving well through current contracts. Demand is steady but there is plenty of milk to keep plants running near full capacity. Inventories are not necessarily burdensome but some contacts say they are heavy enough. With adequate stocks on hand and abundant milk supplies, contacts think a few manufacturers have shifted production to barrels from blocks, thus pressuring the cash barrel market.
Butter churning continues in the Midwest and cream supplies remain plentiful, says DMN. There was a slight downward shift in cream availability but by no means are butter producers concerned about shortages in the near term. They expect at least two more weeks (or more) of easily-accessible cream. Butter sales are slower but meeting seasonal expectations following the holiday rush.
Western churns are also being actively used. Although cream prices are low and inducing some processors to make additional butter, a few of them have not seen low enough prices to commit to picking up more cream than needed. Expensive freight costs are also preventing some from taking advantage of lower cream prices in other areas. Butter retail orders are starting to come in. Several buyers are covering their 1st and 2nd quarters’ needs. Inventories are available.
FC Stone wrote in their Jan. 15 Early Morning Update that “we’re on the precipice of more trade news with China,” as the Phase One trade agreement was signed, “but just follow the money.”
“The price of hogs is enticing large-scale hog farm development even before there is a vaccination. Remember how traders can ‘shoot first, ask questions later.’ Well so can Chinese food production/government interests. And we believe that’s exactly what they’re doing. This is stirring some new and interesting feed business in the US that may not be specifically whey but may in fact have some impact on buyer behavior. We’ll need data to draw any significant conclusions, but unfortunately futures markets tend to move before the news.”
Cooperatives Working Together announced its first awards of 2020 this week. Member cooperatives accepted 11 offers of export assistance from CWT that helped them capture sales contracts for 321,875 pounds of Cheddar and Monterey Jack cheese; 244,713 pounds of butter, 266,759 pounds of cream cheese, and 330,693 pounds of whole milk powder. The products will go to customers in Asia, Oceania, and South America through April and are the equivalent to 13 million pounds of milk on a milkfat basis.