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The Global Dairy Trade (GDT) auction started 2018 with a small shot of encouragement on January 2, led by powder, as New Zealand-based Fonterra lowered its offerings of whole milk powder. Total GDT volume slipped to just under 56 million pounds, lowest since June 20, 2017, and the weighted average jumped 2.2 percent, following a Whole milk powder was up 4.2 percent, after dropping 2.5 percent in the last event, and skim milk power was up 1.6 percent, after it fell 4.8 percent. Butter inched 0.6 percent higher after it fell 2.3 percent last time.
Buttermilk powder led the declines, plunging 7.3 percent. Cheddar was down 2.1 percent, after leading the declines last time with a 7.9 percent descent. Anhydrous milkfat was off just 0.2 percent, after plunging 6.7 percent last time.
FC Stone equated the GDT 80 percent butterfat butter price to $1.9918 per pound U.S. CME butter closed Friday at $2.2375. GDT Cheddar cheese equated to $1.5048 per pound U.S. and compares to Friday’s CME block Cheddar at $1.4950. GDT skim milk powder averaged 77.07 cents per pound and whole milk powder averaged $1.3091. CME Grade A nonfat dry milk price closed Friday at 68 cents per pound.
The Agriculture Department announced the December Federal order Class III milk price at $15.44 per hundredweight (cwt.), down $1.44 from November, $1.96 below December 2016, and the lowest Class III since April 2017. It equates to about $1.33 per gallon, down from $1.45 in November and $1.50 a year ago. The 2017 Class III averaged $16.17, up from $14.87 in 2016 and $15.80 in 2015.
It’s $1.92 above California’s comparable Class 4b cheese milk price, second largest deficit between the two; the highest occurring in March at $2.05. The gap ranged from a low of 16 cents in July to $2.05 and averaged 98 cents for the year, up from 71 cents in 2016.
Class III futures portend a pretty lean 2018, with prices well below $16 per cwt. Late Friday morning the January contract was at $14.00; February, $13.49; March, $13.54; April, $13.87; May, $14.29; and June was at $14.66, with a peak of only $15.72 in October.
The December Class IV is $13.51 per cwt., down 48 cents from November, $1.46 below a year ago, and the lowest Class IV price since May 2016. Its 2017 average is $15.16, up from $13.77 in 2016 and $14.35 in 2015.
California’s December Class 4b cheese milk price is $13.52 per cwt., down $2.00 from November and $3.07 below a year ago. It is the lowest 4b price since June 2016. The 2017 4b average stands at $15.20, up from $14.27 in 2016 and $14.47 in 2015.
The December 4a butter-powder price is $13.36, down 26 cents from November and $1.43 below a year ago and the lowest 4a price since October 2016. It averaged $14.95 in 2017, up from $13.41 in 2016 and $14.10 in 2015.
Dairy margins ended December slightly weaker as milk prices continued to drift lower while feed costs held relatively steady, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC. It adds that “Margins remain negative through the first half of 2018, and projected only slightly above breakeven through the second half of the year. Milk prices languish heading into 2018, with little optimism that the bearish tide is turning.” 
“USDA reported November milk production at 17.3 billion pounds, up 0.4 percent from October on a daily average basis and 1.0 percent higher than last year. The U.S. milking herd remained unchanged from October at 9.4 million head, suggesting that the rate of growth is starting to slow, with increases coming from higher productivity. The USDA’s FAS recently estimated that the world’s largest dairy exporting regions will add 3.3 million tons of milk output in 2018 following a 2.2 million increase in 2017, compounding the global glut of dairy products.”
The MW warned that “2018 starts with 542,000 metric tons of SMP inventories held between EU intervention, private stocks, and the U.S., while New Zealand’s milk output in November was up 4.2 percent from last year without a commensurate increase in exports. These factors portend larger stockpiles of dairy products available for marketing later in the season to compete with supplies from the Northern Hemisphere during their spring flush.”
You’ll recall that preliminary USDA data reported November’s 50-State milk production at 17.3 billion pounds, up 1.0 percent from November 2016. USDA’s latest Dairy Products report shows where that milk went or didn’t.
November cheese output totaled 1.054 billion pounds, down 2.0 percent from October but 2.8 percent above November 2016. Year to date (YTD) output stands at 11.4 billion pounds, up 2.6 percent from a year ago.  
California produced 211 million pounds of that cheese, down 0.5 percent from October and just 0.6 percent above a year ago. Wisconsin, at 279.2 million pounds, was down 3.1 percent from October but 2.4 percent above a year ago. Idaho output, at 76.6 million pounds, was down 9.9 percent from October but 3.2 percent above a year ago. Minnesota was down 2.8 percent from October but 6.8 percent above a year ago. New York was down 10.7 percent from October and 0.1 percent below a year ago.
Italian cheese output totaled 454.7 million pounds, down 0.6 percent from October but 3.6 percent above a year ago, with YTD output at 4.9 billion pounds, up 1.7 percent. 
Mozzarella, at 350.4 million pounds, was up 3.3 percent, with YTD at 3.8 billion pounds, up 1.2 percent.
American type cheese production totaled 401.2 million pounds, down 4 percent from October but 0.6 percent above a year ago. YTD totaled 4.47 billion pounds, up 3.2 percent. 
Cheddar output, the kind traded at the CME, totaled 284.7 million pounds, down 3.5 percent from October and virtually unchanged from a year ago, with YTD at 3.25 billion pounds, up 4.1 percent.
Butter churns produced 145.7 million pounds of butter, up 1.6 percent from October and 1.86 percent above a year ago. YTD butter totaled 1.67 billion pounds, down 0.2 percent.
California butter totaled 42.1million pounds, down 3.9 percent from October and 0.7 percent below a year ago. New York was down 27.8 percent from October and just 0.1 percent above a year ago. Pennsylvania output was up 7.2 percent from October but 11.2 percent below a year ago.
Yogurt output amounted to 313.1 million pounds, up 0.7 percent from a year ago, with YTD at 4.0 billion pounds, down 1.4 percent.
Dry whey totaled 81.8 million pounds, up 11.6 percent, with YTD hitting 951.1 million pounds, up 8.5 percent. Stocks were up 6.8 percent from October and a whopping 65.5 percent above a year ago.
Nonfat dry milk totaled 140 million pounds, down 2.9 percent from October but 9.7 percent above a year ago, with YTD at 1.66 billion pounds, up 3.9 percent. 
Nonfat dry milk stocks, at 301.7 million pounds, were up just 1.7 million pounds or 0.5 percent from October but 86.6 million pounds or 40.2 percent above 2016.
Skim milk powder production totaled 41.8 million pounds, up 63.1 percent from October but 11.9 percent below a year ago. YTD output is at 483.96 million pounds, down 4.1 percent.
Cash dairy prices were mixed in the New Year’s holiday-shortened week while much of the country started 2018 in bitter cold. The Cheddar blocks closed the first Friday of 2018 at $1.4950 per pound, down 4 1/2-cents on the week and 17 1/2-cents below a year ago. The barrels finished at $1.39, down 5 1/4-cents on the week, 18 1/2-cents below a year ago, a larger than normal 10 1/2-cents below the blocks, and the lowest CME barrel price since July 10, 2017. Only 4 cars of block were sold on the week at the CME and 11 of barrel.
Dairy Market News reports that some Central cheesemakers are no longer taking spot milk loads as they have more than needed at the onset of 2018 and those that are taking on milk are paying prices from $1.50 to $6.00 under Class III.  Some cheesemakers have relayed that milk suppliers are looking to lock in future deals now, as milk supplies are expected to remain plentiful. Many plant managers produced cheese through the New Year’s weekend and holiday. 
 Mozzarella and provolone producers reported that sales were “better than expected this week. However, they suggest the holiday rush was cut short as fluctuating market prices gave buyers pause. As cheese markets reenter more familiar grounds, cheese producers hope to make up for lost sales late in 2017.” 
Western cheese production is active and there’s still plenty of milk although some of the milk is refilling bottling pipelines as schools restart after the holidays. DMN says “Many cheesemakers want to accentuate the positives as the new year begins, but there is a level of uncertainty lingering within the dairy industry. While industry contacts suggest overall domestic cheese demand has been solid, demand for mozzarella has been stagnant.” 
“Export interest may be increasing,” says DMN, “But it may be due to lower price points. While stocks have become more comfortable, there is the underlying sense that milk production regionally, nationally and globally, will continue to fuel the production of cheese and rebuild cheese inventories. The bulls and bears are trying to discern the future of the cheese market in the early stages of the new year, but the future is difficult to predict,” DMN concludes.
Cash butter saw a Friday close at $2.2375 per pound, up 3 cents on the week and 1 3/4-cents above a year ago, on 10 reported sales for the week.
Butter churns were running actively New Year’s Week,” says DMN, “both in preparation for the spring push and due to some producers reporting lower end-of-year inventories. Cream supplies also lend to the drive to produce more butter. Sales are slower, but meeting expectations. As cheese markets attempt to locate stable ground, and dry products' markets continue to falter, the butter markets remain the lone commodity stalwart, starting 2018 in steady to bullish fashion.” 
Western butter supplies have been drawn down due to holiday demand and many retailers are replenishing their post-holiday stocks sooner than usual. With the closure of some plants during the holiday weekend, many distressed loads of cream moved to the churns. Cream continues to be available for butter processing, but at slightly higher premiums compared to Christmas week. 
Grade A nonfat dry milk remains in the cellar, closing Friday at 68 cents per pound, up a quarter-cent on the week but an attention grabbing 37 1/4-cents below a year ago. Six cars were sold on the week at the CME.
In politics; the National Milk Producers Federation (NMPF) this week called on the U.S. Food and Drug Administration and the California Department of Food and Agriculture to “take enforcement action against a plant-based food company whose imitation ‘yogurt’ violates the federal definition for dairy foods and fails to provide the same nutrition as real yogurt.”
NMPF charged that Hayward, California-based Kite Hill is “illegally labeling its line of products and implying the nut-based foods are suitable substitutes for the real dairy foods it attempts to mimic.” 
NMPF President and CEO Jim Mulhern said that Kite Hill’s line of products “is doubly deceiving, first as it declares the use of ‘almond milk’ as the main ingredient in their foods, and second in calling the resulting product ‘yogurt.’ A whitened slurry of nuts does not make milk, and adding bacteria to that mix and pouring it in a cup does not make yogurt.”
Meanwhile; Congress returns with a lot on its plate. Bob Gray, editor of the Northeast Dairy Farmers Cooperatives newsletter, writes in his January 6 edition that “The most immediate issue of concern is the upcoming Continuing Resolution deadline of January 19th in which if not extended the federal government will shut down.”
“Congress is working feverishly to either complete action on all 12 major appropriations spending bills for FY2018 in an Omnibus Bill package or be forced to pass another short term Continuing Resolution to keep the government operating,” Gray says.
“There are a number of issues that are pending as the House and Senate confer on the final spending package. Increases in defense spending are being sought on the Republican side while Democratic members want to see the Deferred Action on Childhood Arrival (DACA) included in the Omnibus package. DACA deals with immigrant children who were brought here by their undocumented parents over the last several years. Protection for them remaining in the U.S. under legal status expires in March. In addition, Congress is considering an $81 billion disaster relief bill for hurricane and wildfire damage.”
“So it is going to be a very interesting discussion between the two parties to close the political gap on the passage of a trillion dollar plus Omnibus Budget Bill for FY2018,” Gray concludes. “There are also some key environmental amendments that the agriculture community would like to see added to the Omnibus Bill. One in particular involves the CERCLA Air Emissions Reporting Requirement by EPA for minute amounts of ammonia and hydrogen sulfide. The pending amendment would not give EPA the authority to enforce the reporting requirement on dairy farms, as well as beef, pork and poultry producers. There are other pending environmental amendments as well dealing with the WOTUS 
Rule and normal farming activities that should be exempt from EPA regulations.”
Lee Mielke is a graduate of Brown Institute in Minneapolis, MN. He’s formerly the voice of the radio show “DairyLine,” and his column appears in agricultural papers across the U.S. Contact him at lkmielke@juno.com.​

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