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Preliminary data shows butter stocks up 25 percent from March

Preliminary data in the Agriculture Department's latest Cold Storage report shows butter stocks at 230.4 million pounds on April 30, up 46.1 million pounds or a whopping 25 percent from March and 43.5 million pounds or 23 percent above those in April 2014.

American type cheese, at 639.5 million pounds, was up 7.9 million pounds or 1 percent from March but 9.4 million or 1 percent below a year ago. The total cheese inventory amounted to 1.1 billion pounds, up 15.6 million pounds or 1 percent from March and 43.3 million pounds or 4 percent above a year ago.

The April 2015 milk feed price ratio slipped to 1.95, down from 2.00 in March and compares to 2.42 in April 2014 and 1.54 in April 2013, according to the Agriculture Department's latest Ag Prices report issued Thursday. The index is based on the current milk price in relationship to feed prices for a ration of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay, in other words, one pounds of milk today can purchase 1.95 pounds of dairy feed of that blend.

The April U.S. average all-milk price dropped to $16.50 per hundredweight (cwt.), down 10 cents from March and $8.80 below April 2014. April corn, at $3.75 per bushel, was down 6 cents from March and 96 cents below April 2014. Soybeans averaged $9.70 per bushel, down 14 cents from March, and $4.60 per bushel below April 2014. Alfalfa hay averaged $184 per ton, up $12 from March, but $23 per ton below April 2014.

Looking at the cow side of the ledger; the report shows the April cull price for beef and dairy combined averaged $113.00 per cwt., down $1 from March but $10 per cwt. above April 2014, and compares to the 2011 base average of $71.60 per cwt. Prices received for milk cows was $1970.00 per head, down $20 from March 2015 but $160 above April 2014, and $550 above the 2011 base.

Cash dairy prices strengthened the last week of May, with the 40-pound block Cheddar trading at $1.6950 per pound, up 4 1/2-cents on the Memorial Day holiday shortened week but still 26 1/2-cents below a year ago. The 500 pound barrel Cheddar finished at $1.67, up 5 cents on the week and 26 1/4-cents below a year ago. Both prices are at new highs for 2015 and the highest block price since December 1, 2014 and the highest barrel price since November 25, 2014. Only two cars of block trade hands on the week but 31 of barrel. The NDPSR-surveyed U.S. average block price inched up 0.9 cent, to $1.6354 per pound, while the barrels averaged $1.6713, up 0.4 cent.

The continuing strength of cheese production utilizing strong milk supplies is leading Central manufacturers to consider how long the somewhat surprising demand strength from buyers will continue, says Dairy Market News (DMN). Unexpectedly strong demand from domestic buyers has helped to keep cheese inventories at comfortable levels notwithstanding high production volumes. Both retail and foodservice buyers have helped keep cheese moving out of plants. Most cheesemakers do not suggest any reason why they question this trend continuing. That conclusion is reflected in volumes of cheese being made. At most cheese plants where alternative products can be made from milk, cheese is still viewed as the primary outlet for contracted milk.

A few loads of Midwest surplus milk sold at $10.00 below Class this week, more loads were selling near $7.00 below, and milk more widely available as to timing and location now sells at $6.00 under. Some of the production will go to current demand and some will be held in inventory for future sales, by manufacturers and cutters/wrappers. Most cheesemakers are happy to increase schedules to the max to accommodate discounted milk. There are also cheese plants in the region installing new equipment to add barrel production to existing block output in the near future.

Cash butter, after dropping 8 1/4 cents the previous week, closed Friday at $2.0050 per pound, up 10 1/4-cents on the day, up 13 1/2-cents on the week, but still 29 1/2-cents below a year ago when it had jumped 12 cents on the week. Seventeen cars traded hands this week. NDPSR butter averaged $1.9672, up 8.6 cents.

Butter production is steady in the Midwest with most manufacturers running over the holiday weekend, according to DMN. Domestic demand is still higher than expected which leaves some manufacturers concerned about inventory levels for Third Quarter. There have been reports that exports may be picking up as other countries have a higher demand. Some manufacturers report that current sales are picking up with others being able to build inventories.

Western butter output was steady this week. Industry contacts report milk and cream are generally available. The recent holiday weekend helped ease the short supply of cream in parts of the West where it had been tight. Some manufacturers continue to sell excess cream for use in ice cream or other products. Marketers are suggesting there is plenty of butter available on the market and inventories have increased significantly over the last few months.

Cash Grade A nonfat dry milk finished Friday at 90 3/4-cents per pound, up 7 1/2-cents on the week but 92 1/2-cents below a year ago. Two cars were sold at the CME this week. NDPSR powder averaged 94.77 cents per pound, down 0.9 cent, and dry whey averaged 44.01 cents per pound, down 1 1/2 cents.

Cooperatives Working Together (CWT) accepted 7 requests for export assistance Monday from Dairy Farmers of America, Michigan Milk Producers, and Northwest Dairy Association (Darigold), who have contracts to sell 553.360 pounds of Cheddar, and Monterey Jack cheese, and 749,572 pounds of whole milk powder to customers in Asia, the Middle East, and South America. The product has been contracted for delivery through November 2015.

Year-to-date, CWT has assisted member cooperatives in selling 31.475 million pounds of cheese, 26.482 million pounds of butter, and 20.071 million pounds of whole milk powder to twenty eight countries on five continents.

Three California producer trade associations, the California Dairy Campaign (CDC), Milk Producers Council (MPC), and Western United Dairymen (WUD) submitted a proposal to the California Department of Food and Agriculture for its June 3 milk pricing hearing that would temporarily modify the Class 4b pricing formula, specifically the portion of the Class 4b calculation that relies on dry whey prices as an input, and have crafted a proposal with those limitations in mind.

In a letter to CDFA, they requested that the changes be made August 1, 2015 to July 31, 2017 and specifically propose modifying the current sliding scale in the Class 4b formula to allow the whey factor to more closely reflect the whey value generated by the current Class III formula.

"The current formula has been in place since August 1, 2012 and it is clear that it fails to track the whey value in federal orders in a reasonable manner," the letter states. "In fact, since then, the California whey value averaged $1.79/cwt. lower than federal orders. We believe an adjustment to this calculation would not only restore equity in what our manufacturers are paying for milk relative to comparable manufacturers around the country, but would also generate much-needed revenue for dairy farmers, facing historically high operating costs."

The Dairy Institute of California (DIC), representing state processors also submitted proposed changes, arguing that "the whey scale currently used in the 4b formula is based on dry whey and is no longer representative of the whey values received by cheese plants operating in California."

It adds that the number of plants in the state making dry whey has diminished, and plants selling liquid whey increasingly find their liquid whey product's value is more closely tied to movements in the price of WPC 34 percent. DIC says "The whey price series used in the proposed formula would be the simple average of the weekly Central and West 34 percent Whey Protein Concentrate-Mostly prices as published in USDA's Dairy Market News between the 26th of the prior month and the 25th of the current month."

The changes are proposed to make the Class 4b pricing formula better reflect the current market situation and to balance the needs of producers and the diverse types of cheese plants that operate in the state of California. It is reflective of the value of whey to cheesemakers that concentrate liquid whey and sell it to other plants for further processing, and is therefore more appropriate for inclusion in an end-product price formula designed to calculate minimum regulated prices for milk." DIC proposes that the new whey scale be in effect for six months.

In other legislative news; Senate passage of the Administration-backed trade bill, 62-37, gives the President authority to complete trade deals that Congress can in turn approve or reject, but not change. Forty eight Republicans supported the measure, but only 14 of the Senate's 44 Democrats.

The International Dairy Foods Association gave lawmakers a thumbs-up on the vote stating in a press release: "We applaud the Senate for working together in a bipartisan manner to advance the TPA-2015 bill. We encourage the House to take up the legislation and pass it as soon as possible," stating that "Trade Promotion Authority is critical to ensuring that the U.S. dairy industry receives greater market access from the two trade agreements under negotiation, the Trans-Pacific and the Transatlantic Trade and Investment Partnership."

The National Milk Producers Federation and U.S. Dairy Export Council also commended the Senate for its action and urged the House to quickly pass their own TPA legislation. NMPF President and CEO Jim Mulhern said "Trade promotion authority is crucial to concluding trade agreements that will open foreign markets to more U.S. dairy products." "In the Trans-Pacific Partnership negotiations in particular, having TPA in place is essential to increase pressure on Japan and Canada to extend their best offers."

USDEC President Tom Suber added, "Knowing that a trade agreement will be considered by Congress under Trade Promotion Authority paves the way to press our negotiating partners to make their best offers on the most sensitive issues. Clearly, dairy exports fall into that category, and the U.S. needs all the tools it can muster to get the best possible deal."

The two organizations said TPA will increase congressional influence over trade negotiations and lead to agreements that are better for both the country and the dairy industry. TPA, which expired in 2007, is important to the U.S. dairy industry because the U.S. exports the equivalent of one-seventh of its milk production.

Meanwhile; New Zealand-based Fonterra Co-operative, Thursday, announced that it has reduced its forecast Farmgate Milk Price for the 2014/15 season and announced its new season forecast price. Chairman John Wilson said the revised forecast reflected the reality that global commodity prices had not increased as expected.

"World markets are over-supplied with dairy commodities after farmers globally increased production in response to the very good prices paid 12-18 months ago. This supply imbalance has heightened due to continuing good growing conditions in most dairy producing regions. This is a tough season and we will continue to keep our farmers informed as the season draws to a close given the current volatility," Wilson said.

Matt Gould, editor and analyst with the Dairy and Food Market Analyst newsletter, said in Friday's DairyLine that there was a third price announced that didn't get the headlines, the so-called "Advanced Price."

The forecast Farmgate price for the 2014/15 season was reduced 10 cents, to $4.40 per kgMS. Along with its previously announced forecast dividend range of 20-30 cents per share, the change amounts to a forecast Cash Payout of $4.60 - $4.70 that would be paid to a fully shared-up farmer, according to Fonterra, but Gould estimates the cost of production around $5 per kgMS, so even with the dividend, still falls short.

The forecast price for the 2015/16 price is less valuable, according to Gould, because "Fonterra has no ability to forecast the future any better than anyone else."

"The key thing that didn't make the headlines," he said, "Is the Advanced Price which was reduced substantially from last year. The Advanced Price is what dairy producers get paid before the final payout and it was reduced by $1 compared to a year ago."

"New Zealand farmers are going to be in a cash flow crunch heading into next year," he concluded, "And we may even see a drawdown in farmers occur during summer as a result."