Global trade turmoil remains in the spotlight, and FCStone’s Arlan Suderman wrote in his July 16 Morning Commentary that “Europe and Japan have signed a trade agreement to fight against the protectionist efforts of the United States, failing to mention protectionist efforts of their own in recent decades.” He talked of the “battle of public opinion and political persuasion, with most countries decrying protectionism while fully engaged in the same, and aggressively so.”
FCStone’s Dave Kurzawski, in the July 23 Dairy Radio Now broadcast, said the ultimate question is, “Are we in this to build walls and barriers to slow global trade or expand it?” He said our actions right now appear to want to minimize global trade, which would be troubling for U.S. agriculture.
“One thing is clear,” he said. “The U.S. has no trade agreement with Japan and it looks like all the other major exporters now have at least some advantage, or will have an advantage, in the coming years.”
Suderman adds that “few countries are willing to fully eliminate tariffs and other protectionist mechanisms, although most want you to believe that is precisely the environment in which they operate.”
Kurzawski sees the Administration’s actions as an exertion of power and leverage to “essentially better our place at the negotiation table, and although things over the past eight weeks have been fairly grim as far as the trade wars are concerned, and it may still get worse before it gets better ... I do think there’s a light at the end of the tunnel.”
Back on the home front, the Agriculture Department’s latest Livestock, Dairy and Poultry Outlook, issued June 18, mirrored dairy projections in the July 12 World Agricultural Supply and Demand Estimates report. It also stated that “with lower expected milk prices, milk cows are expected to average 9.395 million head in 2019, a year-over-year contraction of 10,000 head. Yield per cow was forecast at 23,170 pounds in 2018 (15 pounds less than last month’s forecast) and 23,475 pounds in 2019 (20 pounds less than last month’s forecast).
Dairy margins were lower the first half of July, as trade tensions continue to batter milk and feed prices, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.
“Deteriorating milk prices across the board eclipsed favorable movement lower in corn and meal,” the MW stated. “July brought Chinese tariffs of 25 percent on a multitude of U.S. dairy imports, as well as a further phasing in of Mexican tariffs on U.S. cheese imports. Unfortunately, there are not any reported talks on either front. President Trump, however, did announce a proposal to add a 10 percent tariff on $200 billion worth of Chinese imports. The proposal will have hearings in late-August and a two-month review after that, perhaps giving time for a resolution to be hammered out prior to further escalations. China did not answer the new proposal with specifics but did promise future action,” the MW states.
The Agriculture Department’s latest Livestock Slaughter report shows that dairy cow culling dropped in June but remained slightly above a year ago. An estimated 237,500 head were slaughtered under federal inspection, down 7,600 head from April but 800 above a year ago. A total 1.57 million head were culled in the first six months of the year, up 73,300 head, or 4.9 percent, from 2017.
The August Federal order Class I base milk price was announced by the USDA at $14.15 per hundredweight, down $1.21 from July and $2.57 below August 2017. It is the lowest August Class I price since 2009’s $10.04 and equates to $1.22 per gallon, down from $1.44 a year ago. The eight-month average is at $14.54, down from $16.37 a year ago and compared to $14.10 in 2017.
Mid-July cash dairy prices were mixed as traders absorbed the week’s GDT and anticipated the July 20 June Milk Production report and July 23 June Cold Storage data, which I will detail next week.
Cheddar blocks closed the third Friday of the month at $1.52 per pound, down 4 cents on the week and 18.75 cents below a year ago. Barrels finished 15.25 cents lower at $1.27, 14 cents below a year ago and 25 cents below the blocks. A fluctuating price gap is apparently becoming the new norm in this market. Seven cars of block sold on the week at the CME and 41 of barrel.
Kurzawski wrote in his July 18 Early Morning Update that “there is still fear being baked into the market with the trade war uncertainty. If mozzarella exports continue to slow down, we can expect more barrels being offered on the market, which explains why we have such a large spread of plus-15 cents between blocks and barrels. Also, freight continues to be a huge issue for moving dairy commodities around the country in the past year. Moving barrels from Idaho eastward to where the demand is has been much more costly and can be another explanation why we have such a large spread.”
Dairy Market News says that some barrel producers are reporting slow sales this summer, leading to inventory management concerns. That said, a number of other varietal cheesemakers are seeing steady to increasing sales as the summer progresses. Spot milk prices were mostly up on the week, but there were some loads as low as $4 under Class III. The active spot milk trading range is between 50 cents under to $1 over Class. Cheese production varies by plant, but a growing number of Midwestern cheesemakers are allotting days off as milk becomes less available.
Spot butter closed July 20 at $2.25 per pound, up 2.5 cents on the week but 33.5 cents below a year ago, with eight carloads trading spaces on the week. Cream in butter churns became a Central region rarity the week of July 16, according to DMN, and as cream prices continue their upward climb, butter churners are taking a step back from the market. Some are returning cream to the spot market in lieu of churning. GDT index results were bearish on the butter side, but domestic markets continue to stand their ground, says DMN.
In a procedural move July 18, the House approved a motion to appoint conferees to meet with Senate counterparts to hammer out a final farm bill. The Senate is expected to do likewise this week. There are some differences to reconcile between the two versions, including the dairy title’s safety net, so the Compromise Committee will have its work cut out for it.