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Recent headlines:
  • EU’s Milk Output Continues to Slow
  • Higher Limit for EU Public Intervention
  • U.S. Milk is Growing, but the Rate is Slowing
  • GDT Auction Disappoints for Individuals Hoping for Higher Markets
  • Brexit Adds Confusion to an Already Volatile Dairy Market
  • U.S. Cold Storage Report Up BIG… Again
  • Whey Complex Continues to Grind Higher

EU’s Milk Output Continues to Slow

–          EU dairy produced 1.6% more milk YOY in April ’16- much lower than the 5.7% jump in
           production we saw in the 1st quarter of ’16. Ireland was 4.1% less than April ’16 YOY and
           France (EU’s 2nd largest milk producer) was down 1.1% in April ’16 YOY.
–          UK milk deliveries in the last two weeks of June (ending June 25th) were 9.1% lower YOY. At
           the same time, a YOY comparison of France’s output fell 2.3% and Germany fell 1.2%.
–          Although, Official May Eurostat milk production has not been officially published, forecasters
           compiling weekly collection numbers believe the EU will only see roughly 0.4% YOY growth in
           May.
–          Jan-Apr ’16, the EU is up 5.8% in Dairy Cow slaughter numbers with the rate continuing to
           rise.

Higher Limit for EU Public Intervention

–          EU has increased the Skimmed Milk Powders intervention ceiling from 218k tons to 350k tons.
–          Original ceiling of 109k tons was previously doubled in April.
–          New intervention Volume is fixed price, as the EU hopes this is the last intervention needed to
           re-balance supply and demand.
–          In addition to the intervention, the EU Agriculture commission is also putting together a
           financial support package for the dairy sector.

U.S. Milk is Growing, but the Rate is Slowing

 –         Southern areas (and California) throughout the US are experiencing decreased milk
           production with hot temperatures. Cooler areas like the Midwest are still experiencing mild
           summer conditions and milk production remains strong.
          Wisconsin nearly offset California milk losses in June.
–          Expected high heat in August should affect milk production.
–          Since natural cheese production is very low in Russia, Substitute cheese is the only option for
           most Russian consumers.

GDT Auction Disappoints for Individuals Hoping for Higher Markets

–          July’s Global Dairy Trade (GDT) ended with the overall index falling 0.4% below the previous
           event.
–          Butter fell 3.1%, Cheddar Cheese fell 0.5%, and Skim Milk Powder rose 2.6% in pricing.
–          The GDT results contributed to an immediate 3 cents on Cheddar blocks spot prices.
–          The largest effect the GDT had was on cheese futures. The bearish GDT results had most
           CME futures fall 1-3%.
–          CME Butter prices continue to rise despite bearish news.

Brexit Adds Confusion to an Already Volatile Dairy Market

–          UK was the EUs second largest and most stable economy.
–          British pound and Euro currency plummeted after the news, while the dollar strengthened.
           This will have a negative affect on American Dairy exports, as cheaper European currency
           will widen the gap on export prices in favor of the EU.
–          British Dairy industry will no longer be included in EU dairy intervention programs that help
           farmers and dairy processors when markets are considerably long.
–          British could face substantial tariffs in the near future “importing” cheese to their former EU
           partners. British Dairy processors will have to look elsewhere for homes as tariffs are being
           negotiated.
–          Russian President Vladimir Putin has extended Russian trade embargo until December
           31st 2017. There were hopes that this embargo would be ended in the near future and
           Russia’s dairy demand would help bring global supply balance, as Russia was once one of the
           EU’s largest customers for Dairy products.
–          Russia is attempting to expand its dairy industry to become self-sufficient. They are far from
           that goal. A reaction to fewer dairy solids coming into the country, Russia has imported 67%
           more palm products (primarily from Indonesia). The majority of this palm product goes into
           substitute cheese.

U.S. Cold Storage Report Up BIG… Again

–       Inventories of natural cheese reached the highest levels of all time in a May cold storage report
        (1.25 billion pounds). Cheese stocks of all varieties are up 12.4% from a year ago.
–       Butter inventories are up 9.9% from April and 22.5% YOY in May (largest stock since 1993).
–       Despite heavy inventory, cheese and butter prices remain strong given the circumstances. Even
        stranger, “All milk” prices fell $0.50 to $14.50 in May, the lowest since October 2009. Corn and
        soybean prices are also up; two key feed ingredients for dairy cattle as well as the largest
        operating cost for a farmer. Anecdotal reports state that it is the strong restaurant demand that is
        driving butter and cheese prices up (all day breakfast etc.) Yet USDA’s commercial
        disappearance report is nearly unchanged for YOY (see class III milk prices versus Cheddar
        block prices graphs below).
July Dairy Market Update Pic 3
July Dairy Market Update Pic 4
July Dairy Market Update Pic 5

 Whey Complex Continues to Grind Higher

–          Chinese demand in Pork is out pacing its supply. Farmers are buying food grade whey to feed
           their pigs, as well as food grade permeate for their piglets.
–          Chinese infant formula demand continues to support the whey complex with April’s YOY WPC
           imports up 5.5%.
–          WPC and WPI prices continue to improve as Summertime Sports nutrition demand is in effect.
–          High-protein products should remain flat in the near term with upward momentum in Q4 as
           there is less milk going to the cheese vats and making whey.
July Dairy Market Update Pic 6
July Dairy Market Update Pic 7