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No farm bill or ‘dairy cliff’ ahead

Lee Mielke's weekly wrap-up of dairy news.

By Lee Mielke

For the Capital Press

Published on December 13, 2013 1:02PM

Lee Mielke

Lee Mielke

Leaders of the House and Senate Agriculture committees continued to negotiate this week to break the impasse over the long-pending farm bill, reports the National Milk Producers Federation (NMPF). Differences include the final shape of the dairy title, but also include the level of food stamp cuts and conflicts between row crop producers in various parts of the country.

The House of Representatives, which was scheduled to adjourn for the year Friday the 13th, passed a bipartisan budget for the first time in four years and approved a stopgap Farm Bill measure to buy some time and finish the process in January. It remains to be seen if the Senate will go along with either one.

National Milk’s Chris Galen stated, “Whether or not a short-term extension is approved (and it doesn’t look as if the Senate will do so, even though the House has), we need Congress to make passing a new farm bill a priority as soon as possible in January, not just to prevent a dairy cliff, but because we need the assurances of a new and better safety net for dairy farmers.”

Galen referenced the one-month extension, saying the federation is “very apprehensive,” considering it was extended New Year’s Day of this year. He argued that there’s almost three weeks left in December and the Senate has said it would not consider any extension.

House Agriculture Committee Chairman Frank Lucas, R-Okla., issued a statement Tuesday after the four principals met to discuss outstanding issues relating to the farm bill. “We have made great progress on the farm bill and continue to have productive meetings. There are still some outstanding issues that we are addressing. I am confident we’ll work through them and finish a farm bill in January. Concurrent with our ongoing discussions this week, I will file legislation to extend the current farm bill through January to allow us to finish our work without the threat that permanent law will be implemented. Having this option on the table is the responsible thing to do in light of our tight deadline.” It was also pointed out that the 2002 farm bill was extended six times before the 2008 farm bill was enacted.

There’ll be no new Farm Bill in 2013 but there won’t be any “dairy cliff,” according to Cornell University’s Andrew M. Novakovic. In an information letter issued this week, Novakovic stated that a year ago, as Jan. 1, 2013, was approaching, there was much speculation about what could happen if Congress failed to either enact a new Farm Bill or extend the old one. In the lingo of the day, this date was referred to as the “dairy cliff.” He says there is common agreement that a Farm Bill extension should be avoided but it’s clear that the process won’t be completed before Dec. 31.

Dairy price supports won’t revert to their 1949 version until Jan. 1, 2014, according to Novakovic, assuming there is no action by Congress to avert it before then. A literal interpretation of reverting to the 1949 Act would be that the ag secretary would be obliged to announce a support price for milk of no less than 75 percent of the parity price for milk on Jan. 1, based on the parity price calculated for December 2013.

Although the 1949 (and 1938) programs become the law of the land upon expiration of the current farm bill, nothing actually happens until USDA takes certain actions, a “tricky bit of business for the secretary,” Novakovic wrote. “The secretary can announce a $37 support price for milk, but until USDA announces the purchase prices for dairy commodities and releases the formal invitations for offers at those purchase prices, nothing happens to markets, other than perhaps rampant speculation.

It is USDA purchases of butter, cheese, and nonfat dry milk (NDM) at specific prices that moves market prices, not a simple declaration by the secretary about the support price for milk. USDA could take a while to get machinery in motion, while Congress presumably came to its senses and retroactively stopped it all.”

“Inasmuch as the secretary has a fair amount of flexibility in how he implements the support program, it is conceivable that the secretary might invoke a rule-making procedure to solicit comments from the industry on how to implement a required support price of $37 or whatever it might be. This could forestall actual market intervention for a period of time.” Read complete details at http://www.dairymarkets.org/PubPod/Pubs/IL13-04.pdf.

Production forecast reduced

The Agriculture Department reduced its 2013 milk production forecast slightly from last month, in this week’s World Agricultural Supply and Demand Estimates report, based on recent estimates of cow numbers. Department bean counters now project output at 201.6 billion pounds, down 100 million pounds from last month’s estimate, and compares to 200.3 billion in 2012. The forecast for 2014 was raised as higher milk forecast prices and lower expected feed costs support a more rapid increase in cow numbers and output per cow. Look for 2014 output to hit 205.3 billion pounds, up 400 million pounds from last month.

The 2013 cheese price forecast was reduced, reflecting current prices. However, strength in current prices for butter, nonfat dry milk and whey resulted in higher price forecasts for those products. For 2014, despite higher dairy production, demand strength in importing countries and improving domestic demand in the U.S. is expected to support prices for all products, according to USDA.

The 2013 Class III milk price forecast was unchanged as lower forecast cheese prices offset higher whey prices but the forecast was raised for 2014 based on higher forecast cheese and whey prices. The 2013 average is now projected at $17.90-$18, unchanged from last month’s report, and compares to $17.44 in 2012 and $18.37 in 2011. The 2014 average is expected at $17.05-$17.85, up from the $16.85-$17.75 projected a month ago.

The Class IV price forecast was raised for both years on higher butter and NDM prices. The 2013 average was estimated at $18.95-$19.15, up 15 cents on both ends and compares to $16.01 in 2012 and $19.04 in 2011. The 2014 Class IV average was projected at $19-$19.90, up from last month’s $18.60-$19.60.

On the feed side of the equation, U.S. corn use for 2013/14 was projected higher, with increases for food, seed and industrial use and for exports. Corn used in ethanol production was projected 50 million bushels higher, reflecting the strong pace of weekly ethanol production since mid-October. Corn used for ethanol production in the 2013-14 marketing year was estimated at 4.95 billion bushels, up from 4.90 billion bushels estimated in November, and up from 4.65 billion bushels used in 2012-13. Exports are also projected 50 million bushels higher based on the pace of sales to date and higher expected global consumption. Projected U.S. ending stocks are lowered 95 million bushels.

Even with lower ending stocks, the projected season-average farm corn price range was lowered 5-15 cents, to $4.05-$4.75 per bushel. Average prices received by farmers, however, are expected to continue to be reported above prevailing cash bids well into early 2014, as some sales will reflect the higher forward prices available before harvesting.

Although U.S. soybean production remained unchanged, 2013/14 supplies were raised 10 million bushels on stronger-than-expected early season imports. Soybean exports were increased 25 million bushels to 1.475 billion, reflecting record commitments (shipments plus outstanding sales) through November.

Soybean crush was raised 5 million bushels to 1.690 billion, as strong foreign demand for soybean meal, led by the European Union and Southeast Asia, more than offsets a reduction in domestic soybean meal use. The U.S. season-average soybean price range for 2013/14 was projected higher, at $11.50-$13.50 per bushel, up 35 cents on both ends. The soybean meal price was projected at $400-$440 per ton, up $25 on both ends.

The California Department of Food and Agriculture announced the state’s January 2014 Class milk price at $22.84 per hundredweight for the north and $23.11 for the south. Both are up $1.11 from December 2013 and are $2.60 above January 2013.

Cheese price increases

Cash cheese closed Friday the 13th at $1.9250 per pound on the 40-pound Cheddar blocks, up 5 1/4-cents on the week and 20 cents above a year ago. The 500-pound barrels finished at $1.83, down a quarter-cent on the week, 20 1/2-cents above a year ago, but an atypical 9 1/2-cents below the blocks. Seven cars of block were sold on the week and two of barrel. The AMS-surveyed U.S. average block price hit $1.8430, down 0.3 cent, and the barrels averaged $1.8106, down 0.1 cent.

Cheese production was up the first week of December due to increased available milk supplies over the holiday, according to USDA’s Dairy Market News (DMN). Demand for block cheese is strong as retailers look to restock shelves. Export demand is also good and some manufacturers report tight inventories.

Cash butter saw a third week of decline, closing Friday at $1.57, down 7 1/2-cents on the week and 2 1/2-cents below a year ago. Seven cars traded hands this week. AMS butter averaged $1.6559, up 5.1 cents.

Butter production is mixed across the country, according to DMN, and demand is good to strong throughout most of the country, with increasing export demand in the Northeast and good international interest in the West.

Cash Grade A nonfat dry milk closed at $2.08 per pound, up 2 1/4-cents on the week. Extra Grade closed at $2.0450, also up 2 1/4-cents. AMS powder averaged $1.9363, up 2.7 cents, but dry whey averaged 55.86 cents, down 3.4 cents.

Nonfat dry milk exports jump

USDA’s Foreign Agricultural Service reports that October U.S. nonfat dry milk (NDM) exports totaled 114 million pounds, up a whopping 56 percent from a year ago. Mexico is the leading NDM importer for the year, at 337.2 million pounds, over triple the second leading importer, Philippines, at 111.3 million pounds.

DairyBusiness Update reports that Land O’Lakes (LOL) dairy products will start being offered on the GlobalDairyTrade auction (GDT) beginning March, 2014. It will initially offer skim milk powder (SMP) with the intent to offer butter later in the year. LOL will become the second U.S. company to offer product on the GDT and LOL’s involvement means six sellers will be offering SMP and three of butter.

High Ground Dairy’s Eric Meyer reports that Fonterra is the only seller to publicly publish volume data prior to each GDT event. He said he believes the addition of a new seller and its incremental volume “provides buyers with more opportunities to source product,” but warned, “Increased competition also has the potential to drive prices lower. That all depends, of course, on how much volume is actually offered by these sellers and the world’s thirst for dairy products.”

Speaking of exports, Cooperatives Working Together (CWT) accepted 33 requests for export assistance this week to sell 5.06 million pounds of cheese and 1.86 million pounds of butter to customers in Asia, Central America, Europe, the Middle East and North Africa. The product will be delivered through May 2014 and raised CWT’s 2013 cheese exports to 129.41 million pounds plus 91.64 million pounds of butter, 44,092 pounds of anhydrous milk fat and 218,258 pounds of whole milk powder to 40 countries on six continents.


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