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Dairy title brings big changes to safety net

Lee Mielke's weekly wrapup of dairy news.

By Lee Mielke

For the Capital Press

Published on January 31, 2014 12:11PM

Last changed on January 31, 2014 12:36PM

Lee Mielke

Lee Mielke

The House of Representatives passed the new farm bill Wednesday, 251 to 166. The Senate is expected to approve the measure Tuesday, following a cloture vote on Monday and send it to the president for his signature.

The bill is bittersweet for the National Milk Producers Federation, which fought long and hard for a controversial supply management provision to control milk production, only to see it dropped when House Speaker John Boehner threatened to keep such a bill from even coming to the floor for a vote.

NMPF released an analysis of the resulting proposal, which it supports and points out that the main feature is the Dairy Producer Margin Protection Program. NMPF says the Margin Protection Program is a “new and unique safety net program that will provide dairy producers with indemnity payments when actual dairy margins are below the margin coverage levels the producer chooses on an annual basis. Its focus is to protect farm equity by guarding against destructively low margins, not to guarantee a profit to individual producers. The farm bill requires the Margin Protection Program to be established no later than Sept. 1, 2014.”

NMPF cautions that the program supports producer margins, not prices, and is designed to address both catastrophic conditions as well as prolonged periods of low margins. Under this program, the “margin” will be calculated monthly by USDA and is simply defined as the all-milk price minus the average feed cost.

Average feed cost is determined using a feed ration that has been developed to more realistically reflect those costs associated with feeding the entire dairy farm enterprise consisting of milking cows, heifers, and other related cost elements.

The new farm bill also creates a new Dairy Product Donation Program that would be triggered in the event of extremely low operating margins for dairy farmers and would also provide nutrition assistance to individuals in low income groups by requiring USDA to purchase dairy products for donation to food banks and other feeding programs.

The program would only activate if margins fall below $4 for two consecutive months and would require USDA to purchase dairy products for three consecutive months, or until margins rebound above $4. The program would trigger out if US prices exceed international prices by more than 5 percent. Under this provision USDA would purchase a variety of dairy products to distribute to food banks or related non-profit organizations. USDA is required to distribute, not store, these products and organizations receiving them would be prohibited from selling them into commercial markets.

The bill eliminates the Dairy Price Support Program and the Dairy Export Incentive Program, the Federal Milk Marketing Order Review Commission established in the previous farm bill, and, once the Margin Protection Program is up and running, the Milk Income Loss Coverage program will be ended.

Three existing dairy programs are renewed through 2018; the Dairy Promotion and Research Program, the Dairy Indemnity Program, and the Dairy Forward Pricing Program. To read complete details log on to http://www.nmpf.org/files/Farm-Bill-Dairy-Title-Summary-012814.pdf

The International Dairy Foods also gave thumbs-ups, commending farm bill conferees for their hard work and congratulating them on “reaching a compromise that represents historic reform of our nation’s dairy policies.”

Prices break records

Meanwhile, cash dairy markets ended January at record highs for cheese and some Class III futures. The February contract settled Thursday at $23.29 per hundredweight, up $3.08 in three weeks and highest milk price ever of any class.

The Cheddar blocks, up for the fourth week in a row, closed Friday at a record high $2.36 per pound, up 5 cents on the week, 71 1/2-cents above a year ago, and up 36 cents since Jan. 1. The barrels finished at a record $2.32, up 4 1/2-cents on the week and 77 3/4-cents above a year ago. Four cars of block traded hands on the week and three of barrel. The NDPSR block price averaged $2.1382, up 6.9 cents. Barrel averaged $2.1496, up 10.7 cents.

Cheese production is mixed across the country as record high cheese prices have buyers and sellers trying to develop new strategies, according to USDA’s Dairy Market News. Milk supplies are increasing seasonally however the increases are not moving solely to cheese manufacturers. Class IV interest continues to pull milk away from cheese plants. On the down side, the higher prices have reduced some domestic cheese demand, according to DMN, but very good export sales, often made last year and being delivered in the first quarter of 2014, are keeping supplies of cheese tight.

Butter finished at $1.88, down 1 cent but 32 1/2-cents above a year ago. Ten cars were sold on the week. NDPSR butter averaged $1.6689, up 4 1/2-cents.

Churns across the U.S. continue to run at levels greater than seasonal trends, according to DMN. “The market has a firm tone as exceptional demand is inhibiting many manufacturers from rebuilding low inventories,” says DMN, and butter makers are busy filling good 82 percent orders for export. Domestic demand is above expectations in the Central and Northeast regions, but a little slower in the West.

Grade A nonfat dry milk closed Friday at $2.04, down a penny on the week. Twenty-three cars were sold on the week. NDPSR powder averaged $2.0434, up 0.8 cent, and dry whey averaged 60.87 cents, up 1.3 cents.

Farm milk production is on the rise across the U.S., according to DMN.

Milk increases in areas experiencing cold weather are less pronounced as cows use feed energy to maintain body warmth instead of adding to milk production. With school pipelines full, fluid milk demand is at seasonal levels in most areas. Winter storms are causing short-term spikes in bottled milk demand in the affected areas. Supplies of manufacturing milk are trending higher. A few cheese plant managers in the Central region indicate, though, that additional loads of milk are difficult to obtain. Some managers have looked for ultra filtered UF milk to enhance cheese production, but loads of UF have also been scarce.

Livestock auctions in the West show strengthening prices for dairy heifers since the beginning of January, according to DMN. In most regions, operating margins have improved through Fourth Quarter 2013 and into January 2014 as milk price trends remain strong and near term feed input costs decline.

Challenges remain in fluid milk consumption. USDA reports that November 2013 packaged fluid milk sales totaled 4.39 billion pounds, down 2.1 percent from November 2012. Sales were not adjusted for calendar considerations. November sales of conventional products, at 4.19 billion pounds, were down 2.2 percent; organic products, at 193 million pounds, were up 0.7 percent. Organic represented about 4.6 percent of total sales for the month.

January-November 2013 total packaged fluid milk sales, at 47.15 billion pounds, were down 2.4 percent from the same period a year earlier. Year-to-date sales of conventional products, at 45.09 billion pounds, were down 2.7 percent; organic products, at 2.07 million, were up 4.3 percent. Organic represented about 4.6 percent of total fluid sales, according to USDA data.

U.S. commercial disappearance of dairy products totaled 17.72 billion pounds in November, up 5.4 percent from November 2012. Year to date, total disappearance hit 187.86 billion pounds, up 1.23 percent from 2012. American cheese disappearance in November hit 366.1 million pounds, up 0.3 percent from a year ago. Other than American cheese, at 627.3 million pounds, was up 5 percent; butter, at 204.5 million, was up 23.9 percent; and nonfat dry milk, at 93 million pounds, was down 0.3 percent.

CWT accepts 29 requests

In exports news, Cooperatives Working Together continues to move product offshore and accepted 29 requests for export assistance this week to sell 5.758 million pounds of Cheddar, Gouda and Monterey Jack cheese and 551,156 pounds of butter to customers in Asia, Central America, the Middle East and North Africa. The product will be delivered through June and brings CWT’s 2014 export sales to 8.494 million pounds of cheese and 3.542 million pounds of butter to 12 countries on four continents.

The U.S. Dairy Export Council’s Alan Levitt says the most significant part of the Jan. 21 Global Dairy Trade auction was what he referred to as the “Forward curve.” Levitt explained that is the “winning bid prices out into the future,” and “they’re all basically flat or rising.” The forward curve on U.S. delivered skim milk powder, for example, is close to $4,500 per ton or over $2 a pound through July, he said, and “significant because it tells us that the market seems to think that things are going to hold for quite awhile.”

He believes pent up demand is responsible.

“Buyers were looking at the high prices toward the end of 2013, hoping things would pull back in early 2014,” Levitt said, “And they just haven’t and now they have to come back to the market and continue to buy and continue to pay these historically high prices for all the commodities.” Levitt says that bodes well for price into mid-year.

“China is the most important factor driving global dairy markets right now,” Levitt says, and December import numbers were up significantly. Second half imports of milk powder, whey, cheese and butterfat were up 52 percent from a year ago, he said, “So they’re absorbing any increase in world milk production or supply.” That is significant on two fronts, he concluded, namely the quantity China is importing and the fact that they’re willing to pay historically really good prices.

California drought

Back on the home front, a lot of attention is being paid to the drought in California, but is it man-made? Yes, according to an article in the Jan. 24 Milk Producers Council newsletter where MPC’s Rob Vandenheuvel points out that California dairy farms produce about 20 percent of the nation’s milk and that nearly half of U.S.-grown fruits, nuts and vegetables come from California.

“The availability of water in the Central Valley has a huge impact on U.S. availability of food (not to mention the global consumers of our products as well),” says Vandenheuvel, “But, while much of the media attention has been on the lack of rain, which is certainly a valid observation, we as a local agricultural industry know that this drought was largely set in motion by human actions.”

He points to federal policies, which have “resulted in a higher priority being set on the well-being of a 3-inch fish over the well-being of millions of California residents.” He reports that 12 months ago, California authorities released 700,000 acre-feet of usable fresh water out of the Sacramento-San Joaquin River Delta, and into the Pacific Ocean, something not seen in the media stories but is verified in California’s Natural Resources Agency’s website: http://goo.gl/3j7vUy.

He says it was not due to a lack of storage capabilities but “a fear that if the water were pumped from the Sacramento-San Joaquin River Delta into available storage facilities, it might have killed some of the Delta Smelt, a 3-inch fish that happens to be on the U.S. endangered species list.

He charged that “700,000 acre-feet of water is more than 260,000,000,000 gallons and, by the Natural Resources Agency’s own admission, enough to irrigate more than 200,000 acres of farmland or supply 1.4 million households for a year.” Read complete details at the MPC website: www.milkproducers.org.


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