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Farm bill changes dairy policy

Columnist Lee Mielke wraps up the week's dairy headlines.

By Lee Mielke

For the Capital Press

Published on February 7, 2014 10:47AM

Last changed on February 11, 2014 11:17AM

Lee Mielke

Lee Mielke

The Agriculture Department announced the January Federal order Class III milk price this week at $21.15 per hundredweight, up $2.20 from December 2013, $3.01 above January 2013, the highest level it has been since August 2011, and equates to about $1.82 per gallon. It is 84 cents above California’s comparable 4b cheese milk price.

Class III futures, as of late Friday morning, pointed to an unseasonal peak for the year at $22.99 in February and would be the highest milk price ever. The March contract was at $21.05; April, $19.80; May, $19.02; and June was at $19.04.

The January Class IV price, a record high $22.29, is up 75 cents from December and $4.66 above a year ago. The Class II price is $22.21, up 55 cents from December, $4.02 above a year ago, and the highest since August 2007.

The 4-week AMS-surveyed cheese price used in calculating this month’s prices averaged $2.0838 per pound, up 20.8 cents from December. Butter averaged $1.6475, up 1.7 cents. Nonfat dry milk averaged $2.0335, up 8 cents, and dry whey averaged 60.25 cents per pound, up 3.2 cents from December.

California’s 4b January 2014 cheese milk price is $20.31 per cwt., up $2.28 from December 2013 and $4.47 above January 2013. That is the highest it has been since July 2007’s $20.54 but shy of the record $21.18 in June 2007. The 4a butter-powder price is a record high $22.13, up 97 cents from December and $5.05 above a year ago. It trumps the September 2007 price of $21.62.

The 4b price is closer to the Federal order Class III milk price, just 84 cents below it. While that is the smallest gap in nine months, it’s not likely to give much comfort to California producers who saw that gap average $1.57 per cwt. in 2013, varying from 67 cents in April to as much as $2.30 in January 2013.

Farm bill signed

In politics, the Senate passed the long-awaited farm, 68 to 32, and the president was to sign it Friday. The signing ends two long years of partisan bickering and amounts to some $1 trillion in spending on crop agriculture, dairy, conservation, food stamps, nutrition, and international food aid to name a few.

National Milk Producers Federation President and Chief Executive Officer Jim Mulhern said, “It has been a long and torturous road toward the creation of a better safety net for dairy farmers.

“We didn’t wind up precisely where we wanted in terms of the dairy program,” he admitted, “But the milk glass is more than half-full. The new farm bill replaces three outmoded programs intended to help farmers but that often failed in that effort.

In their place is a new, more modern and more comprehensive margin protection program offering dairy producers a far better and more effective safety net,” he said. “Because it is designed to protect against periods of both low milk prices as well as high feed costs, margin insurance is a better risk management tool to help farmers deal with global volatility in commodity prices in the 21st century.”

California’s Milk Producers Council’s Rob Vandenheuvel wrote in his Jan. 31 newsletter, “Processors continue to be protected, but taxpayers are now on the hook for a much larger potential liability if dairy farmer margins drop. Every dairy in the U.S., regardless of size, has the opportunity to get government-subsidized margin protection on up to 90 percent of their production. So when margins drop, government payments won’t be limited to just the 2.985 million pounds that the MILC program paid out on. Their exposure will be exponentially larger than that.”

You’ll recall that supply management, as advocated by NMPF, was dropped from the dairy title, at the demand of House Speaker John Boehner. Vandenheuvel says that means “the government was comfortable assuming the additional financial liability that comes with a margin protection program that has no provisions aimed at restoring supply/demand balance.”

He concludes that “in five years, when this program is up for renewal we’ll have an opportunity to evaluate whether that was a wise choice or not. In the meantime, we operate in an industry that now exports about 16 percent of our production, and is therefore vulnerable to global shifts completely outside of our control like dollar valuations, global weather patterns or political unrest. We all hope for the best, but it is a very positive thing to have some of our downside price risk shared beyond just the 50,000 U.S. producers.”

The International Dairy Foods Association’s Jerry Slominski said, “The compromise dairy title in the farm bill represents historic reform of our nation’s dairy policies. This is a major step toward moving our dairy industry away from the failed agriculture policies of the past and toward policies of the future that will enable our entire industry to grow and capture new markets.”

Markets drop

Meanwhile cash cheese ended its record climb and started downhill this week, ending gains in the block price that occurred in seven of the previous eight weeks. They closed Friday at $2.2325 per pound, plunging 12 3/4-cents on the week but are still 58 1/4-cents above a year ago. The cheddar barrels finished at $2.2050, down 11 1/2-cents on the week, ending four consecutive weeks of gain, but 64 1/2-cents above a year ago. Eight cars of block traded hands on the week and two of barrel. The lagging NDPSR block price averaged $2.2271, up 9.1 cents, while the barrels averaged $2.2348, up 8 1/2-cents.

Record high cheese prices are becoming more of an issue for manufacturers, according to USDA’s Dairy Market News. While the high prices are welcome, there is increased resistance for purchases above immediate needs. Buyers are reluctant to build excess inventories at high prices as are manufacturers. Some plants that are in good shape inventory wise are allowing contracted milk to move to alternate production facilities.

Lower than expected milk volumes in the West were responsible for a large manufacturer to announce limited layoffs. Difficult winter weather in the East is being blamed for some production slowdowns but good export demand from previously committed sales continues to move cheese out of the country. U.S. prices are closer to international prices and have slowed current demand.

Cash butter closed the week at $1.82 per pound, down 6 cents on the week but 26 1/2-cents above a year ago. Twenty eight cars traded hands on the week. NDPSR butter averaged $1.7916, up 12.3 cents.

Butter manufactures are focusing on rebuilding inventories, according to DMN, but a mix of tight cream supplies, good domestic demand, and active export sales are “hindering the process. “

Cash Grade A nonfat dry milk closed Friday at $2.0175, down 2 1/4-cents. Eight cars sold in the cash market. NDPSR powder averaged $2.0638, up 2 cents, and dry whey averaged 61.36 cents per pound, up 0.5 cents from the previous week.

December 2013 milk production was up only slightly compared to a year ago, and most of that milk went to the cheese vat for the month, according to USDA’s monthly Dairy Products report. Butter output totaled 161 million pounds, up 12.9 percent from November but down 6.9 percent from December 2012. Nonfat dry milk production, at 125 million pounds, was up 24.2 percent from November but 20.8 percent below a year ago.

American type cheese output amounted to 376 million pounds, up 6.6 percent from November but 2.2 percent below a year ago. Italian type cheese, at 433 million pounds, was up 8.1 percent from November and 5.6 percent above a year ago. Total December cheese production came to 973 million pounds, up 4.9 percent from November and 2.3 percent above December 2012.

U.S. milk production is increasing in most areas except the Central region, where production is mostly stagnant due to the recent cold weather, reports USDA. Milk supplies are generally adequate, with occasional exceptions. Competition for milk in Utah and Idaho is outstripping supply, leading to some processor layoffs. Southeast weather is adversely affecting milk transportation.

As reported last week, livestock auctions in the West are showing strengthening prices for dairy heifers since Jan. 1, according to DMN. Improved operating margins are cited as a reason, something that is occurring throughout the U.S.

The Agriculture Department’s Cattle report issued Friday shows that, as of Jan. 1, the number of heifers 500 pounds and over expected to calve in 2014 totaled 2.98 million head, up 52,600 head or 2 percent from January 2013. But milk cow replacements, 500 pounds and over, totaled 4.54 million head, 12,000 less than a year ago. The dairy herd is pegged at 9.21 million cows, down 9,000 from a year ago.

The total number of cattle and calves in the U.S. on January 1 was 87.73 million head, down 1.6 million head or 2 percent below January 2013 and the lowest level since 1951. Cattle on feed, at 12.695 million head, are down 669,000 head or 5 percent from a year ago.

Global markets firm

Global dairy markets remain firm, according to the U.S. Dairy Export Council’s Global Dairy Market Outlook. It warned that milk production from the major suppliers is on the rise, but is easily absorbed by the market. “China is buying at unprecedented levels, supporting the entire dairy complex.”

Mild weather and record high milk prices have spurred a milk production recovery across Europe. New Zealand pastures are in good condition and production is ahead of a year ago. In the September-November period output was up 6.0 percent from the previous year. Production for the full 2013/14 is projected to be up 6-7 percent. However, drought in Australia has dashed hopes of growth this year.

Output in the first five months of the season was down 3.9 percent. U.S. production hasn’t yet responded to favorable margins, says USDEC, in the last four months of 2013, production was up just 0.5 percent from a year ago.

“China buying remains the key driver of the global dairy markets,” according to USDEC. In the last four months of 2013, China imported a staggering 550,404 tons of milk powder, whey, cheese and butterfat, more than the purchases of Russia, Mexico, Japan and Algeria put together. This figure is up 74 percent from the year before. For the full year, imports were up 34 percent from 2012 and up 61 percent from 2011. China’s appetite (and willingness to pay high prices) has squeezed out other buyers in recent months.

The bottom line is that USDEC expects the markets to remain firm well into second quarter, at least. New Zealand is now on the downhill side of the season, and production is focused on WMP at the expense of cheese, SMP and butter. “As China’s appetite is sated, other buyers will still need to stay in the market to rebuild their holdings. However, they may not be willing to buy at the lofty price levels of the Chinese,” says USDEC.

This week’s Global Dairy Trade auction saw the weighted average for all products up 0.5 percent, led by a 2.6 percent increase in butter. Cheddar cheese was down 4.3 percent, skim milk powder was virtually unchanged, and whole milk powder was up 1.4 percent.

The average butter price equated to about $2.1523 per pound, up from $2.1124 in the Jan. 21 event ($2.0249/lb. on 80 percent, down from $2.0609). The Cheddar cheese average was $2.2385 per pound, down from $2.3282.; skim milk powder, $2.1528 per pound, up from $2.1311, and the whole milk powder average was $2.2703 per pound, up from $2.2419 in the last event.

Cooperatives Working Together accepted 25 requests for export assistance this week to sell 3.89 million pounds of cheese, 209,439 pounds of butter and 518,086 pounds of whole milk powder to customers in Africa, Asia, Central America and the Middle East. The product will be delivered through June, and brings CWT’s year-to-date cheese exports to 12.38 million pounds, plus 3.75 million pounds of butter and 518,086 pounds of whole milk powder to 17 countries.


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