California dairy producers, processors agree on milk price
By LEE MIELKE
For the Capital Press
California dairy producers and processors may have come to an agreement over milk prices in the state.
Western United Dairymen (WUD) reported that California dairy producers filed a petition with California Department of Food and Agriculture Secretary Karen Ross asking for a hearing to implement a pricing deal negotiated and agreed to the week of July 15 by farmers, cheese makers, and the California Legislature.
The petition was filed by WUD, California Dairies Inc., Milk Producers Council and California Dairy Campaign.
The deal will narrow the price between what California dairy producers receive for milk going into cheese production and the price paid by processors for the same milk in surrounding states. The cost will not be passed on to consumers. Those who read this column know that I have regularly pointed out the price gaps between California 4b cheese milk prices and the federal order Class III.
Dairy producers and processors agreed on a short-term fix of $110 million in new money that cheese processors will pay into a pool shared by producers. The money will come from increasing the price of 4b milk up to 46 cents per hundredweight and by expanding the whey scale from its existing cap of 75 cents per cwt. to $1.
WUD CEO Mike Marsh said the proposal would amount to about 30 cents per cwt. on the producer's All Milk price and could possibly be in effect by Sept. 1.
"Negotiating this deal for the dairy industry was a heavy lift for the California Legislature," said WUD board president Tom Barcellos. "We are very happy that the members were forceful in getting stakeholders to an agreement."
He said that Assembly member Richard Pan, D-Sacramento, was instrumental in negotiating the deal, "recognizing that dairy is not only vital to human nutrition, but vital to the state's economic engine. Dairy is the number 1 agriculture commodity in California and is responsible for more than a half-million jobs in the state."
As part of the agreement, Pan authored AB 1038, which would charge a California Dairy Future Task Force, made up of dairy producers, processors and co-ops, with providing economic research materials and proposed structural changes to the industry's milk pooling and pricing programs.
"California's dairy producers have suffered more than $2 billion in losses in the past five years, forcing nearly 400 dairy farms in California out of business," WUD stated. "The remaining 1,500 dairies are fighting for survival."
I asked Milk Producers Council's Rob Vandenheuvel about the reasoning that California cheese producers need to pay a lower price for milk because of shipping charges in order to be competitive with their Midwest counterparts. He said transportation is not the issue because there's an FOB adjustor in the regulated formula which discounts the farmer's price by 10-20 cents per cwt.
"The issue," he said, "is that in the past three years there has been a huge and significant expansion of that discount, not related to any transportation issue but some arbitrary formula decision that the secretary of agriculture has made."
When asked if there was a possible lesson here nationally on how to get dairy producers and processors to come together for the betterment and survival of each other, Vandenheuval replied, "That's probably a bit of a stretch. California is not exactly the model that you'd want to craft the rest of the industry's policy discussions after. California is a state where cheese manufacturers have, quite frankly, got spoiled from many, many years of some of the lowest cost milk in the country."
He called the agreement "a first step forward in a longer path."
Milk production up
June milk production in the top 23 producing states hit 15.8 billion pounds, up a strong 1.6 percent from June 2012, according to preliminary data in USDA's June Milk Production report. The 50-state output, at 16.93 billion, was up 1.5 percent. Revisions added 47 million pounds to the original May estimate, now put at 16.6 billion pounds, up 1.1 percent from a year ago. The April to June quarter saw output total 52 billion pounds, up 0.9 percent from the same period a year ago.
California's June production slipped 0.8 percent while Wisconsin was up 1.8 percent. Idaho was unchanged, New York was up 3.9 percent, Pennsylvania up 2.4 percent, and Minnesota was up 1.9 percent. Michigan was up 3.7 percent, New Mexico up 1.2 percent, Texas up 1.9 percent, while Missouri was down 4.2 percent, the only state besides California to show a decline.
Cull numbers mixed
USDA estimated 247,700 culled dairy cows were slaughtered under federal inspection in June, down 27,400 from May and 8,900 less than June 2012, according to the latest Livestock Slaughter report. It's the smallest monthly total in 23 months, dating back to July 2011.
Despite the slowdown, the January-June 2013 total was estimated at 1.567 million head, 43,600 more than the same period in 2012. And, looking at weekly slaughter totals, 56,600 cull dairy cows were sent packing during the week ending July 13, the highest total in seven weeks.
Checking the cupboard, USDA's monthly Cold Storage report shows June butter stocks hit 324.07 million pounds, up 1 percent from May but a whopping 33 percent, or almost 81 million pounds, above June 2012.
Cheese stocks down
American type cheese, at 705.19 million pounds, was down 1 percent from May but 6 percent above a year ago. The total cheese inventory came to 1.149 billion pounds, unchanged from June but 5 percent ahead of a year ago.
The Daily Dairy Report pointed out that this is the first month-to-month decline in American cheese stocks this year and that "despite strong world dairy product prices, higher stocks of butter and American cheese are continuing to put downward pressure on domestic prices."
The peak of butter production historically occurs in May or June, the DDR said. "The latest stocks data suggest inventories reached their peak in June, with the draw down anticipated to begin in earnest this month."
FC Stone dairy economist Bill Brooks said, "There's a lot of cheese in inventory but not all of it is eligible to trade on the exchange," and he said commercial butter stocks are the highest in more than four decades.
Export aid OK'd
Cooperatives Working Together (CWT) accepted 16 requests for export assistance this week to sell 2.3 million pounds of cheddar cheese and 3.4 million pounds of butter to customers in Asia, Central America, Europe, the Middle East and North Africa.
The product will be delivered through January 2014 and raised CWT's 2013 cheese exports to 74.5 million pounds, plus 60.3 million pounds of butter, 44,092 pounds of anhydrous milk fat and 218,258 pounds of whole milk powder to 34 countries.
Cash block cheese, while up for the fourth week in a row, lost 2 cents on Friday, closing at $1.7625 per pound, up a penny and a half on the week and 5 3/4-cents above a year ago. Barrel closed at $1.76, up 2 cents on the week, 7 1/2-cents above a year ago, and just a quarter-cent below the blocks. Five cars of block traded hands on the week and 11 of barrel. The lagging AMS-surveyed U.S. average block price lost 2.3 cents, slipping to $1.6836. Barrel averaged $1.6896, up 0.3 cent.
Activity among cheese buyers has increased as hedging opportunities improved, according to USDA's Dairy Market News (DMN). Although stocks are plentiful, some buyers feel that cheese production may slow as milk supplies tighten due to the heat which was lowering production and component levels.
Spot butter closed at $1.4325, down 5 3/4-cents on the week and 23 3/4-cents below a year ago. Only two cars were sold on the week. AMS butter averaged $1.4446, down 6.2 cents.
Western butter markets are unsettled with little clear direction, says DMN. Stocks remain heavy. Hot weather across the West is affecting available milk supplies and butterfat levels. Domestic butter demand is steady for this time of year and export interest remains fairly good.
Cash Grade A nonfat dry milk inched a half-cent higher, to $1.78, with three cars trading hands on the week. Extra Grade remained at $1.73. AMS-powder averaged $1.7357, up 1.7 cents. Dry whey averaged 58.35 cents, up a penny.
Milk production across the nation continues to decline seasonally as summer advances, according to USDA. Bottling use is mostly steady, but many bottlers note they are on the cusp of strong demand for fluid milk for schools reopening.
Back to the futures
Second half federal order 2013 Class III contracts portended an $18.48 per hundredweight average on June 14. That figure slipped to $18.34 June 21, $17.87 on June 28, $18.02 on July 5, $17.91 on July 12, $18.33 on July 19, and was trading around $17.94 late morning July 26.
Updating things on the Farm Bill, DairyBusiness Update (DBU) reports that a formal conference committee between the House and Senate to resolve differences between the two versions is on hold as House Republican leaders continue to strategize their next step on the bill's nutrition title, according to the National Association of State Departments of Agriculture.
With less than two weeks before Congress begins its August recess, House leaders have yet to unveil separate legislation dealing with the nutrition programs. While it would be possible to begin a conference without the House addressing them, it has been widely expected that House leaders would attempt to address those programs before appointing conferees, according to DBU.
The International Dairy Foods Association (IDFA) warned that a conference of the House and Senate versions of the Farm Bill seems unlikely until after the August recess. The Senate has officially asked that a conference committee be formed to negotiate the Farm Bill, noting that its version has significant differences from the House-passed bill. Senate Ag Committee Chair Debbie Stabenow, D-Mich., announced that the ratio of Senate Democrats to Republicans would be 7-5, but did not name the participants.
The National Milk Producers Federation (NMPF) and the U.S. Dairy Export Council (USDEC) applauded Vice President Joe Biden's remarks during a speech July 24 in India calling for expanded trade between India and the U.S. The vice president also pointed to the need to negotiate and work through barriers to market access, among other trade priorities.
"For far too long, a wide range of U.S. dairy products have been effectively locked out of the Indian market without sound scientific justification," said Tom Suber, president of USDEC. "U.S. dairy products are sold in over 100 markets around the world and are well known for their high level of food safety. We look forward to renewed discussions with India on how to remove inappropriate barriers to market access for safe products."