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Dairyline: Prices for cheese continue to fall

Published on March 14, 2010 3:01AM

Last changed on April 11, 2010 7:49AM

Lee Mielke

Lee Mielke

For the Capital Press

Cheese prices continued to bleed the second week of March but may have hit bottom.

Dairy Profit Weekly's recent headline that 2010 optimism may have been premature may be hauntingly true.

Cash block closed March 12 at the Chicago Mercantile Exchange at $1.2675 per pound, down 3 cents on the week, and just 1 3/4-cents above a year ago. The barrels closed at $1.2625, up a penny and a quarter on the week, but 5 1/2-cents below a year ago. The block price lost 23 3/4-cents in the last four weeks with comparable losses on barrel.

Twenty-five cars of block traded hands on the week and 35 of barrel. The latest NASS-surveyed block price averaged $1.4378 across the U.S., down 5.4 cents, while barrel averaged $1.3976, down 6.9 cents.

The CME's Daily Dairy Report points out that USDA data shows fourth quarter 2009 commercial American cheese use was down 2.5 percent from a year ago, thus ending five straight quarters of growth. However American declines were partially offset by stronger use of other-than-American cheese, meaning total cheese use in that quarter was up 1.5 percent.

Butter is, or was, the bright spot. After eight consecutive sessions of gain the butter price gave up 3 cents this week and closed Friday at $1.4550, up a half cent from the previous week and 27 cents above a year ago. Thirty-six cars were sold on the week. NASS butter averaged $1.4076, up 5.2 cents.

The University of Wisconsin's Dr. Robert Cropp said in Tuesday's DairyLine that a seasonal downturn after the first of the year was anticipated but "I don't think anybody anticipated it to be this low." He doesn't think it can go much lower but the government support price is $1.13 on block and $1.10 on barrel.

Cropp said the January Milk Production Report did not show a large enough decrease in milk production or in cow numbers, cheese stocks are relatively high, and cheese production is high.

Cash butter was being driven for the most part by the Easter-Passover holiday demand. Some people are also building stocks for the summer, Cropp reported, thinking that supply will be tighter then and there's been some interest on the export market. Butter stocks are down a little from a year ago as well, he said.

World nonfat dry milk prices are substantially above U.S. prices, although they have softened from a month or so ago according to Cropp, but they likely got a little too high and demand resistance formed.

The main powder exporters, New Zealand and Australia, have not seen the increase in milk production they had expected and world demand has picked up, Cropp concluded, and many in the U.S. expect U.S. powder exports to climb. Exports did improve in October, November, and December from earlier in 2009.

Meanwhile; the Agriculture Department has raised its 2010 milk production estimate in its latest World Agricultural Supply and Demand Estimates report to 189.5 billion pounds, up 600 million pounds from last month's projection, and compares to 189.3 billion in 2009. The report cited relatively low cow slaughter and reports that January milk cow numbers were higher than expected. The pace of herd reduction is slowed from last month, the report said.

Dairy exports on both a fat and skim-solids basis were lowered due to slightly weaker-than-expected international demand during the early part of the year. Imports for 2009 were adjusted to reflect December trade.

Cheese prices were reduced as higher stocks are expected to pressure prices. Butter price forecasts were raised slightly on the strength of current demand although higher milk supplies and weaker cheese prices may encourage high butter production pressuring prices later in the year, the report warned. Nonfat dry milk prices were forecast lower as export demand lags. Whey prices were raised slightly reflecting recent market strength.

The Class III milk price was reduced as weaker cheese prices more than outweigh gains in whey prices. Look for a 2010 Class III average of $14.20-$14.80 per hundredweight (cwt.), according to USDA, down from the $14.90-$15.60 expected a month ago. The 2009 average was $11.36.

The 2010 Class IV price was lowered reflecting weaker nonfat dry milk prices, which more than offset higher butter prices. The Class IV price is projected to range $13.65-$14.35, down from $13.95-$14.745 expected a month ago. The 2009 average was $10.89.

California's April Class I milk price is $14.37 per cwt. for the north and $14.64 for the south. Both are down $2.07 from March but are $2.79 above April 2009. The federal order Class I base price is announced March 19.

National Milk's final Import Watch for 2009 reflects the economic situation of the U.S. and the world, according to Jim Tillison in Thursday's broadcast. Imports of all dairy products except butter and Cheddar cheese were down from a year ago. Butter imports were up slightly from 2008 and 2007, he said, but comparable to 2005 and 2006.

The Import Watch monitors four types of cheese, according to Tillison, and Cheddar showed the only increase from 2008 but was comparable to imports in 2005-07. Imports of American, Italian, and Goya cheeses were all down.

Perhaps the most significant figure regards milk protein concentrates and similar products, Tillison said. He reported that imports of MPC, casein, and casinates were down significantly in 2009 from 2008 and were at their lowest levels in the last five years.

U.S. manufacturers are also producing more of the products we import. For the first time, USDA's January report included U.S. production of MPC. Tillison said "That's significant because it means domestic MPC production is becoming a factor and is hopefully displacing MPC imports with U.S. produced milk."

Crop report

The 2010 planting season is getting near, but we haven't closed the books on the 2009 harvest yet. Dairy Profit Weekly editor Dave Natzke reported Friday that last fall's weather-delayed harvest forced USDA to re-survey some Great Lakes and Southeast U.S. crop growers in February, and this week's crop production report lowered 2009 estimates for both corn and soybeans, although just slightly.

Corn production was lowered 20 million bushels, Natzke reported, but the revised estimate of 13.1 billion bushels is still a record high. Combined with lower expected exports due to large foreign supplies, dairy producers buying feed should see slightly lower corn prices, he said, with the middle of the projected range at about $3.60 per bushel.

The news is somewhat different for soybeans however, with 2009's production revised at 3.36 billion bushels, down about 2 million bushels from the January estimate. Ending stocks were reduced thanks to increased activity in the export market, and this week's Senate passage of a biodiesel tax credit could mean more soybeans will be used for fuel production, Natzke warned. USDA put the mid-range season-average soybean price at the farm level at $9.45 per bushel, and a soybean meal price at $295 per ton.

Natzke went on to report that the first of five joint Department of Justice/USDA's workshops on competition and regulatory issues in agriculture began March 12, in Ankeny, Iowa. DOJ's Antitrust Division chief Christine Varney and U.S. Agriculture Secretary Tom Vilsack were expected to participate. A session dedicated to concentration and vertical integration in the dairy industry will be held June 7 in Madison, Wis.

Local benefit of dairies

Dairy farms are an important part of a local economy, according to Pennsylvania dairy producer and Beef Council Board member, John Ligo. Ligo pointed out in Wednesday's "Beef Board Update" that he operates a mid size operation with about 200 cows and grows most of his crops. He pays wages for about 6-8 employees per year, totaling about $150,000 per year, plus taxes etc., so every seven years he pays out about $1 million in wages, he said.

Ligo reported that he pays taxes on a "fair amount of property" of about $20,000 per year or about $100,000 over a five year period.

He also points out that his operation is not a great user of municipal services in that they do not require much in the way of police or fire protection and there's no water or sewer services or other things that residential housing requires.

Revenue per cow on a dairy farm runs about $3,000-5,000, according to Ligo, and compares to about $300-500 per cow on a beef operation. Revenue per acre runs about $1,500, compared to $350-$450 on a grain farm, he said, "So the amount of economic activity is very intense."

The Pennsylvania Center for Dairy Excellence believes that about $13,000 per cow is returned in local economic activity so a dairy like Ligo's would account for about $3.25 million worth per year, according to Ligo.

Another benefit of Ligo's dairy is roadside pickup of litter on four miles of frontage, 1,000 acres of recreation, be it for nature observers, hunters, or fishermen, sweet corn sales, and even a little snow plowing. "We're proud of what we can do for the local area," he said.

Dairy checkoff

Dairy Management Incorporated's Joe Bavido completed his series in Monday's "DMI Update," outlining the accomplishments of dairy checkoff partnerships in 2009 in driving dairy sales. He emphasized how important collaboration is and how the Innovation Center for U.S. Dairy brought industry leaders together to "develop action plans which are in line with dairy producer priorities."

The Innovation Center focuses on health and wellness, he said, product development and information, sustainability, consumer confidence, and globalization. More than 180 companies and 400 individuals were united in this effort, he said, to "protect and grow sales."

Producers, through the U.S. Dairy Export Council, continued to help protect global markets for U.S. dairy exports, Bavido reported, and more than 9 percent of U.S. milk in 2009 was exported, despite the global economic downturn.

National and local dairy checkoff organizations also helped recruit thousands of dairy producers to tell their story to consumers, Bavido said. Checkoff staff developed enhanced training workshops that helped dairy producers and allied industries communicate on farm issues, including animal care and environmental stewardship, through community relations, presentations to local organizations, one-on-one conversations and the newest venue, social media.

"This is just some of the many ways that the dairy check off program has been helping to use partnerships and innovation to drive sales in 2009," he concluded.

Lee Mielke is a syndicated columnist and farm broadcaster based in Lynden, Wash. Learn more at www.dairyline.com


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