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Mielke: Prices offer mixed bag for producers

Published on February 7, 2013 3:01AM

Last changed on March 7, 2013 7:49AM

Lee Mielke

Lee Mielke


For the Capital Press

The January federal order Class III milk price begins 2013 on a down note although it's the highest January price in five years. The Agriculture Department announced the benchmark price at $18.14 per hundredweight, down 52 cents from December but $1.09 above January 2012, equates to about $1.56 per gallon, and $2.30 above California's comparable 4b price. The FO Class IV price is $17.63, down 20 cents from December, $1.07 above a year ago, and appears to be the highest January Class IV price ever.

The four-week, AMS-surveyed cheese price used in calculating the FO prices averaged $1.7485 per pound, down 4.4 cents from December. Butter averaged $1.5066, down 9.2 cents. Nonfat dry milk averaged $1.5601, up 2.2 cents, and dry whey averaged 65.03 cents, down 1.1 cents.


California's 4b price was announced by the California Department of Food and Agriculture at $15.84 per hundredweight, down 46 cents from December but $1.61 above a year ago. The 4a butter-powder price is $17.08, down 39 cents from December and 90 cents above a year ago. The prices do not include the state's temporary increase in milk prices because the increase only runs February through May.

The announcement by the California Department of Food and Agriculture that it was temporarily raising the state's class milk prices as a result of its Dec. 21 hearing drew comment from the Milk Producers Council's Rob Vandenheuvel in their Jan. 25 newsletter.

"While California dairy families certainly appreciate the recognition that increases to our producer pay prices are warranted, the announced changes fall significantly short of what producers hoped for," Vandenheuvel wrote. "For the past three years, California dairy families have urged CDFA and Secretary Karen Ross to make permanent changes to our Class 4b price that would bring us into closer alignment with the Federal Order Class III price."

He said MPC calculates that, since the beginning of 2010, "CDFA's unwillingness to make those changes to our Class 4b pricing formula has resulted in the California cheese manufacturers getting a state-sponsored discount of more than $700,000,000, all on the backs of the roughly 1,600 dairy farms that are left in California. With California's Class 4b prices averaging almost $2.00 per cwt. below the Federal Order Class III price in 2011 and 2012, obviously dairy farmers are very disappointed to see CDFA only willing to provide a four-month increase of 30 cents per cwt. to the California 4b price."

National issues

"U.S. milk production in 2012 was marked by distinct growth and contraction periods and regional differences," says Daily Dairy Report editor Mary Ledman. Ledman wrote about it in her Jan. 25 issue and reported details on her website's Daily Dairy Discussion.

She said DDR analysts used national and state income-over-feed calculations to "shed light on the trends seen this past year and what may come in 2013." She pointed to the income-over-feed calculation, based on USDA's milk-feed price ratio, subtracting the per hundredweight value of a feed ration that consists of 51 percent corn, 41 percent alfalfa and 8 percent soybeans from the all-milk price. Based on USDA's Agricultural Prices, which reflect prices received by farmers for corn, soybeans, and alfalfa, second quarter 2012 was the lowest income-over-feed period of the year at $4.47 per hundredweight, followed by third quarter at $5.44.

Correspondingly, the greatest contraction in the U.S. dairy herd occurred between March and September when cow numbers fell 71,000. In retrospect, fourth quarter 2012 provided the most favorable income-over-feed level at $8.90 per hundredweight, with each of the surveyed states also having their best showing.

In particular, the dairy herd expanded by 27,000 from October through December, she said, and that "suggests, in general, that when income-over-feed drops below $5.50 per hundredweight, the nation's herd begins to contract, and when it is above $8 it expands."

She added that regionally, sharp contrasts in income-over-feed exists among states. DDR analysts computed milk income-over-feed for California, New York and Wisconsin using state prices and the national average price when state data was not available. Based on these calculations, California experienced seven consecutive months in 2012 with income-over-feed below $4 per hundredweight, which coincides with the rapid slowdown in milk production and herd contraction.

At the same time, Wisconsin's income-over-feed never dropped below $6 per hundredweight and averaged $8.56 in 2012, which supported year-over-year production gains. New York's income-over-feed dropped below $6 per hundredweight between June and August but averaged $7.85 for 2012 which supported production.

Differences in milk prices account for about 60 percent of the variance in income-over-feed among the three states. The New York all-milk price averaged $19.42 in 2012, followed by Wisconsin at $19.39 and California at $16.62. At 40 percent, feed is still a major contributor to the income-over-feed-costs. Specifically, alfalfa prices in the three states showed the greatest variance in costs.

The alfalfa hay price reported by USDA represents hay that includes at least 10 percent alfalfa. During the first half of 2012, the alfalfa hay price received by Wisconsin growers averaged $133 per ton followed by New York at $157, and California at $235.

California's alfalfa price was more than $100 per ton greater than Wisconsin's, Ledman said, but "more recent data shows that New York and Wisconsin's window of opportunity on alfalfa prices is closing. In December 2012, New York and Wisconsin alfalfa prices soared to $242 and $235, respectively, while the California alfalfa price fell to $209."

To the market

CME cash cheese prices portend further milk price declines ahead although the block price closed Feb. 1 at $1.6450 per pound, unchanged on the week. It has lost 11 1/2-cents since January 1 but is still 16 cents above a year ago. The barrels lost more ground this week but recovered some of the loss, closing Friday at $1.5425, down 3 cents on the week, 4 3/4-cents above a year ago, down 16 3/4-cents on the year, and 10 1/4 below the blocks. One car of block was sold on the week and 12 of barrel. The AMS-surveyed U.S. average block price slipped to $1.7353, down 0.9 cent, while the barrels averaged $1.7081, down 1.9 cents.

Increased milk supplies in the Midwest and East have pushed cheese plants to raise production schedules, according to Dairy Market News. But the increased supplies and lower prices are attracting attention from export buyers.

Spot butter closed the week at $1.5550, up a nickel on the week and 6 1/4-cents above a year ago. Twelve cars found new homes on the week and the AMS surveyed butter average gained 2.2 cents, hitting $1.5011.

Cash Grade A nonfat dry milk closed at $1.52, down a penny on the week, and Extra Grade remained at $1.56. AMS powder averaged $1.5492, down 2.2 cents, and dry whey averaged 65.39 cents, up a penny.

Butter manufacturers indicate cream is still ample, reports DMN. Internally generated cream as well as cream coming from Class II operations is moving through the churns and into bulk butter inventories. Central region churning is especially active as spot loads from the East and the West are clearing through the Midwest. Retail demand is light, says DMN.

Milk-feed ratio

The January milk-feed ratio was 153, according to USDA's monthly Ag Prices report, down 4.4 percent from December but 5.5 percent higher than January 2012. The January all milk price of $20 per hundredweight was down 90 cents from last month but $1 higher than a year ago. The corn price, at $6.98 per bushel, was 11 cents higher than last month and 91 cents above a year ago. The all hay price, at $191 per ton, was down $1 from December but $19 higher than last January.


Cooperatives Working Together accepted 30 requests for export assistance this week to sell 7.6 million pounds of cheese, 1.2 million pounds of butter, and 44,092 pounds of whole milk powder to customers in Asia, Europe, the Middle East, North Africa and Oceania. The product will be delivered through June and put CWT's year-to-date cheese exports at 14.6 million pounds, 9.8 million pounds of butter, and 88,185 pounds of whole milk powder.

Seasonal production

USDA's weekly update reports that farm milk production continues along seasonal trends in most areas, with processors noting that fluid demand is mostly level except for intermittent small spikes as customers shop before snowstorms.

Dairy farmers are watching milk futures and noting the trend toward lower prices, warned DMN. "The cost of feed continues to nip at profit margins for dairies using purchased feed and "the prospect of lower milk prices may push dairy farmers to reevaluate herd sizes and other possible changes in operations."

Back to the futures

First half 2013 Class III contracts portended an $18.39 per hundredweight average on Dec. 28, $18.40 on Jan. 4, $18.02 on Jan. 11, $17.98 on Jan. 18, $17.60 Jan. 25, and was trading around $17.63 late morning Feb. 1, with the announced January Class III price.

In dairy politics

Dairy processors met in Orlando this week for their 28th annual Dairy Forum. Connie Tipton, president and CEO of the International Dairy Foods Association, said the dairy industry "stands on the verge of a new era filled with enormous opportunity and unlimited potential." Saying that future success hinges on all stakeholders taking steps together, Tipton called for industry collaboration on renewed efforts to phase out federal milk pricing regulations and new legislation that would change the federal standards of identity for dairy products.

She warned that changes in administration policy are unlikely and told attendees to expect more regulations for the food industry, more rules for school meals, more labeling requirements and possibly restrictions on marketing to children.

Tipton called innovation the industry's "lifeblood" and warned that, for innovation and growth to continue, the industry needs an abundant supply of farm milk. She warned however that the combination of volatile dairy feed costs, farm milk prices, the U.S. biofuel policy, and a major drought have caused a "quadruple whammy."

"Going forward, one thing is for sure," she said. "The conventional thinking that milk will always be there when we want it has to change."

Another area requiring change, according to Tipton, is government regulations that "continue to hinder industry's efforts to innovate and grow."

"Federal milk pricing regulations, food standards and other laws, some of which date back to the 1930s, have not kept pace with the times," she said. She proposed "working together as an industry to provide greater product flexibility and innovation and collaborating on ways to remove 'the shackles' of milk pricing regulation."

FSA update

Dairy Business Update's Dave Natzke reported in his Feb. 1 DairyLine report that USDA's Farm Service Agency announced additional details regarding the so-called "start month relief period" for larger dairy producers. He said that those producers, as well as any new dairy farmers who wish to enroll in the MILC, should contact their local FSA office before Feb. 28 to do the appropriate paperwork. FSA also announced that retroactive MILC payments for September 2012 milk marketings, at approximately 59 cents per hundredweight, will be sent to dairy farmers beginning about Feb. 5.


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