Mielke: Powder's fall dulls export growth
By LEE MIELKE
For the Capital Press
USDA's March 8 Dairy Market News says export demand is showing increased interest as U.S. prices become more competitive internationally. The U.S. Dairy Export Council reported that January U.S. dairy exports were up 11 percent by volume and 6 percent by value from December. Cheese, butterfat, dry whey and lactose exports were up and the export value of $444.4 million was an eight-month high. Cheese exports were up 13 percent and equivalent to 5.2 percent of total cheese production for the month.
The major exception to the trend was nonfat dry milk and skim milk powder, down 18 percent from the prior year. From November to January, U.S. NDM and SMP exports were equivalent to just 38 percent of production, below the rate of exports needed to prevent inventories from accumulating. As a result, U.S. stocks of NDM have expanded by 66,000 tons in three months and dry whey exports were down 14 percent from a year ago, but January volume was the most since last June.
DairyBusiness Update adds that January dairy imports, at $287 million, were down 10 percent from December, up 13 percent from January 2012, and the lowest monthly import value since October 2012. The 2013 dairy trade surplus is $154 million, according to DBU. At $75 million, January cheese imports were down 45 percent from December and 2.5 percent below January 2012. It's the lowest monthly value for cheese imports since June 2012, according to DBU.
USDEC and National Milk Producers Federation welcomed Prime Minister Shinzo Abe's March 15 declaration of interest for Japan to join ongoing Trans-Pacific Partnership trade talks.
"The addition of Japan, the No. 3 economy in the world and a major dairy importer, would dramatically increase the significance of the talks," USDEC's Tom Suber said. "Along with Canada's announcement that it will join the talks, Japan's involvement adds additional potential for U.S. exports."
But Japan's enrollment also brings challenges, according to USDEC. "Japan's entry at this stage of the talks has sparked concern that it could slow the pace of negotiations with the potential to delay or derail the ambitious outcome that the current members are seeking," a USDEC press release stated.
"As is the case with Canada, Japan is a large and profitable market that could provide immediate and measurable benefits for U.S. dairy producers and processors, but only if negotiators achieve real, tangible market access," said Jaime Castaneda, senior vice president for strategic initiatives and trade policy at NMPF and USDEC.
Cooperatives Working Together accepted 23 requests for export assistance this week to sell 16.6 million pounds of butter and 1.2 million pounds of cheese to customers in Asia, the Middle East, North Africa and Oceania. The product will be delivered through September and put CWT's 2013 cheese sales at 31.3 million pounds, 38.2 million of butter, and 218,258 pounds of whole milk powder to 24 countries.
Sequestration has hit the dairy industry. The National Agricultural Statistics Service announced that it is suspending its monthly Milk Production report through the rest of the fiscal year, drawing fire from NMPF and the International Dairy Foods Association. The last report will be issued March 19 but could resume in October. Several other reports are being suspended but the one with the greatest impact on the dairy industry is the monthly milk production data.
One of USDA's reports that will remain -- the Livestock, Dairy, and Poultry Outlook -- raised the number of U.S. dairy cows from last month's estimate. Despite a poor milk-feed price ratio, January cow numbers were higher than expected, the Outlook explained.
Forecast cow numbers were raised from last month for the first half of 2013 and lowered from last month for the second half of the year. The U.S. dairy herd is expected to average 9.195 million head for 2013, a contraction from 2012 but higher than February's forecast. Output per cow was raised slightly to 21,960 pounds, based on higher milk per cow in the first quarter.
Checking the markets
Retail cheese demand is modest while food service accounts report increased demand for mozzarella for pizza promotions, according to DMN. Cash cheese saw a second week of strength and closed the third Friday of March at $1.61 per pound on the blocks and $1.59 on the barrels. Both were up a penny on the week and 2 3/4-cents above a year ago on the blocks and three-quarter cents on the barrels. Fourteen carloads of block traded hands this week and four of barrel. The AMS-surveyed U.S. average block price lost 1.6 cents, slipping to $1.6446. Barrel averaged $1.6245, down 2.6 cents.
Butter also saw a second week of gain, closing Friday at $1.6550, up 2 1/2-cents on the week and 14 cents above a year ago. Only three cars were sold on the week. The AMS butter price averaged $1.5764, down 1.7 cents.
Cash Grade A nonfat dry milk inched up a quarter-cent, to $1.50. Extra Grade remains at $1.56. AMS powder lost 2.1 cents, slipping to $1.5304, and dry whey averaged 60.8 cents, down 2.7 cents.
Butter production continues to be strong throughout the country, according to DMN, as cream supplies are ample and cream markets are generally weak. Cream demand for dips, sour cream, whipped cream and other higher priced consumer products is slightly elevated ahead of the upcoming holidays, but that demand is short-lived and expected to soon be filled.
California's April Class I milk price is $19.49 per hundredweight for the north and $19.77 for the south, up 16 cents and 17 cents respectively from March and $2.28 and $2.29 above April 2012. That put the four month average at $19.72 for the north, up from $18.30 at this time a year ago. The southern average, at $20.00, is up from $18.57 a year ago. The April Federal order Class I base price is announced by USDA on March 20.
DairyBusiness Update's Dave Natzke reported in Friday's DairyLine that high feed prices in 2012 compounded already difficult times for the Golden State's dairy producers, still reeling from a collapse of prices in 2009. He references a new report from Rabobank, warning that California's dairy industry is at a pivotal point in its future.
In their report, "California Dairies: Getting More Moola," Radobank ag economist Vernon Crowder, and James DeJong, dairy industry analyst, put much of the blame for current problems on the state's seven-decade-old milk marketing order system.
They say the system has distorted milk prices and revenue distribution, discouraged investment in processing capacity and technology, and encouraged overproduction of milk. And, with prices following the volatility of the Chicago Mercantile Exchange, processors have stayed with staple products, such as nonfat dry milk, butter and cheddar cheese to maintain margins, instead of investing in more innovation that may have put them in better position for export markets.
Due to these factors, the report acknowledged California dairy producers have received an average of $1.50 per hundred pounds of milk less than their counterparts in the rest of the U.S., with the gap growing in recent years.
The report noted changes to the California dairy industry will take collaboration between producers and processors. But that relationship has been strained recently with debate over the value of whey in the state's Class 4b milk pricing formula. And another debate is shaping up over transportation allowances, with a public hearing scheduled for April 4.
The news isn't all bad, according to Natzke. The report notes that about 20 percent of California milk production is now exported, and steps are being taken to boost that. However, the report warned that dairy co-ops must do more, and rapidly, concluding that "California's dairy industry is at a pivotal point." Complete details are in this week's DairyBusiness Update or visit www.dairyline.com.
DBU also reported that California Dairies Inc., the state's largest dairy processing cooperative, announced support for dairy producer margin insurance as a standalone program, as offered in the Goodlatte-Scott Amendment to the Dairy Security Act. The dairy title of the next farm bill should include risk management tools for dairy producers, CDI said in a press release.
"CDI applauds Congressman Goodlatte, who has taken the time to conceive an alternative program that will allow dairy producers to better manage their margins," CDI said. "The voluntary program provides a viable safety net for dairy producers without requiring them to be subjected to government-run supply management constraints."
NMPF, on the other hand, reaffirmed its support for "a better safety net for dairy farmers" at the federation's spring meeting this week in Arlington. NMPF expects the Senate Agriculture Committee to begin work on a new farm bill next month and NMPF's leadership said that "a new, voluntary dairy program known as the Dairy Security Act which combines margin insurance with market stabilization, remains critical to the future of the industry."
"Our members went through a tough year in 2012, with high feed costs and low milk prices putting the squeeze on farmers across the country," said Randy Mooney, chairman of NMPF and a dairy farmer from Rogersville, Mo.
Those high feed prices were a topic from Daily Dairy Report analyst, Sara Dorland, also a managing partner in Ceres Dairy Risk Management LLC in Seattle, in the March 8 "Daily Dairy Discussion" posted on the DDR website. She reported that USDA's estimates for ending corn stocks for 2012-13 were unchanged in the latest World Agricultural Supply and Demand Estimates report. Corn imports were raised 25 million pounds and feed demand was increased 100 million bushels versus the prior report, she said, and offsetting the gains were further lower revisions to exports, a decline of 75 million bushels versus last month's report.
"Grain traders were not expecting revisions to corn and as such the report was viewed as mildly bullish," Dorland said. "Corn futures responded to the report by closing higher on the day. Similarly, USDA maintained its soybean balance sheet, which came as a surprise to the trade. Both crush and export demand have been running at a pace that will likely exceed USDA forecasts, so expectations were for at least one of the demand estimates to be revised higher. Soybean futures, in turn, responded by moving lower."
USDA also revised Argentina's corn and soybean production estimates slightly lower and USDA increased its milk production and all-milk price forecast for 2013.
"While increased milk price forecasts will be welcome news at the farm level, firming feed prices may keep pressure on near-term margins," she concluded.
Back to the futures
First half 2013 Class III contracts portended a $17.69 average on February 1, $17.82 on February 8, $17.61 on February 15, $17.57 on February 22, $17.41 on March 1, $17.60 on March 8, and was trading around $17.53 late morning March 15, including the announced January and February Class III prices.