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Home  »  Ag Sectors

Mielke: Sequestration leaves dairy industry in the dark

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By LEE MIELKE


For the Capital Press


Not only will the dairy industry be denied the monthly Milk Production report, but March dairy producer MILC payments are being deferred for 30 days for USDA to decide where to make the sequester cuts. They may be reduced by up to 8 percent, emphasis on may. USDA has issued some confusing statements so the crystal ball is a little, pardon the pun, "milky" right now. But, as one insider put it, "I think we have to wait to see what USDA does to know for sure."


The belief of many is that the suspension of the Milk Production report and now the possible MILC payment reduction is politically motivated by the Obama administration.


Milk production


February milk production in the top 23 states totaled 14.6 billion pounds, according to USDA's latest and last Milk Production report due to sequestration. That's down 3.4 percent from February 2012 however, after adjusting for the leap year; output was actually up 0.1 percent. Revisions added 6 million pounds to the January estimate, now put at 15.9 billion, up 0.6 percent from a year ago.


February cow numbers, at 8.5 million head, were up 2,000 from January but 13,000 less than a year ago. Output per cow averaged 1,722 pounds, down 58 pounds from a year ago. However, with February 2012 having a leap day, the average daily basis production per cow was really up about 0.2 pounds in 2013.


California output was reported as down 8 percent from a year ago, but again the figures are skewed because of the leap day. Output per cow was reported to be down 155 pounds and cow numbers were down 2,000 head. Wisconsin was up 0.3 percent, on 4,000 more cows. Output per cow was unchanged. New York was down 2 percent due to a 35 pound loss per cow. Cow numbers were unchanged. Idaho was down 4.2 percent on a 70-pound loss per cow and 2,000 fewer cows. Pennsylvania was down 1.9 percent on a 10-pound loss per cow and 7,000 fewer cows. Minnesota was down 1 percent due to 15,000 fewer cows. Again, these totals are skewed because of the leap day.


USDA's latest Livestock Slaughter report shows an estimated 259,400 culled dairy cows were slaughtered under federal inspection in February, down 1,700 from February 2012 and 37,500 less than January 2013. While the numbers were down from both the previous month and year, February 2013 only had 24 business days (counting weekdays and Saturdays), one less than February 2012 due to leap year. On a daily basis, February 2013 slaughter was up about 365 head from February 2012. The January-February 2013 total was estimated at 556,300 head, up 31,300 from the same period a year ago.




Prices


The April federal order Class I base milk price is $17.66 per hundredweight, down 14 cents from March but $2.00 above April 2012 and equates to about $1.52 per gallon. The 2012 four month average now stands at $18.16, up from $16.95 a year ago and $17.19 in 2011. The University of Wisconsin's Brian Gould predicts the April MILC payment to producers will be 66.28 cents per hundredweight.


The AMS butter price averaged $1.5909 per pound, up 5.2 cents from March. Nonfat dry milk, at $1.5219, was down 4.3 cents. Cheese averaged $1.6402, down almost a penny, and dry whey averaged 60.94 cents, down 3.1 cents.


Cheese


Cheese production remains active with manufacturers surprised at the volumes of milk available to the vats, according to USDA's March 15 Dairy Market News. Cheddar production in the Midwest and other parts of the country is reported to be strong with good sales reported. Retail sales are good with the Easter and Passover period and "March Madness" promotions. Current inventories of cheese are reported to be comfortable, according to DMN. Some manufacturers are expressing concern about future world milk supplies. Export sales for January were reported to be 13 percent above year ago levels.


Cheese prices moved higher the week of March 18, with the blocks closing that Friday at $1.70 per pound, up 9 cents on the week and 201/2-cents above a year ago when they dropped almost 9 cents. The barrels closed at $1.6650, up 7 1/2-cents on the week and also 20 1/2-cents above a year ago when they plunged 121/4-cents. Seventeen cars of block traded hands on the week and 12 of barrel. The lagging AMS-surveyed block price average hit $1.6271, down 1.8 cents, while the barrels averaged $1.6039, down 2.1 cents.


Butter also saw a third week of gain but gave back a half-cent Friday and closed at $1.6950, up 4 cents on the week and 17 1/4-cents above a year ago. Only two cars were sold all week. AMS butter averaged $1.6031, up 2.7 cents.


Cash Grade A nonfat dry milk closed at $1.54, up 4 cents on the week. Extra Grade held at $1.56. AMS powder averaged $1.5169, down 1.3 cents, and dry whey averaged 61.09 cents, up 0.3 cent.


Western butter manufacturers are adding to inventories as cream is available, DMN reports. Some producers were reporting tighter supplies. The Foreign Agricultural Service reports January butter and milkfat exports hit 9.5 million pounds, up 44 percent from January of 2012. Saudi Arabia, at 5.2 million pounds, was the largest importer with a 71 percent increase above 2012. Those exports accounted for 5.1 percent of the year's U.S. butter production.


U.S. milk production in most areas is increasing along the seasonal trend. Florida has shown only incremental increases during this year's flush, compared to previous years, with high grain prices and drought being blamed.


Global outlook


New Zealand milk production is moving lower seasonally, enhanced by dry conditions. A drought designation was declared for many regions of the North Island. Pastures have deteriorated and the resulting lack of feed is causing a sharp decline in milk production. Farmers are drying off cows earlier than planned and cow slaughter rates are increasing. Australian production is also being affected by hot, dry conditions, according to USDA.


The drought in New Zealand will open the export doors, according to the March 15 Daily Dairy Report. DDR editor Mary Ledman discussed the topic in the March 15 Daily Dairy Discussion, a free download at the DDR website.


Whole milk powder, a product that is scarcely even produced in the U.S., is likely to become the key driving force in milk and other dairy product prices in the near future, Ledman wrote. She predicted that the drought will strengthen prices on the Global Dairy Trade auction and, as European countries turn from producing nonfat powder to whole milk powder to meet demand that New Zealand can't, the U.S. will in turn will be a bigger supplier of nonfat dry milk to the world market and that will drive U.S. domestic dairy product prices higher.


Buyers indeed responded to the declining milk production in New Zealand in Tuesday's Global Dairy Trade auction. The index jumped 14.8 percent compared with the previous event, according to the DDR, which added that "the sharp rise in price suggests global buyers are beginning to take steps to ensure they have sufficient supplies until world milk supply comes back online."


"WMP, at $2.32 per pound, was up 21.2 percent versus the previous event and the highest price recorded price since July 2008."


Ledman also warned in the Daily Dairy Discussion that the suspension of USDA's monthly Milk Production report was a "serious blow to the dairy industry" and charged that "politics were at play."


"The report was targeted," she said, "When you consider the reports that weren't suspended."


However, "if a budget resolution is not found in the near term," Ledman suggested, "the dairy industry has the opportunity to solve this problem itself." The dairy checkoff, which is funded by dairy producers, could make the state by state calculations and publish the report again, she said.


Trade news


Cooperatives Working Together accepted 24 requests for export assistance this week to sell 2.7 million pounds of butter and 2.7 million pounds of cheese to customers in Asia, Europe, the Middle East and North Africa. The product will be delivered April through September. CWT's year-to-date cheese exports now total 34 million pounds, plus 41 million pounds of butter, and 218,258 pounds of whole milk powder to 24 countries.


National Milk Producers Federation's board will consider doubling the current CWT Export Assistance assessment when it meets in June, according to DairyBusiness Update. NMPF's Jerry Kozak said the plan, if approved, would boost the assessment to 4 cents per hundredweight and would extend assessment collection through 2014-15.


Co-ops and individuals have committed the current 2 cent assessment on about 70 percent of U.S. milk production in 2013. About $30 million is budgeted to cover 2013 export assistance, Kozak said, with another $5 million held in reserve. However, due to heavy use and strong dairy export totals, the program is in danger of running short of funds.


Back to the futures


First half 2013 Class III contracts portended a $17.57 average on February 22, $17.41 on March 1, $17.60 on March 8, $17.55 on March 15, and was trading around $17.80 late morning March 22, including the announced January and February Class III prices.


Dairy Farmers of America


Members of the nation's largest dairy cooperative, Dairy Farmers of America, gathered in Kansas City this week for their 15th annual meeting. DairyBusiness Update's Dave Natzke reported details in Friday's DairyLine. Some 1,500 attended, he said, and the meeting was both a celebration of productivity, sprinkled with some "mea culpa" for some past activities.


Last year was a strong financial year for the co-op, with record earnings and cash flow, built on net sales of more than $12 billion. The co-op marketed about 61 billion pounds of member and nonmember milk, about 30 percent of the U.S. total. The average milk price paid by the co-op was $18.49 per hundredweight, down about $2 from 2011's record high.


Offsetting the positive side of the financial ledger was a $216 million charge related to lawsuits involving the co-op, most related to activities nearly a decade old. As reported in the past, DFA settled a lawsuit earlier this year in a class-action lawsuit in the southeast, for $159 million and DFA is expected to settle a lawsuit regarding Chicago Mercantile Exchange cheese trading practices in 2004, for $46 million.


DFA leaders said the co-op's business partnerships and joint ventures were profitable for a fourth consecutive year. And, the co-op is positioning itself to be a bigger part of global dairy markets, which currently account for about 8 to 10 percent of DFA's commercial business. Dairy processing plants in Portales, N.M.; Fort Worth, Colo.; and a new plant scheduled to come online this fall in Fallon, Nev., will enable the co-op to produce dairy ingredients and products in high demand outside the U.S., Natzke concluded. Complete details are posted at www.dairybusiness.com.


Animal care


The dairy industry's animal care program now has 70 percent of the nation's milk participating in the program. The recent addition of several major cooperatives in the National Dairy FARM program (Farmers Assuring Responsible Management) means more than two-thirds of the nation's cows will be covered by the industry's animal well-being effort, according to National Milk Producers Federation.


The federation started the FARM program three years ago to provide what it called a "consistent, national, verifiable means of showing consumers and the food value chain how dairy products are produced."



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