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Mielke: Volatile cheese prices scare off some buyers

Published on December 6, 2012 3:01AM

Last changed on January 3, 2013 8:50AM

Lee Mielke

Lee Mielke


For the Capital Press

The sharply lower cheese prices were welcomed by buyers, according to USDA's Dairy Market News, but many are hesitant to order too far ahead until prices have developed "a more consistent pattern." The lower prices have increased export interest as prices move closer to international levels. The Cooperatives Working Together program continues to aid in export sales although none were reported this week.

Manufacturing milk volumes were higher for the holiday shortened week as Class I demand was reduced due to schools being closed. Cheese plants were taking advantage of the increased milk to raise their inventories, according to DMN.

The cash barrel cheese price jumped 3 cents the first day of trading following the Thanksgiving holiday break but gave it back and then some and closed the last Friday of November at $1.7125 per pound, down 3 1/4-cents on the week and even with a year ago. The blocks held at $1.8250 but plunged 6 1/2-cents Friday to close at $1.76, 2 cents above a year ago. Six cars of block traded hands on the week and two of barrel. The AMS-surveyed block price U.S. average dropped 6.2 cents, to $1.9934, while the barrels plunged 11.3 cents, to $1.9160.

Cash butter saw a third week of decline, closing Friday at $1.60, down 9 cents on the week and 3 cents below a year ago. Butter has plunged 29 cents in three weeks. Thirteen cars found new homes on the week. The AMS butter average fell to $1.8550, down 2.2 cents.

Churning schedules across the U.S. remain quite active, according to USDA, although butter producers are closely monitoring production trends in conjunction with inventories and demand. Butter demand slowed Thanksgiving week as those orders were previously placed and shipped. Butter producers and handlers were very pleased with Thanksgiving orders and "look forward to an equally active end of year demand," DMN said.

Cash Grade A and Extra Grade nonfat dry milk remained at $1.5575 and $1.56 respectively while AMS powder averaged $1.5199, up 0.3 cent. Dry whey inched 0.6 cent higher, to 65.36 cents per pound.

Looking "back to the futures"

The last half 2012 federal order Class III milk prices were averaging $17.49 on July 6 and $18.80 on Aug. 3. Looking at the announced Class IIIs plus the remaining months of 2012, it averaged $19.15 on Sept. 28, $19.31 on Oct. 26, $19.34 on Nov. 2, $19.12 on Nov. 9, $19.04 on Nov. 16, $19.06 on Nov. 21, and was trading around $18.99 late morning Nov. 30.

Production and supply

While some states show lower cow numbers, DMN reports that milk production in the southern tier of states is close to turning the corner on a new production season. Some northern tier states, such as Idaho and Utah, noted increasing intakes as dairy herds in those states grow. Milk usage was following the established extended holiday weekend pattern as fluid demand declined, sending more milk into manufacturing. Manufacturers in each region expected all farm milk intakes would find processing.

The Oceania milk production season is past its peak, declining slightly, but holding at seasonally high levels, according to USDA. The buildup to peak levels was typical for the region and occurred slightly earlier than in past years. The next question is; how long will stability at high levels prevail and what will the pace of decline on the downside be?

Milk production is currently running heavier than last year. Producers and handlers are hopeful the trend will continue. New Zealand output is reported to be running 4 to 5 percent ahead of a year ago while Australia is up 2 to 3 percent.


The U.S. Dairy Export Council's November market outlook says Oceania's "supply excesses that characterized much of 2012 have faded," and "production has gone negative in the Northern hemisphere. As a result, we view the market as under supplied and anticipate stronger prices in the short/medium term into 2013."

U.S. exports slipped in September versus prior months, but remain ahead of last year's record pace, according to USDEC. "The price gap between U.S. and Oceania prices has narrowed in recent weeks, which should help U.S. performance heading into the close of the year."


USDA's latest Livestock Slaughter report shows an estimated 285,400 culled dairy cows were slaughtered under federal inspection in October, up 34,600 from September and 42,600 more than October 2011. Through January-October dairy cow slaughter totaled 2.574 million head, up 174,600 from 2011.

The Daily Dairy Report says more cows went to slaughter in October than in any month in the past decade and pointed out that it occurred in a month of rising milk prices, and "brings into question USDA's recent estimate of a mere 9,000-head decline in the dairy herd in October." Dairy culling has been particularly strong in Western states, the DDR said, where margins have been extremely tight.

Record costs

Higher feed prices pushed U.S. average milk production costs to another record high in October, according to USDA's monthly Milk Cost of Production Estimates and reported in this week's Dairy Profit Weekly. The estimates are based on total farm costs per hundredweight of milk sold.

The preliminary average total cost was $29.13 per hundredweight, up 66 cents from September, and $4.99 per hundredweight more than October 2011. The January-October 2012 average is $25.54 per hundredweight , up $2.56 from the same period in 2011.

Purchased ($10.17 per hundredweight) and homegrown ($6.88 per hundredweight) feed costs were up 47 cents and 21 cents, respectively, from September, and up $4.10 and 68 cents, respectively, from October 2011. Feed represented about 59 percent of total costs. At $14.22 per hundredweight, 2012 year-to-date average feed costs are up $2.30 per hundredweight from 2011.

Other than feed costs, other operating costs and allocated overhead costs were largely unchanged from September 2012, with slight increases from October 2011, according to DPW.

The DDR points out that, "regionally, large dairy operations in the Southwest and West rely more on purchased feed than their counterparts in the Midwest and Northeast. As a result, producers in the West have been culling their herds more aggressively and/or feeding a lower-cost ration."

The net impact was lower milk production in October versus the prior year in several states: New Mexico, down 5.9 percent; Texas, off 5 percent; Arizona, down 4.5 percent; and California, off 3.5 percent. Production in states where producers raise a majority of their feed was higher: Wisconsin, up 4.7 percent; Minnesota, up 2.9 percent; Michigan, up 2.7 percent; and New York, up 2.7 percent.


San Bernardino County Superior Court Judge Joseph Brisco denied a petition filed against the California Department of Food and Agriculture alleging the agency failed to follow the law in refusing to bring California's Class 4b price into better alignment with the prices being paid by cheese manufacturers in federal orders, according to Western United Dairymen.

The "Writ of Mandate" was filed on behalf of Dairy Farmers of America, Security Milk Producers Association, Milk Producers Council and California Dairy Campaign. The judge issued a tentative ruling Nov. 9, denying petitioner's writ of mandate stating, "Petitioners have not demonstrated that Secretary Ross' quasi-legislative act of determining the Class 4b milk price formula, after public hearing and full economic and technical analysis by CDFA experts, was arbitrary and capricious or entirely lacking in evidentiary support."


The board of directors for Family Dairies USA, Manitowoc Milk Producers, and Milwaukee Cooperative Milk Producers have called for a membership vote on the proposed merger of the three cooperatives. Members were asked to mail votes into their respective cooperative by Dec. 18.

Following the announcement of a unanimous board vote to recommend a unified merger for the membership earlier this fall, cooperative members received additional information on the merger through regional meetings and mailings.

If passed by the membership, the three cooperatives could become the largest Midwest dairy marketing cooperative and would offer "immense collaborative opportunities to all members," according to a press release this week.


The National Milk Producers Federation's Chris Galen talked about the "fiscal cliff" that the country faces in Thursday's DairyLine broadcast but added that dairy also has a fiscal cliff in the expiration of the price support program at current support levels.

The program reverts to 1949 levels, he said, meaning "much higher support levels which could be very disruptive to the marketplace if the government started buying dairy products at about double the current market level." He said he hoped this pressure would cause Congress to act and pass a new farm bill.

The International Dairy Foods Association reported this week on a new nationwide survey which found that 81 percent of Americans agree that individual farmers should have the freedom to decide how much milk they produce and not have a limit set by government policy.

The survey, which was conducted online last month among 2,094 adults by Harris Interactive on behalf of the IDFA, also found that 74 percent of Americans believe milk prices should be based on what consumers are willing to pay. Only 9 percent think milk prices should be set by government policy.

"It's clear Americans feel strongly that the federal government should stay out of the milk-pricing business," said Connie Tipton, IDFA president and CEO. "Dairy is a dietary staple and a primary source of essential nutrition to tens of millions of Americans. Artificially raising milk prices by manipulating the market, as proposed in the Farm Bill's Dairy Security Act, hurts consumers and it hurts taxpayers," she said. Additional details are posted at IDFA's website.

MILC dries up

And, with the apparent demise (unless the 2008 Farm Bill is extended) of the MILC program, the University of Wisconsin's Brian Gould reported how the $448 million in 2012 MILC payments were allocated across states.

More than 22 percent of the payments were obtained by Wisconsin dairy producers. Second was New York, at 9.3 percent, followed by Minnesota, at 8.4 percent. California was next, at 8.3 percent. Gould pointed out that is in spite of the state leading the nation in total milk production and "is obviously a reflection of the payment limitations contained in the MILC program."


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