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Home  »  Ag Sectors

Mielke: IDFA goes to Washington to take on NMPF proposal

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By LEE MIELKE


For the Capital Press


Leaders of International Dairy Foods Association member companies converged on Capitol Hill last month for their annual Washington Conference. At a leadership breakfast, attendees heard from ranking House agriculture committee member Colin Peterson and Reid Ribble, a freshman congressman from Wisconsin and member of the committee.


IDFA's Peggy Armstrong said Peterson urged IDFA members to continue to work with producers on dairy policy reform in the 2012 Farm Bill.


While the executives were receptive to Peterson, Armstrong said the message they shared with him and their respective members of Congress was that they cannot support programs that "increase the amount of government regulations and interference into markets."


In more than 100 meetings with congressional leaders and staff, IDFA members explained why they oppose National Milk Producers Federation's Foundation for the Future proposal, Armstrong said. The proposal's Dairy Market Stabilization Program would "discourage and impede the growth of U.S. dairy production and processing."


An economic analysis shows the proposal will "cause exports to decline, imports to increase and milk prices to be more volatile," Armstrong said. "The proposal will actually stop the dairy industry from capturing new international markets at a time when Congress and the president agree that exports are essential for job growth here at home."


Ribble called attendees "the nation's job creators," according to Armstrong, who cited estimates showing that approximately 20,000 new jobs were created in the last decade by dairy export growth. A growth that, she said, continues today.


She gave Leprino Foods as an example. The company is building a new cheese facility in Greeley, Colo., that is expected to produce 500 new jobs and Colorado dairy farmers are expected to add 80,000 cows to their herds to double current milk production to supply the facility, according to Armstrong.


Trucking along


Natzke reported the U.S. and Mexico have resolved a trucking dispute that could eliminate a threat to some U.S. cheese and dairy product exports to that country.


Under the plan, Mexico will reduce import tariffs on cheese and other products by 50 percent. The tariffs were imposed following a ruling that the U.S. had failed to comply with North American Free Trade Agreement provisions by applying restrictions on Mexican truck movement into the U.S. The remaining tariffs will be removed when the program becomes permanent. The higher tariffs had threatened U.S. access to Mexican markets, the largest importer of U.S. dairy products.




Acreage and ethanol


Last week I reported that USDA's crop acreage report indicated an unexpected big jump in U.S. corn acreage which sent futures prices lower and lent hope to dairy farmers on getting a break in feed prices. DPW warns that hope may be short-lived as those lower prices brought foreign buyers back to the U.S. market, pulling prices back up this week. Recent USDA and California Department of Agriculture reports indicate feed prices were the primary reason for higher dairy farmer production costs so far in 2011, according to DPW.


Another factor in high feed prices of course is ethanol production. DPW reports that the federal law that helped jump-start the U.S. ethanol industry is also shifting normal supply-and-demand forces within commodities markets, according to Purdue University agricultural economist Wally Tyner.


"Since the Energy Independence and Security Act in 2007, markets are struggling to meet both the law's renewable fuels standard and grain demands from the livestock, food and export sectors," Natzke said. About 27 percent of the nation's corn crop must be devoted to ethanol this year to meet the federal mandate, leaving other corn users to compete for the remaining 73 percent.


U.S. Senators Amy Klobuchar, D-Minn., John Thune, R-S.D., and Dianne Feinstein, D-Calif., announced a bipartisan agreement to end the existing 45 cent per gallon Volumetric Ethanol Excise Tax Credit on July 31, 2011, instead of the current expiration date of Dec. 31, 2011. The agreement would dedicate two-thirds of the savings from existing money, $1.3 billion, to debt reduction and the remaining $668 million to renewable fuel incentives. The compromise can now be considered by the full Senate.


Dairy prices


Cash cheese prices had little change following the Fourth of July holiday. The blocks closed the shortened week at $2.11 per pound, down a penny and a half, but still 58 1/4-cents above a year ago. The barrels inched a half-cent higher, to $2.1025, 60 1/4-cents above a year ago. Seventeen cars of block traded hands on the week and three of barrel. The NASS-surveyed U.S. average block price hit $2.0884, up 5.8 cents on the week. The barrels averaged $2.0735, up 1.6 cents.


USDA reports that sluggish summer pizza sales have some producers discounting mozzarella to clear product.


"The trading this week gives no hint of uneasiness in this market but there is a growing feeling in the 'trade' that significant volumes of cheese are sold on the basis of 'the average of the previous month,'" Alliance of Western Milk Producer's Bill VanDam wrote in his July 1 newsletter.


The average June CME price was clearly over $2 per pound while May's price is some 40 cents lower, he wrote.


"That means the price for such customers will be much higher starting July 1," he said. "There just has to be an explanation something like this that will shed light on why block (and barrel) prices seem to be defying the apparent fundamentals. Cheese sales have been good but if much of the cheese is being purchased to beat the price increase, we may well see a change of fortunes this next week."


The international market isn't helping as prices continued to soften in Fonterra's July 5 Global Dairy Trade auction. The CME's Daily Dairy Report said the weighted average price for skim milk powder fell to $1.68 per pound, down 15 percent from June 1 and the lowest since January. The whole milk powder price, at $1.65 per pound, was down 4 percent from a month earlier, and the lowest since December. The anhydrous milkfat price was $2.39 per pound, down 7 percent from a month ago, and the lowest since last October.


The international market isn't helping as prices continued to soften in Fonterra's July 5 Global Dairy Trade auction. The CME's Daily Dairy Report said the weighted average price for skim milk powder fell to $1.68 per pound, down 15 percent from June 1 and the lowest since January. The whole milk powder price, at $1.65 per pound, was down 4 percent from a month earlier, and the lowest since December. The anhydrous milkfat price was $2.39 per pound, down 7 percent from a month ago, and the lowest since last October.


Spot butter closed Friday at $2.03, down a penny on the week, but 26 3/4-cents above a year ago. Only one car was sold all week. NASS butter averaged $2.0887, down 3.9 cents.


Butter is still moving offshore, according to FC Stone dairy economist Bill Brooks. "That will keep the market tight for a little while," but he predicts it will eventually back up and "we'll start to see price declines in the U.S. market."


Cash Grade A nonfat dry milk held all week at $1.6250 and Extra Grade remained at $1.61. NASS powder averaged $1.6638, up a half-cent, and dry whey averaged 54.76 cents, up 1.7 cents. Over 40 percent of U.S. powder is exported.


The Agriculture Department's May Dairy Products report put butter output at 155.9 million pounds, down 1.8 percent from April, but 18.3 percent above May 2010. Nonfat dry milk, at 147.7 million pounds, was up 1 percent from April, but down 4.6 percent from a year ago.


American-type cheese production totaled 371.2 million pounds, up 3.9 percent from April, but 0.1 percent below a year ago. Cheddar output was lower for the fourth month in a row, according to Bill Brooks.


"That could be tempering the decline in spot cheese prices," Brooks said. He expects cheese prices to "continue to work their way lower."


Italian-type cheese totaled 393.6 million, up 2.2 percent from April, and 6.6 percent above a year ago, with mozzarella output totaling 308.9 million pounds, up 2.9 percent from April, and 5.1 percent above a year ago.


Total cheese production amounted to 915.2 million pounds, up 3.8 percent from April, and 3.9 percent above a year ago.


Exports


Some of that cheese will be leaving us. The Cooperatives Working Together program accepted six requests this week for export assistance from Dairy Farmers of America and Bongards Creamery to sell a total of 2.5 million pounds of cheddar cheese to customers in the Middle East, North Africa and Central America. The product will be delivered through November and raised CWT's 2011 cheese exports to 48.6 million pounds.


Dairy Profit Weekly editor Dave Natzke reports that a better year for U.S. dairy exports was mirrored in individual state totals for fiscal 2010. The latest estimates from USDA's Economic Research Service shows Wisconsin remains No. 1, with export sales estimated at $712 million. California is No. 2 at $705.7 million. Those two states alone saw the value of dairy exports improve from about $953 million in fiscal 2009 to $1.4 billion in fiscal 2010, an increase of $465 million or 49 percent.


New York was third at $288.3 million, followed by Idaho at $208.2 million, New Mexico at $177.8 million, Minnesota at $153 million, Pennsylvania at $121.9 million, Ohio at $60 million, Iowa at $59 million and South Dakota at $58.2 million.


Overall fiscal 2010 U.S. dairy exports increased 48 percent compared to fiscal 2009, an increase of $1.12 billion, according to Natzke.




Summer decline


Seasonal declines in farm milk production due to emerging summer weather prevails across most of the country, according to USDA, but comfortable climate conditions in the Northwest are helping sustain milk production above last year's level in that region. Component values in farm milk are trending lower. Fluid milk demands are lower as schools reduce hours or close for the summer.


Futures


The federal order Class III contract's average for the last half of 2011 was $17.64 per hundredweight on May 6, $17.49 on May 13, $18.22 on May 20, $18.39 on May 27, $18.72 on June 3, $18.34 on both June 10 and June 17, $18.21 on June 24 and $18.19 on July 1.


California's June 4b cheese milk price is $18.79 per hundredweight, up $4.05 from May, $6.56 above June 2010, 32 cents below the comparable Federal order Class III price though the gap continues to narrow, and equates to about $1.62 per gallon. Its 2011 average now stands at $15.67, up from 12.29 a year ago. The 4a butter powder price is $20.79, up 85 cents from May, and $5.53 above a year ago. Its 2010 average is now $18.94, up from $13.69 a year ago.


California

California’s August Class I milk price was announced by the California Department of Food and Agriculture at $23.24 per  hundredweight (cwt.) for the north and $23.51 for the south. Both are up 86 cents from July, are $5.91 above August 2010, and equate to about $2.00 and $2.02 per gallon respectively.



The northern price average now stands at $20.27 per cwt., up from $16.38 at this time a year ago. The southern price average is $20.54, up from $16.65 a year ago. The Federal order Class I base price is announced by the USDA on July 22.







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