By LEE MIELKE

For the Capital Press

Cash dairy prices have the full attention of farmers, bankers, and processors as the "recovery" appears to be slowing, though cash block cheese closed the second week of February at $1.5050 per pound, up 1 1/4-cents on the week and 26 1/2-cents above that week a year ago.

Barrel closed Friday at $1.4450, down 2 3/4-cents on the week but 21 1/2-cents above a year ago. Four cars of block traded hands on the week and six of barrel. The NASS-surveyed U.S. average block price gained 2.5 cents, hitting $1.4750. Barrels averaged $1.5258, up 2.3 cents.

Barrel closed Friday at $1.4450, down 2 3/4-cents on the week but 21 1/2-cents above a year ago. Four cars of block traded hands on the week and six of barrel. The NASS-surveyed U.S. average block price gained 2.5 cents, hitting $1.4750. Barrels averaged $1.5258, up 2.3 cents.

Butter closed at $1.34, up 1 1/4-cents on the week and 23 3/4-cents above a year ago. Eleven cars sold. NASS butter averaged $1.3912, down 1.3 cents.

Cash Grade A nonfat dry milk closed Friday at $1.1050, down 4 1/2-cents on the week. Extra Grade held all week at $1.24. NASS powder averaged $1.1448, up 1.2 cents. Dry whey averaged 39 cents per pound, up 0.1 cent.

"So much of what happens in the dairy markets is psychology and it seems like the market sentiment has turned in the last few weeks," market analyst Alan Levitt said. "Some of the optimism that we had a month ago seems to be fading."

Levitt said heavy inventories are overhanging the market, there's a post holiday slowdown in orders and "it appears that the strong demand we saw earlier was perhaps more out of concern for scarcity later in 2010 and now buyers are more comfortable with the prospects ahead."

There's also a huge supply of replacement heifers waiting in the wings, he said, indicating that national production may be able to rebound quickly in 2010.

"Some of the farmers who survived the 2009 debacle are more eager to ramp up production again and that may bring back the milk supply faster than some of us thought and is forcing us to revisit our forecasts of tight supplies later in the year," Levitt said.

Another factor that fueled optimism was the export potential, but Levitt pointed out that global markets are weaker as supply pipelines have been refilled, overseas buyers have backed off a bit, and international prices have slipped 10 to 20 percent in the last two months and "that's weighing heavily on U.S. prices." A strengthened U.S. dollar hasn't helped exports either.

Levitt warned that if global markets don't come back in 2010, there's little chance U.S. markets are going to be able to recover to the levels that we thought we would see even just a month ago.

Is there a silver lining in the dark cloud? Levitt said there are some bullish fundamentals in the market and hope remains that we'll see a tight supply after the spring flush -- but that remains to be seen.

December's total cheese production was down a tenth of a percent, the first downturn in 21 months, he said. Cheddar cheese output was off 8.3 percent from the year before and output was down in all four major producing states, Wisconsin, Idaho, Minnesota and California.

Butter production was down in December, along with nonfat dry milk, so production is pulling back, he concluded. "We seem to be in a lull right now but maybe when we get past the spring flush, things will be a little bit more buoyant."

Levitt's comments may be supported by the latest World Agricultural Supply and Demand Estimate report. The milk production estimate for both 2009 and 2010 was raised again, as has been the case the past several issues. Tuesday's report reflected USDA's estimates for fourth-quarter 2009 production and the 2010 estimate was raised due to a higher-than-expected Jan. 1 dairy replacement heifer estimate.

"Herds are not expected to decline as rapidly as forecast last month," the report said, "boosting milk production." 2009 output is now pegged at 189.3 billion pounds, up 100 million pounds from last month's estimate. The 2010 estimate, at 188.9 billion pounds, was raised by 500 million pounds.

Dairy exports on a skim-solids basis for 2010 were raised, reflecting higher sales of cheese and nonfat dry milk. Import forecasts were lowered for 2010. Fat and skim-solids ending stocks were estimated higher for 2009 and stocks for 2010 were raised in the face of higher production.

Cheese and butter price forecasts for 2010 were little changed from last month. The Class III milk price estimate was raised due to higher forecast whey prices but the Class IV forecast was lowered reflecting weaker nonfat dry milk prices.

Feed prices

Dairy Profit Weekly Editor Dave Natzke said that feed costs may be another cloud on dairy's horizon. He reported that the WASDE report indicates somewhat lower stocks of corn and soybeans, as more of each crop goes toward energy production.

A record amount of ethanol was produced last November, Natzke said, and November-December corn use for ethanol was up 16 percent from a year earlier. And, the recent Environmental Protection Agency announcement of final rules for biodiesel mandates is expected to pull more soybeans into biodiesel production.

"The good news for dairy farmers is that we haven't seen a big price impact on those major dairy feedstuffs," Natzke said. USDA's latest Ag Prices report indicates that, while hay prices rose slightly in January, corn and soybean prices were down from December. And, while corn futures prices have been trending mostly higher since Feb. 1, average futures prices are still down about 30 cents per bushel since early December and soybean meal futures are down $25-$40 per ton.

There's more "silver lining" via a global perspective from Rabobank, one of the world's largest agricultural lenders, which says the recent downturn in dairy prices is more of a market correction to prices that were rising quickly, rather than the return to a dairy slump.

Milk production in nearly all dairy-exporting regions, including the European Union, U.S., Argentina, Australia and New Zealand was trending lower in the last quarter, Natzke said. And Rabobank's monthly Agribusiness Review says the wildcard for global dairy prices will be China, which discovered additional melamine contamination in its domestic production, and could increase that country's activity in the import market.

Meanwhile, California's March Class I milk price is $16.44 per hundredweight for the North, down 2 cents from February, but $5.31 above March 2009. The southern price is $16.71, down 3 cents from February but also $5.31 above a year ago. The March Federal order Class I base is announced Feb. 19.

Meanwhile, California's March Class I milk price is $16.44 per hundredweight for the North, down 2 cents from February, but $5.31 above March 2009. The southern price is $16.71, down 3 cents from February but also $5.31 above a year ago. The March Federal order Class I base is announced Feb. 19.

USDA last week announced that it was discontinuing its national animal identification program to create a new flexible disease traceability program. National Milk's Chris Galen said the program was important but extremely controversial and the Obama administration recognized that the process was "politically stuck in the snow."

The administration will seek a state-by-state system, according to Galen, however National Milk still favors a mandatory national animal identification program and one that employs radio frequency technology and 48-hour traceability across the food chain.

Galen said it's unsure how USDA will proceed from here other than they will be working with 50 state governments and "hopefully end up with something that has some national uniformity as opposed to a patchwork quilt."

Livestock organizations will be part of the process, he said, along with state governments that regulate animals and livestock.

The federation believes a national identification program is "an important part of a collective insurance policy in the event of an animal disease emergency," Galen said. "We think this is a setback, but there's still widespread recognition within USDA and Congress that something needs to be done."

It may not be called a national animal identification system, he admitted, but "hopefully they can come up with something new, a better mousetrap, that will enable us to do what we need to do to protect the infrastructure of the livestock industry."

Checkoff

The Beef Checkoff, through the Beef Quality Assurance program, provides dairy farmers with helpful tips on getting more value out of their animals, according to New Mexico dairy producer and past director of the New Mexico Beef Council Luke Woelbar.

Woelber said the checkoff is a reminder to our employees as to proper injection sites. He talked about how hard 2009 was financially for dairy farmers and how he looked to get every cent out of every part of his operation by paying attention to such things as injection sites so he get a better price for cull cows. It's not a primary source of income, he admitted, but it's still a source of income and "by doing things right and proper we can maximize that return."

Woelber employs 22 workers. About 95 percent of the time he or one of his managers is around the dairy to "train on the job" as there are about two to three days a week where injections are given and one of the dairy's management people is there to show and monitor employees in injection procedures.

Woelber still believes the Beef Checkoff is a good investment, even in hard economic times, and said "we do get a better price for our beef" because of it.

Dairy Management Inc.'s Joe Bavido took a look at how the various checkoff partnerships and innovation drove dairy sales in 2009. He began with what he called the "partnership to create a Legend."

It began with helping Domino's Pizza to revitalize the pizza category and build cheese sales, according to Bavido, and in February, Domino's introduced its American Legends pizzas, six specialty pizzas that featured up to 40 percent more cheese than its traditional pizzas.

He reported that Domino's invested four to five times the amount of money that dairy farmers funded and, due to the campaign's success, other chains have also increased their pizza percentages.

National and local dairy checkoff organizations also worked with pizza industry partners to create a school pizza that will meet the increasingly restrictive school nutrition guidelines, while also meeting kid's taste demands.

"Pizza is the most popular entrée in schools," Bavido said, and, as part of this project, the check off involved Domino's in a pilot program in selected cities to supply these reformulated pizzas to the schools. It's still in the testing stage, he said, but shows a lot of promise. Best of all, schools are always looking for ways to cut costs.