By LEE MIELKE
For the Capital Press

Cash cheese prices headed south in the President's Day holiday shortened week as the markets awaited Friday afternoon's January Milk Production report. The blocks closed Friday morning at $1.4125 per pound, down 9 1/4-cents on the week, but still 10 1/4-cents above a year ago. The barrels closed at $1.3775, down 6 3/4-cents on the week, and 10 3/4s above a year ago. Fifteen cars of block traded hands on the week and 12 of barrel. The NASS U.S. average block price hit $1.5024, up 2.7 cents. Barrel averaged $1.5098, down 1.6 cents.

Butter lost a penny Tuesday, then jumped a nickel, but gave back 2 on Friday to close at $1.36, up 2 cents on the week, and 25 3/4-cents above a year ago. Twenty eight cars were sold. NASS butter averaged $1.3503, down 4.2 cents.

Cash Grade A nonfat dry milk finished the week at $1.12, up 1 1/2-cents, while Extra Grade held all week at $1.24. NASS nonfat dry milk averaged $1.1417, down 0.3 cent, and dry whey averaged 39.6 cents, up 0.6 cent.

Downes-O'Neill dairy economist Bill Brooks warned of erosion in cheese prices. He reported that January was not a good month for cheese manufacturers and blamed the lag's impacts on the Class III milk price.

"If you're a cheese manufacturer and can't generate revenue out of your whey stream, tou only had 3 to 18 or 19 cents per hundredweight return, if you sold your block or barrel cheese at the CME average and was paying for milk at the Class III level," Brooks said.

That won't cover operating costs, he said, and while they didn't lose money on every hundredweight of milk brought into the plant, they came pretty close. Of course, farmers hearing that would likely reply, "I should be so lucky."

There's more strength in the block market than anticipated, Brooks said, and he predicted that the data will show that January wasn't a month of strong cheese production which would "help keep the supply demand situation a little tighter than what most folks would have thought it being right now."

Brooks expected January milk production to be very similar to December's, down by less than 1 percent. He pointed to the large heifer inventory although he admitted that it will take some time for those animals to enter the milking string, but he warned that the opportunity to rebound in production could be much quicker than anyone thought for this year.

The March Federal order Class I base milk price was announced Friday at $14.34 per hundredweight, down 50 cents from February but $4.91 above March 2009 and was above the trigger so there will be no MILC payment to producers. The Class I has averaged $14.74 per hundredweight so far in 2010, up $2.78 from this period in 2009.

The NASS-surveyed butter price averaged $1.3701 per pound, up 3.5 cents from February. Nonfat dry milk averaged $1.1431, down 17.7 cents. Cheese averaged $1.5174, down 4 cents, and dry whey averaged 39.28 cents, up fractionally.

On a brighter note

The Agriculture Department anticipates U.S. agricultural exports will be strong. Its latest Livestock, Dairy and Poultry Outlook said: "Fiscal 2010 agricultural exports are forecast at $100 billion, up $2 billion from the November forecast and $3.4 billion above final FY 2009 exports. Global economic recovery and healthy commodity prices are supporting exports."

The fiscal 2010 export forecast for livestock, poultry and dairy products was raised $200 million to $20.1 billion as moderate gains in beef, pork, and dairy outweighed reductions in broiler meat. The dairy export forecast was up 7 percent largely due to firm global dairy prices impacting export values. A longstanding drought in Australia and the recent development of drought in northern New Zealand could lend further impetus to world market prices if the drought impact deepens, according to USDA.

Web polls

Downes-O'Neill dairy broker Dave Kurzawski reacted to DairyLine's latest Web poll, where respondents by a 2:1 margin rejected the use of dairy options and futures trading.

When asked if that was a result of the failure of dairy brokers or the dairy media to educate dairy farmers, Kurzawski replied: "I don't think so. I think that it's still very new to most dairymen and most end-users of dairy products.

"In the mid 1980s, the support price and so forth kept a moderate volatility and most dairymen happy. But those have been removed for the most part, and as a result you have a real volatile market and new need for some type of risk management for some dairymen and some end users."

He gave corn as an example, pointing out that corn trade volume far outnumbers dairy trade volume, "but they've had a 150-year head start."

To change this, Kurzawski said it requires "a process of educating as best we can." He said there are many good brokers across the country trying to explain how these markets work and figure out what the bottom line is for dairymen. There's no overnight fix, he said, and he doesn't believe options and futures trading is necessarily for every dairyman but he believes "it's an education process that takes longer than 15 years."

One of the comments left on our Web site charges that most of the dairy farmers this individual talked with who had tried this new tool had lost money.

Kurzawski said he would have to delve further into each instance to know what happened but: "If you take a producer who does nothing and one that actively manages his price risk over the course of five years, I would never guarantee that one would be better off than the other. They're probably going to be about average, but I will tell you this, the reason a producer uses these tools, be it forward contracting, futures, or options is to mitigate or lessen price volatility."

Right now, farmers don't know what they're going to get next month for their milk, Kurzawski said. "This is a way to insure that they have an idea of what that milk will bring them and bring that profit back to the dairy."

He added that "there are hedge losses and spec losses, but they're totally different things so, from a standpoint of a five-year hedge plan, you're probably not much better off than anybody else that hasn't been doing it. But you would have been able to weather a year like 2009 a whole lot easier than most folks.

"If the majority of the customers that we deal with had been losing money instead of mitigating risk and insuring profit margins over the years," Kurzawski said, "we would have been out of business a long time ago."

News

A few weeks ago National Milk's Chris Galen responded to an ABC News Nightline story that gave the dairy industry somewhat of a black eye in animal care. Galen responded to yet another attack, not on dairy directly but on the use of antibiotics in animal agriculture by CBS News.

This story focused primarily on the pork and poultry industry, according to Galen, who added that the major media is being very critical on a number of fronts in production agriculture.

Antibiotic use is also generating a lot of attention on Capitol Hill, Galen reported. Next week there'll be a briefing of Congressional staff on the use of antimicrobials in farm animals, he said. National Milk will testify.

"This is an issue that's not going away," Galen said. "There's legislation in Congress that would greatly restrict sub-therapeutic use of antibiotics in farm animals, and I think that's something that we need to be concerned with."

There were actually two CBS stories. The first one focused on the U.S. pork industry and featured a representative of the Pork Checkoff program, telling how antibiotics are used in U.S. swine. The second program looked at the Danish pork industry.

While the broadcast touched on poultry, Galen said it did not focus on beef or dairy cattle. "Certainly the dairy industry does have a dog in the fight regarding antibiotic use, and that's why we are very involved in efforts to educate lawmakers -- so they not do anything too hasty in a rush to judgment that would remove useful tools for dairy farmers to make certain they have the healthiest cows possible."

These reports underscore the need for agricultural interests to have the means in place to respond appropriately to these challenges. The fact that both stories were so close in timing is "a trend that's going to continue as there's a lot more scrutiny where food comes from today versus a few years ago," Galen said.

"We have to play both defense and offense to make certain we get our best foot forward, and we need to have programs in place that demonstrate farmers are committed to animal care and producing safe food."

Organic survey

The USDA has conducted what is believed to be the most comprehensive survey ever related to organic food production in the United States. Dairy Profit Weekly's Dave Natzke said the survey counted about 14,500 organic farms in 2008, of which about 2,000 were farms that sold milk. There were just over 200,000 organic cows, producing about 2.75 billion pounds of milk in 2008.

The USDA survey doesn't reveal all individual state numbers to avoid disclosing individual organic farms, but in terms of herd numbers, the leading states were Wisconsin with 479, New York with 316, Pennsylvania with 225 and Vermont with 179.

California had the most organic cows at about 35,300 head, followed by Wisconsin at 25, 916, Texas at 18,854, New York 17,431, and Oregon with 16,290 cows. California topped the list for milk production, at about 500 million pounds, followed by Wisconsin at 329 million, Texas at 284.2 million, and Oregon with 261.1 million pounds.

The U.S. milk price averaged about $18.29 per hundredweight in 2008, but organic producers enjoyed higher average prices, at about $27.21 however, production costs were also higher, according to Natzke.

"To put things in perspective," Natzke said, "While organic may be growing, it's still a small part of U.S. dairy farming. Organic dairies represent about 3.5 percent of U.S. dairy herds, 2 percent of all U.S. cows, and about 1.5 percent of all milk produced in 2008.

In a related topic, Natzke reported that USDA clarified rules covering pasture in organic dairying. Animals must be on pasture at least 120 days per year and must get a minimum of 30 percent of their daily feed intake from pasture during the grazing season. The final rule won't be published until June, Natzke concluded, and won't become effective until mid-October.

New markets

Dairy Management Incorporated's Joe Bavido highlighted the McCafe specialty beverages which resulted from a multi-year partnership with McDonalds. He said that, while they are referred to as a coffee beverage, they feature 40 to 80 percent milk and are available at 14,000 restaurants across the country.

McDonald's also launched its Angus Third Pounders, three new burger options that include two slices of cheese. That will result in an additional six million pounds of cheese sold, according to Bavido.

Dairy producers also partnered with milk processor HP Hood and its Lactaid brand to make innovative milk products available to the nearly one in four Americans that have either left or are at risk for leaving the milk category due to actual or perceived lactose intolerance. Bringing these lapsed consumers back to milk could mean an additional 2.5-5 billion pounds of milk each year, according to Bavido.

Another new product that was launched in 2009 as a result of a partnership with General Mills' Yoplait brand was to develop a new line of frozen fruit and yogurt smoothies that use an innovative yogurt chip technology and requires 8 ounces of milk. The company said the new yogurt smoothie was among its most successful new product tests ever.