Dairyline: More milk flows as price increases
By LEE MIELKE
For the Capital Press
The most interesting part of the Milk Production report was the cow number data, according to Mary Ledman, principal of Keough, Ledman and Associates Inc. in Libertyville, Ill. Ledman said the report didn't affect Monday's market because it was "more of the same." But cow number data may be revised upward, because to be unchanged following a 16,000-head increase in December and January is hard to believe.
"Clearly dairy farmers have seen the signals in their milk checks to produce more milk," Ledman said. "They're going to get a big signal in April to produce more milk even though the cheese market has turned, farmers will still have that market signal to produce more milk in April and May."
Twenty-five carloads of block cheese changed hands Monday, with the price dropping 3 1/2 cents, to $1.65 per pound, but Ledman called it a "silver lining," because several buyers purchased the cheese, not just one or two.
The $1.65 per pound may not be a "strong line in the sand," she said, but "it's clearly a level of support with so many buys coming in at this level." She didn't anticipate much more of a decline and, over the course of the new few weeks, the 5-cent block-barrel spread will return to more normal levels.
The cash butter price, after dropping almost a nickel the previous Friday, lost a penny on Monday, gained it back Thursday, and added a half-cent Friday. That's a strong price, the highest ever for this time of the year, Ledman said.
"(It) is consistent with where the world markets are," she said. "If there's one thing that we're learned this past year, ... it's not just the nonfat dry milk market that's tied to the global market, it's really the butterfat market as well."
She believes it will trade above $2 until the Easter and Passover buy is in. She anticipates a downturn by mid-April because of "the significant quantity of milk in the flush period that will probably push the butter market below $2," but she doesn't expect a major correction like what we saw in the cheese market.
February milk production in the top 23 states totaled 14 billion pounds, up 2.4 percent from February 2010, according to preliminary data in the USDA's March 18 Milk Production report. Output in the 50 states amounted to 15 billion pounds, up 2 percent. Revisions reduced the preliminary January total by 21 million pounds to 15.2 billion -- still 2.5 percent more than January 2010.
February cow numbers totaled 8.4 million head, unchanged from January, but 81,000 more than a year ago. Output per cow averaged 1,666 pounds, up 24 pounds from a year ago.
California milk output was up 2.4 percent from a year ago, thanks to a 50 pound gain per cow. Cow numbers were down 8,000 head. Wisconsin was up a half percent on 6,000 more cows. Output per cow was unchanged. New York was up 3.8 percent on a 60-pound gain per cow. Cow numbers were unchanged. Idaho was up 3.4 percent, thanks to 19,000 more cows. Output per cow was unchanged. Pennsylvania was down 0.2 percent due to a loss of 10 pounds per cow. Cow numbers were up 2,000 head however, and Minnesota was down 0.8 percent on a 15 pound per cow loss. Cow numbers were up a thousand head.
The biggest gain was in Florida, up a whopping 12.2 percent, followed by Texas, up 8.8 percent, and Arizona, up 7.3 percent. Illinois recorded the biggest loss, down 3.2 percent, followed by Missouri, down 2.7 percent, and Minnesota.
Butter and cheese
February butter stocks totaled 138.7 million pounds, up 19.9 million pounds or 17 percent from January, but 64.2 million pounds or 32 percent below February 2010, according to preliminary data in the Agriculture Department's latest Cold Storage report issued March 22.
American cheese stocks, at 622.2 million pounds, were down 15.7 million pounds, or 2 percent from January, but 23 million or 4 percent above a year ago.
Total cheese amounted to 1.036 billion pounds, down 16.4 million pounds or 2 percent from January, but 40 million or 4 percent above a year ago.
The Daily Dairy Report said the decline is "uncharacteristic" for February and blamed "historically high prices" for "discouraging manufacturers and marketers from building inventory during what is normally a time to put cheese away."
Block cheese continued its decent but did inch back up a quarter-cent Friday, to close at $1.6275 per pound, down 5 3/4-cents on the week, but 30 1/4-cents above a year ago. It has lost 38 3/4-cents in two weeks. The 500-pound barrels closed at $1.64, down 6 cents on the week, and 32 3/4-cents above a year ago. A whopping 63 cars of block traded hands on the week and only four of barrel. The lagging NASS-surveyed U.S. average block price hit $2.0036, up 1.9 cents. Barrel averaged $1.9875, up 1.4 cents.
Butter finished the week at $2.0750, up a half-cent, and 58 1/2-cents above a year ago. Thirty-one cars were sold on the week. NASS butter averaged $2.1156, up 4.9 cents.
Cash Grade A nonfat dry milk closed Friday at $1.75, down 4 cents, while Extra Grade held all week at $1.80. NASS powder averaged $1.5147, up 3 1/2-cents, and dry whey averaged 44.31 cents, down 2 cents.
USDA's latest Livestock Slaughter report estimated 248,800 culled dairy cows were slaughtered under federal inspection in February, down about 15,100 head from January, but 25,800 head more than February 2010. Through the first two months of the year, culled dairy cow slaughter is estimated at 512,700 head, up 57,700 from the same period in 2010.
Cooperatives Working Together
The Cooperatives Working Together program assisted in the export of 286,601 pounds of cheddar cheese to customers of Dairy Farmers of America and Darigold in Asia. The product will be delivered April through June and pushed CWT's 2011 cheese exports to 19.1 million pounds so far.
Imports and trade
Importers of dairy products will start paying the promotion assessment as the Agriculture Department has finalized its long-awaited regulations. The National Milk Producers Federation lobbied for its inclusion in the 2002 Farm Bill but it was blocked due to objections that the domestic checkoff was not applied to farms in all 50 states. The federation worked with Congress to correct that in the 2008 bill, however regulations were slow in coming.
"It's been a 10-year process, and we're finally at the end of the road," said Chris Galen, of NMPF.
The first phase is April 1 implementation of the 15-cent per hundredweight assessment on producers in Alaska, Hawaii and Puerto Rico. Importers will begin paying in August, according to Galen. The assessment will include milk protein concentrate, casein and cheese, but will only be 7 1/2 cents per hundredweight.
"This is really an issue of justice," Galen said. "For too long, imported dairy products and those who bring them into this country have enjoyed a growing market." He pointed to cheese as an example, stating that, in the roughly 30 years since the domestic checkoff began, cheese consumption has more than doubled.
"Importers, and imported cheeses in particular, have benefited from that. But expansion has come on the backs of U.S. farmers, not their counterparts in other countries, so finally we're going to be able to do something about it," Galen said.
Critics charge that imports will now be able to use the "Real Seal" and foreign dairy products will be included in promotional efforts. Galen admitted that foreign products must be treated the same as U.S. products.
"The amount of money that we're talking about is hardly like we're going to be overwhelmed by a bunch of foreign interests dominating how the National Dairy Board is run," Galen said.
He also cited other commodities like beef, pork and cotton that have assessed imports and have not found that doing so was detrimental to their promotions.
"This is still going to be a program that focuses on dairy products overall, and you also have to look at what's happening with the dairy checkoff here in this country," he said. "It's really not about advertising anything anymore, it's about building strategic alliances and relationships with processors and marketers. So it's high time that those who benefited from all those activities help pay the tab."
Members of the nation's largest dairy cooperative, Dairy Farmers of America, met in Kansas City this week for the organization's 13th annual meeting. Dairy Profit Weekly's Dave Natzke was there and said "recovery mixed with uncertainty might be the best way to describe the general mood, as dairy producers look at improved milk prices, but also much higher input costs."
Addressing about 1,300 DFA members and guests, co-op president and CEO Rick Smith called the past three years a time of unprecedented change and volatility throughout the world, a trend that will continue, he warned, affecting commodity and food prices as well as input costs for dairy farmers.
DFA is forecasting a 2011 average milk price of about $19 per hundredweight, up almost $3 from 2010, and $6 more than 2009. Despite those improved milk prices, Smith said rising costs for feed, fuel, environmental compliance and other operational costs are squeezing dairy producer margins.
Additionally, Smith said farmers face pressures on the income side, as rising dairy product prices negatively impact customers and dairy product demand.
Looking at the co-op's financial report, DFA reported net sales of $9.8 billion in 2010, up from about $8.1 billion from 2009. Net income, at $43.7 million in 2010, was down $21.8 million from the year before. DFA marketed about 63 billion pounds of milk in 2010, about 30 percent of the nation's total.
With the changing global dairy market, Smith said DFA was retooling and investing in processing plants to increase the co-op's export sales, which represent about 10 percent of the co-op's annual business.
Briefly addressing DFA's legal battles, Smith said the co-op hoped to make progress in resolving those lawsuits in 2011, according to Natzke.
On the policy front, DFA members have thrown their support behind NMPF's Foundation for the Future federal policy proposal, according to Randy Mooney, chairman of DFA. He said recent volatility has created more losers than winners, and the industry could no longer operate under outdated policies.
U.S. dairy producers now have a new approved protocol for the synchronization of estrus in lactating dairy cows and we talked about it in "New Product Watch." The Food and Drug Administration has granted approval exclusively for the concurrent use of Pfizer's Lutalyse sterile solution and Eazi-Breed CIDR cattle inserts in dairy and beef breeding programs.
Pfizer veterinarian Gary Neubauer pointed out that, with the increased awareness of milk quality, wholesomeness and safety we're seeing, extra label drug use is "coming under a much bigger scope."
Current regulations on synchronization programs didn't allow for concurrent usages of GnRH products, prostaglandin products like Lutalyse and the Eazi-Breed CIDR, Neubauer said. Pfizer invested its time and resources to make these tools available to producers that are "on label and therefore conform to regulations that are becoming more and more strict."
He also pointed to consumer perceptions and emphasized the importance of "staying on label because that has the rigor of the FDA-approval process."
What does this mean for the dairy's bottom line? Neubauer listed the improvement of the efficiency of heat detection, more timely first-service abilities and a reduction in the variation of calving intervals.
"All of these will help the bottom line for our dairy producers and their reproductive programs," he said.
He also stated that Pfizer has been a world leader in dairy reproductive and research support and "continues to develop new ways for producers and veterinarians to get even better results from our line of reproductive solutions and is why it continues to invest and support various university reproductive trials."
California dairy producer and Dairy Management Inc. board member Brad Scott talked about dairy checkoff partnerships with DairyLine's Bill Baker at the recent World Ag Expo.
He said that Expo provided a great opportunity to talk with fellow dairy producers about the checkoff and he gave high praise for the partnerships formed with McDonald's and Domino's.
"When you can partner with these kinds of entities and they're out there helping you promote and sell your product, they bring a lot of name recognition, they bring money. ... As we keep going in the future, it's not just us promoting the product," Scott said. "It's these partners that are so important, that they are working with us and with our efforts and their efforts matching, we are really accomplishing a lot."
He pointed to the menus at McDonald's.
"They are just a real dairy destination," Scott said. "Which we're really glad to see, and the fact that we're working with them as a partner, we got a lot more bang for our checkoff money."
He also discussed Domino's "Smart Slice" pizza, which was developed with assistance from the dairy checkoff. It is now available in schools to help meet government dietary guidelines.
"We know it's a challenge to maintain our presence (in schools)," he said. "But at the same time we have a great partner like Domino's, who's willing to work on these issues; and it shows that cheese on pizza, being on the school lunch program, has a lot of nutritional benefit in a healthy diet."