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Home  »  Ag Sectors

Dairyline: 'Dairy farmers have always been sustainable'

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By LEE MIELKE


For the Capital Press


So, what is your carbon footprint? In other words, how much carbon dioxide are you generating? The dairy industry found out during its Life Cycle Analysis and the results were recently announced.


Some of dairy's biggest customers, like Wal-Mart and McDonald's, are asking for the data, according to Pennsylvania dairy producer Paula Meabon, who also chairs the National Dairy Board. Meabon said dairy did very well, but "dairy farmers have always been sustainable."


Some 500 dairy farms and 50 dairy processors were involved in the study and included 210,000 trips to processing plants, according to Meabon.


The study indicated that U.S. dairy accounts for just 2 percent of the carbon footprint, substantially below the U.N. Food and Agriculture Organization's estimate of 18 percent.


"Dairy has a great story," Meabon said. "We know we do but it has to be economically, socially, and environmentally responsible and we have to do that and we have as dairy farmers and now that we have our carbon footprint of 2 percent, everyone should be very proud of what we're doing and tell the story."


Milk numbers


September milk production in the top 23 states totaled 14.5 billion pounds, up 3.6 percent from September 2009, according to the USDA's preliminary data. The 50 state output totaled15.5 billion, up 3.3 percent. August production in the 23 states, at 15 billion pounds, was revised down 18 million but that's still 2.7 percent above a year ago.


Cow numbers in the 23 states totaled 8.37 million head, 31,000 more than September 2009, and 4,000 more than August 2010. Output per cow averaged 1,729 pounds, up 54 pounds from a year ago.


California production was up 7.3 percent despite a loss of 22,000 cows, however output per cow gained 150 pounds. Wisconsin was only up a half-percent, thanks to 6,000 more cows. New York was up 3.6 percent, on 6,000 fewer cows. Output per cow was up 50 pounds. Idaho was up 8 percent, on 25,000 more cows and a 60 pound increase per cow. Pennsylvania was up 2.5 percent. Cow numbers were unchanged but output per cow was up 40 pounds. Minnesota was down 1.5 percent, despite 1,000 more cows, but output per cow was down 25 pounds.


The biggest increase was in Arizona, up 13.1 percent. Idaho was next and Colorado was third highest at 7.7 percent.


The biggest decline was in Missouri, down 6 percent, due to 7,000 fewer cows, but output per cow was up 15 pounds. Illinois was next, down 2.6 percent, with 3,000 fewer cows, but output per cow was up 5 pounds. Florida and Minnesota were tied for third, both were down 1.5 percent.


Meanwhile, USDA estimated 243,400 culled dairy cows were slaughtered under federal inspection in September, up 12,500 head from August, and 6,900 head more than September 2009. January-September 2010 dairy cull cow slaughter totaled about 2.1 million, down 78,800 from a year earlier.


Milk production is expected to continue to rise in 2011 according to the USDA's latest Livestock, Dairy and Poultry Outlook. However, higher expected feed prices will likely limit producer profits. Domestic demand, especially for cheese, remains strong. Although world prices favor U.S. exports, they are expected to decline in 2011, more steeply on a fats basis than on a skims solids basis. Milk prices in 2011 are expected to remain near 2010 levels, according to USDA.


Cash dairy markets


The cash dairy markets headed lower following the higher than expected Milk Production report and was anticipating Friday afternoon's preliminary September Cold Storage report. Block cheese added to the previous week's 3-cent decline, closing Friday at $1.6675 per pound, down another 7 1/4-cents but still 16 3/4-cents above a year ago. Barrel closed at $1.68, down 5 1/4-cents on the week, but 18 3/4-cents above a year ago. Fourteen cars of block traded hands on the week and 15 of barrel. The NASS-surveyed U.S. average block price hit $1.76, up a penny, and barrel cheese averaged $1.7649, up 0.8 cent.


Butter closed at $2.1850, unchanged since October 6 and 83 1/2-cents above a year ago when it jumped almost 11 cents to $1.35. One car was sold last week. The NASS butter average hit $2.1815, down 2.9 cents. Nonfat dry milk averaged $1.1838, up 1.6 cents, and dry whey averaged 36.27 cents, down 0.1 cent.


Downes-O'Neill dairy economist Bill Brooks said "holiday sales at the price levels that we had last week and going into the end of October were high enough to meet all of the supplies that we were producing." He said we started to see some cracks in the block market last week and this week, as well as in the butter market the week before last.


Butter has stabilized because he doesn't believe butter manufacturers and those who own butter are under quite as much pressure as far as supplies are concerned, like what is starting in cheese.


Cheese prices are still above a year ago, he said, and buyers were looking for a break. The market felt a little top-heavy and wanted to see that price climb before they committed for holiday sales and so far that lack of buying seems to be spilling into the spot market and starting to cause some weakness.


Brooks said it's possible cheese prices could stage a small rebound as we get closer to the holidays. If we see a strong break, down to the $1.50s, we could see a small rebound as buyers return to the market. If prices continue to gradually slide, he's not sure buyers will step in enough to push the price up.


"For strong buying to come back in now that we've seen a break," Brooks said. "Buyers are going to be very choosey about when they step in and it's going to take a strong decline for them to really step back in large volumes."


This portends lower milk prices ahead for dairy producers who are also facing rising feed prices. It's a rock and a hard place, Brooks said, and USDA's latest crop yields "put a wrench in the works for livestock producers."


"You have so much investment money looking for the best return out there," Brooks said. "Commodities right now are probably one of the better-returning investments that folks have, even though we were seeing some weakness Monday with harvest pressure and things like that.


"Unfortunately we don't see that type of price bump up in dairy because of the way our markets are structured," he said. "We have to rely on the end user, ultimately the consumer, to push our prices up as opposed to getting an artificial bump up from investment capital."


"There's a lot of pessimism in the market right now, certainly in the futures market," Downes-O'Neill dairy broker Dave Kurzawski said. "The trade is waiting for more price weakness."


He believes there's been a lot of emotion in the market and reported that some "under-grade cheese" has been floating around in the country, which has surprised some.


Cheese demand has slipped a little, he said, but we don't know how much and "right now there's a little more pessimism in the market than optimism in the futures." Concern over rising feed prices is another factor.


"If they can't lock in a profit and bring that profit home to the dairy, then they can't do much," Kurzawski said.


He recommends "letting the emotions play out in the market" and seeing "what happens in the spot cheese market over the coming days."


"If we don't see any more pressure on the spot market, or at least a 10 to 15 cent decline in the spot market in the short term, you will have a recovery bounce on Class III futures," Kurzawski said. "When that happens, there may be some better margins out there."


He recommends producers "play it very cautiously, and if you can't lock in a profit margin then you can't really do anything at all."


Fueling prices


USDA's lowered corn crop estimate and the EPA's decision to allow higher ethanol percentages in gasoline for certain motor vehicles has, pardon the pun, fueled higher feed prices for farm livestock. National Milk Producers Federation's Chris Galen said these developments underscore the need for future dairy policy to consider the cost of production and not just the price of milk.


The dairy price support program and the MILC safety net were based on a milk price level that was set before the upward pressure on feed costs, Galen said. That is why the federation continues to lobby for its "Foundation for the Future" proposal.


The federation program is less about the price of milk per se, according to Galen, and more about margins, which NMPF defines as the difference between the feed cost and the milk price.


Most of the other policy proposals being considered concentrate on controlling the supply of milk.


Galen admits that the proposal includes market management to "make certain that the right signals are sent when they need to be sent regarding supply and demand," but he quickly added that the plan makes provision to "protect producer margins for a situation like now where, as the cost of production increases, focusing just on milk prices isn't going to cut it in the future." For more information, log on to www.futurefordairy.com


Class I price


The November Federal order Class I base milk price was announced October 22 at $17.24 per hundredweight, up 66 cents from October and $4.38 above November 2009. That put the 2010 Class I base average at $15.21, up from $11.25 in 2009, and compares to $18.23 in 2008. The Class IV advanced pricing factor remained the "higher of" in driving the Class I value.


The NASS-surveyed U.S. average butter price hit $2.1942, up 7.4 cents from October. Nonfat dry milk averaged $1.1755, up 4 cents. Cheese averaged $1.7695, up 9.5 cents, and dry whey averaged 36.34 cents, up fractionally.


Dairy trade


There was more encouraging news in the latest dairy trade numbers. Dairy Profit Weekly editor Dave Natzke reported August exports were estimated at $347 million, up 9 percent -- $30 million -- from July and 78 percent -- $152 million -- more than August 2009.


Monthly imports, at $242 million, were up 17 percent from July and 27 percent more than August 2009. Dairy exports have surpassed imports every month this year, yielding a trade surplus of nearly $750 million so far in 2010.


Probably as important as the dollar value to dairy farmers is the volume of products exported, because that reduces the inventory of domestic production. August exports of every major product category were higher, led by nonfat dry milk, skim milk powder and whey protein exports, all up at least 30 percent. Cheese exports were up 95 percent from a year ago, Natzke reported.


August dairy product exports were equivalent to 14 percent of U.S. milk solids production during the month bringing the year-to-date percentage to 12.2 percent, while August imports as a percent of milk solids were just 3.4 percent.


U.S. dairy cattle also remain in strong demand, according to Natzke. Another 1,454 female dairy cattle were exported in August, bringing the 2010 total to over 22,000 head, more than four times the number exported during the same period in 2009, and a new record high.


USDA's smaller crop harvest projection pushed the outlook for dairy feed prices higher. I asked if that would be an incentive for farmers to cull more cows.


"Higher grain prices add stress to milk production costs, increasing the likelihood of culling, as well as keeping a lid on overall beef production," he said. "That, combined with an increase in beef exports and a decline in beef imports, should keep cull cow prices strong for the foreseeable future."


He also reported that, through the first nine months of 2010, U.S. cull cow prices, which combine beef and dairy cows, averaged about $55.70 per hundredweight, or about $10 per hundredweight more than 2009.


Exports


The Cooperatives Working Together program announced that it accepted five requests from Dairy Farmers of America and one request from Land O'Lakes for assistance in selling 2.7 million pounds of American cheese to customers in the Middle East and Asia. The product will be delivered October through April 2011 and raised CWT cheese exports to 50.5 million pounds since March 18.



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