Dairyline: Harvest may bring higher feed costs
By LEE MIELKE
For the Capital Press
The U.S. corn and soybean harvest is all but completed and the dairy feed supply and price picture is coming into clearer focus, but it's not looking good for dairy farm feeding costs.
Dairy Profit Weekly editor Dave Natzke said October's weather helped the U.S. crop harvest advance quickly, with nearly all corn and soybeans harvested by the first week of November but, with the early harvest, USDA now estimates corn production at about 12.5 billion bushels, down 1 percent from the October estimate and 4 percent less than last year's record production. U.S. soybean production is forecast at a record-high 3.38 billion bushels, but is also down 1 percent from the October forecast.
As a result of the reduced crop estimates compared to a month ago, USDA is now forecasting smaller feed grain supplies for 2010 and 2011, resulting in higher prices for dairy farmers who buy feed, Natzke warned.
On the demand side, USDA expects an increase in corn for ethanol production, resulting in the smallest carryover of corn since 1995-96. Export demand, especially to China, will result in a decline in soybean carryover, as well.
The season-average farm corn price is projected at $4.80-$5.60 per bushel, up 20 cents compared to last month, and well above the previous record of $4.20 per bushel in 2007-08.
The U.S. season-average soybean price paid at the farm is projected at $10.70-$12.20 per bushel, up 70 cents compared to last month, with soybean meal projected at $310-$350 per ton, up $20 per ton.
For producers who price feeds off the Chicago Mercantile Exchange, 2011 corn futures contracts averaged $5.76 per bushel as of the close of trading on November 10. CME soybean futures contracts for November 2010 through August 2011 averaged $13.21 per bushel, while soybean meal futures averaged more than $356 per ton, according to Natzke.
The cash block cheese price fell to the lowest level in four months but regained a penny the second Friday in November, closing at $1.41 per pound, down 7 cents on the week, and 16 1/2-cents below a year ago. It had lost 36 cents in five weeks. Barrel finished at $1.37, down 14 cents on the week, and 7 1/4-cents below a year ago. Twenty-nine cars of block traded hands on the week and 26 of barrel. The NASS-surveyed prices were not available before our deadline because of the holiday.
Cash butter, after plunging 27 cents the previous Friday and rebounding 12 cents on Monday, closed the week at $1.99, up 11 cents on the week, and 46 1/2- cents above a year ago. Four cars were sold on the week.
The cash markets are "jumpy," according to Alan Levitt, editor of the CME's Daily Dairy Report.
"Everybody expected cheese and butter to fall at some point, and now seems to be the time," he said. "Traders aren't really sure where the level of support is, so they're selling off a little bit."
Levitt said there wasn't anything specific to cause the butter crash, but "the butter price was too high for too long." He said that even with the crash, it was still the highest price ever for that date in the year.
The break in the butter price may have the buyer's attention, as the price jumped 12 cents on Monday, to $2.
"I could see a similar bounce in the cheese, once buyers are comfortable that the bottom is put in," Levitt said. "Then I think we could see the bids come back."
Monday's spot price translates into a Class III price of $13.60 per hundredweight, according to Levitt, and a Class IV price of $16.50.
"That's not a sustainable gap," he said. "We've never seen a point where the Class IV is almost three dollars more than the Class III, so something has to give," adding the butter price may be more vulnerable after Thanksgiving.
The Agriculture Department's latest World Agricultural Supply And Demand Estimate Report maintained the 2010 milk production estimate from last month but lowered its 2011 projection as forecast cow numbers were reduced. Look for 2010 output to hit 192.8 billion pounds, up from 189.3 billion in 2009 and 190 billion in 2008. 2011 output is now expected to hit 195.6 billion pounds, down 400 million pounds from last month's estimate.
Milk per cow was adjusted slightly higher in early 2011, but higher feed prices and lower forecast milk prices limit the rate of growth in 2011.
Exports in 2010 are forecast higher due to strong growth in butter, cheese, and fluid milk and cream. For 2011, continued global economic recovery and a favorable exchange rate should support exports.
Cheese and butter prices for both 2010 and 2011 were forecast lower. The 2010 forecast for nonfat dry milk was unchanged from last month but stronger expected exports support a higher forecast for 2011.
Both 2010 Class III and Class IV milk price forecasts were lowered due to the lower cheese and butter price forecasts. The Class III forecast was lowered for 2011 but the Class IV price forecast was raised as the higher nonfat price more than offset the expected lower butter price.
Look for the 2010 Class III price to average $14.35-14.45 per hundredweight, down 30 cents from last month's projection, but compares to $11.36 in 2009. The 2011 average is now put at $14.40-$15.30, down a dime from last month.
The Class IV average will be $15.05-$15.25 in 2010, down a nickel from last month's estimate, and compares to $10.89 in 2009. The 2011 average was put at $14.45-$15.45, up a dime from last month's projection. The all milk price is forecast to average $16.30-$16.40 for 2010 and $15.95-$16.85 for 2011.
California's December Class I milk price is $18.28 per hundredweight for the north and $18.55 for the south. Both are down 43 cents from November but are $2.24 above a year ago. The Northern price averaged $16.97 in 2010, up from $13.12 in 2009. The Southern price averaged $17.24, up from $13.39 a year ago. The December Federal order Class I base price is announced November 19th.
National Milk Producers Federation's Chris Galen said the election means "more change, at least as much as what we had in 2008 when President Obama was elected."
Republicans will control the House of Representatives, winning at least 60 seats -- depending on the outcome of a few more races yet to be decided. The most interesting aspect, according to Galen, is that more than half of the Democrats on the House Agriculture Committee are not returning in 2011, due to retirements or defeats. That means an enormous task in educating a significantly large number of people who will eventually go on the committee, he said.
"It means you have to basically start from ground zero in terms of educating them about your issues," Galen said.
The purse strings will also be tight. Galen said one of the messages from the election is that "government has grown too big for its britches and there needs to be less spending and, whether you're a member of the tea party or not."
"The message has been sent that both parties have to look at spending," Galen said. "That means farm policy and particularly the next farm bill. We're going to face a different budget environment, a much tighter, more scrutinized environment where we're going to have to fight tooth and nail for every penny."
"The challenge will be to justify everything that we do with respect to dairy policy that has a budget impact," Galen said. "That will be part of the education process that starts in January."
One of the important parts of the Beef Checkoff is the "Quality Assurance Program," and I talked about it with Conrad Kvamme at the recent World Dairy Expo. Kvamme said dairy producers are also beef producers as 22 percent of U.S. beef comes from dairy animals.
Kvamme underscored the importance that the animal marketed is a quality product and that any treatments with medication adhere to strict regulations so there are no residues in the meat.
Dairy producers are familiar with the Dairy Quality Assurance program. A similar program exists for beef, and dairy and beef producers adhere to the same principals, according to Kvamme.
"Public food safety is essential," Kvamme said.
Checkoff dollars go to that end, he said, and he cited a pilot program in the Upper Midwest that uses posters and brochures, appearances at farm and trade shows, and seminars. The materials are published in Spanish as well and a manual exists for educators to teach the principles. For more information, log on to www.beefusa.org
On "DMI Update," we talked about the importance of partnerships to the dairy checkoff effort to increase dairy product sales with Paula Meabon, Pennsylvania dairy producer and chairman of the National Dairy Board. We talked specifically about a partnership with fast food giant McDonald's.
Domino's Pizza is another partner, but Meabon said pizza sales have been declining the past few years, resulting in less cheese being sold.
"Dairy farmers know that selling cheese helps their bottom line," Meabon said. "So working with Domino's was a no brainer.
"Because we worked with them in the past two years, their sale of servings of pizza has increased by 22 percent," Meabon said. "And that's all from putting more cheese, 40 percent more cheese, on the American Legend pizzas." She also pointed out that every ounce of cheese equals 2.5 billion pounds more milk per year and 40 percent more cheese is 3.6 ounces. "Do the math" on how much more incremental milk sales are going into these pizzas.
Domino's also took some criticism over their pizzas, having asked their customers for it. Domino's took that criticism seriously and changed their formulas. Meabon said that resulted in a healthier crust on their pizza and a lower sodium pizza, and "their pizzas are phenomenal."
That's important, she said. "Dairy farmers know that 25 percent of all cheese goes on to pizza."