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Mielke: No milk spilled over the fiscal cliff

Published on January 5, 2013 3:01AM

Last changed on February 2, 2013 8:10AM

Lee Mielke

Lee Mielke


For the Capital Press

Lawmakers have extended the farm bill for another year, including the Dairy Price Support program and the Milk Income Loss Contract program. But, as of Jan. 2, while resumption of the MILC is assured, Dairy Business Update (formerly Dairy Profit Weekly) reports that several questions remain regarding its implementation and administration.

A last-minute amendment by Sen. Pat Leahy, D-Vt., reportedly extended the MILC program at the pre-September 2012 level, 45 percent of the difference between the federal order Class I base price trigger for Boston ($16.94 per hundredweight) and the actual Class I price, with adjustments made based on national average feed costs. Leahy's amendment keeps the feed cost adjuster at the lower $7.35 per hundredweight level; and annual payments are capped at 2.985 million pounds of milk production, as they were pre-September 2012.

Based on this formula, University of Wisconsin-Madison's Brian Gould forecasts a small retroactive payment for October, with higher payments starting in February 2013. With the potential for a small retroactive payment for last October (the first month of fiscal year 2013), it's unclear how the MILC payment "start month" for some larger producers, subject to the milk production cap, will be affected, according to Dairy Business Update.

In the past, a producer's previous "start month" was on file with FSA, and remained the same in the subsequent year, unless the producer did the proper paperwork to change months. There were no MILC payments made in October 2011, so it's likely few if any larger producers had October as a "start month." Presumably, those producers would have selected start months of July, August or June 2012, when payments were the highest.

However, once a payment to an individual producer had been initiated, "start months" could not be changed. If an October 2012 retroactive payment is made, would that impact the "start month" for some producers? Or, would those larger producers be eligible to declare a February 2013 MILC start month by Jan. 14, 2013? As they often say, "The devil is in the details." Stay tuned.

Five years

The National Milk Producers Federation said it will continue its push in the 113th Congress for a five-year farm bill that includes the Dairy Security Act. NMPF President and CEO Jerry Kozak said: "We need to spend the coming months figuring out how to move farm policy forward. The status quo is not an acceptable outcome, either for farmers or taxpayers. The renewal of current programs doesn't offer dairy farmers a meaningful safety net."

As the Senate and House Agriculture committees begin work next month on a full, five-year farm bill, Kozak said that dairy farmers would "reiterate the value of the Dairy Security Act, which eliminates the dairy product price support program, direct payments, and export subsidies, and establishes a voluntary risk management tool for farmers that saves the government money."

Kozak expressed satisfaction that the overall fiscal cliff deal prevents the estate tax from returning at punitively high levels in 2013. The package includes a 40 percent rate on estates valued at more than $5 million, up from the previous 35 percent rate, but far less than the 55 percent top rate on $1 million estates that could have become permanent absent the new package.

The International Dairy Foods Association applauded the extension of the farm bill. An IDFA press release stated: "We appreciate that the bill includes provisions that will avoid the resurrection of dairy policies from more than 50 years ago. This agreement allows Congress time to fully and openly consider future reforms to our nation's dairy policies."

"Dairy manufacturers are an important segment of our nation's economy, and we are committed to working with Congress this year as formulation of the 2013 Farm Bill begins. The interdependence of this industry from farmer to consumer is critical, and our nation's dairy policies deserve to be updated and supported. We commend the bipartisan effort of Representatives Bob Goodlatte (R-VA) and David Scott (D-GA) in proposing a margin insurance program, a safety net, for dairy farmers that does not impose new government rules and conditions on milk production. This approach has broad support from consumer and taxpayer groups, from farm organizations and from across the food manufacturing and retail industry."

Milk prices

Farm milk prices continue their descent, with the December federal order Class III benchmark plunging $2.17, to $18.66 per hundredweight, 11 cents below December 2011, but $2.36 above California's 4b price, and equates to about $1.60 per gallon. That put the 2012 average at $17.44 per cwt., down from $18.37 in 2011, and compares to $14.41 in 2010, and $11.36 in 2009.

The December Class IV price is $17.83, down 83 cents from November but is 96 cents above a year ago. Its 2012 average was $16.01, down from $19.04 in 2011, and compares to $15.09 in 2010 and $10.89 in 2009.

The four-week, AMS-surveyed cheese price averaged $1.7925 per pound, down 22.2 cents from November. Butter averaged $1.5981, down 24.3 cents. Nonfat dry milk averaged $1.5384, up 2.4 cents, and dry whey averaged 66.1 cents per pound, up 1.3 cents from November.

Class III futures, as of late morning January 4; portend another slip in January to $18.02. The February contract was trading at $18.45; March, $18.41; April, $18.50; May, $18.58; and June at $18.71.

California's December 4b cheese milk price is $16.30 per hundredweight, down $2.18 from November but $1.16 above December 2011 and $2.36 below the FO Class III price. The 4b averaged $15.54 in 2012, down from $16.37 in 2011 but $2.37 above the 2010 average. It averaged $1.91 below the FO Class III in 2012.

The 4a butter-powder price is $17.47, down 80 cents from November but 88 cents above a year ago. The 4a averaged $15.63 on the year, down from $18.82 in 2011 but 82 cents above the 2010 average.

2013 has arrived but what will it bring? Cash block cheese closed the first Friday of the New Year at $1.76 per pound, up 2 cents on the holiday-shortened week and 15 cents above a year ago. Barrel also inched up 2 cents but gave back a penny to close at $1.72, up a penny on the week and 13-cents above a year ago. Thirteen cars of barrel were sold on the week. The AMS-surveyed U.S. average block price fell to $1.7648, down 1.9 cents. Barrel slipped a penny, to $1.7046.

Cheese production was higher Christmas week as increased volumes of milk were offered to plants, according to USDA's Dairy Market News. Lower Class I usage combined with some plants shuttered for the holidays increased the volume of milk for manufacturing. Cheese demand is lackluster, according to DMN, and buyers are "taking a wait and see attitude in many cases until they feel prices have bottomed" and "export buyers are watching price movement."

Butter inched a quarter-cent lower Wednesday, then moved up a half on Friday to close at $1.50, up a quarter on the week but 10 1/2-cents below a year ago. Five cars were traded on the week. AMS butter averaged $1.5576, down 4.4 cents. AMS nonfat dry milk averaged $1.5193, down 4 cents, and dry whey averaged 65.79 cents, down 0.9 cent.

Consumption and production

Retail interest in print butter is minimal as most holiday shopping needs were filled in early December. Bulk butter inventories are building steadily as spot cream supplies continue to be readily available, with few takers outside of churning operations. Manufacturers' inventories are building seasonally. Fluid needs were highly unsettled with schools and colleges on break.

Overall milk production trends have been lower than year ago levels in many Western states. The New Year's holiday is typically a poor milk event for retail and food service; better for eggnog and other cream based items such as cream cheese, sour cream, whipped cream and dips, according to DMN.

USDA reports that milk production patterns were stressed by winter storms and aftermaths in the Midwest and Northeast, and milk processing has been challenging. Milk plants in the Northeast were being run hard to process milk supplies and processors were utilizing all plants and tankers to maximize storage. Discounted milk offerings were common across the Midwest with milk being priced down to $7 below class to stimulate buyer interest. Production in the Northwest is mostly steady, yet levels are below a year ago in the Southwest.

November butter production totaled 144 million pounds, down 0.8 percent from October and 6 percent below November 2011, according to USDA's latest Dairy Products report. Nonfat dry milk output, at 116 million pounds, was up 21.7 percent from October but 3.8 percent below a year ago.

American-type cheese totaled 362 million pounds, down 2.1 percent from October but 3.8 percent above a year ago. Italian type, at 383 million pounds, was off 1.2 percent from October and 0.5 percent below a year ago. Total cheese output amounted to 912 million pounds, down 1.8 percent from October but 1.8 percent above a year ago.

FC Stone dairy economist Bill Brooks said in the Jan. 4 eDairy Insider Opening Bell; "Everything was above average" and he considers the report neutral for markets. Powder production was stronger than expected and American cheese output was below expectations but still above average, he said.


Cooperatives Working Together accepted 41 requests for export assistance in its final announcement for 2012. Sales included 7.547 million pounds of cheese and 1.318 million pounds of butter to customers in Asia, the Middle East and North Africa. The product will be delivered through June and raised CWT's 2012 cheese exports to 123.2 million pounds, 72.4 million pounds of butter, 127,868 pounds of anhydrous milk fat, and 171,961 pounds of whole milk powder. The product is going to 36 countries.

The Jan. 2 Daily Dairy Report stated that milk powder prices at this week's Global Dairy Trade auction moved higher. Skim milk powder was particularly strong, up 4.7 percent from the Dec. 18 auction and the highest since July 2011. Whole milk powder was up 1.6 percent.

FC Stone's Jan. 2 eDairy Insider Closing Bell said February powder is up to about $1.64 per pound and the DDR pointed out that the price is "supportive of U.S. nonfat dry milk (NDM) prices and suggests that U.S. milk powder exports could regain some of the market share they lost to New Zealand during its peak production season."

Cheddar, anhydrous milkfat, and rennet casein weakened. The trade-weighted average of all products was 2 percent higher, according to the DDR, which added, "As in previous auctions, buyers appear unconcerned about product availability in the future. Deferred contracts for most products contained little premium to nearby contracts. Cheddar, SMP, and whole milk powder, in particular, showed minimal price variation among February through July contracts."


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