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Mielke: Drought Down Under tightens global supplies

Published on March 9, 2013 3:01AM

Last changed on April 6, 2013 8:14AM

Lee Mielke

Lee Mielke


For the Capital Press

New Zealand milk production is trending lower seasonally. Hot and dry conditions are impacting the milk flow on the North Island, according to DMN. The latest official statistic for December was 7 percent higher but trade sources note that the pace is well off that number now as pastures are drying up and producers are drying off milk cows sooner than expected. Higher cow slaughter rates are thus noted for this time of the season.

Australian milk flow is declining and milk intakes are often behind budget for processors. January output was down 5.5 percent from a year earlier and trailing year ago levels in all but one region. Daily Dairy Report analyst Sarina Sharp detailed the Oceania situation in her March 1 "Daily Dairy Discussion," which is a free download at www.dailydairyreport.com

The March 5 DDR reported that New Zealand has officially declared drought on the North Island. That means less milk will be headed into world markets, according to the DDR, which reported that the North Island is home to more than 67 percent of New Zealand's milking herd; Waikato alone accounts for 30 percent of dairy cows. It is estimated that milk production is down 10 to 20 percent in Northland and Waikato as producers reduce milkings or completely dry off herds. The anticipation of less milk from New Zealand and reduced availability of dairy products propelled Tuesday's Global Dairy Trade auction higher.

"All major dairy-exporting regions, except the U.S., are showing lower milk production versus a year ago," the DDR said. "At this point, the U.S. looks well positioned to fill supply gaps. However, with lower milk checks headed out over the next few months, U.S. milk production could slow as producers manage their falling margins."

Back to the futures

First half 2013 Class III contracts portended a $17.98 average on Jan. 18, $17.60 on Jan. 25, $17.69 on Feb. 1, $17.82 on Feb. 8, $17.61 on Feb. 15, $17.57 on Feb. 22, $17.41 on March 1, and was trading around $17.62 late morning March 8, including the announced January and February Class III price.

In dairy politics

Eleven national organizations representing dairy farmers and dairy industry workers called on Congress to not approve the Trans-Pacific Partnership trade deal. A joint press release stated that: "The TPP has the potential to become the biggest trade deal in history. Negotiators include Brunei, Chile, New Zealand, Singapore, Australia, Canada, Malaysia, Mexico, Peru, the United States and Vietnam. Other Pacific Rim nations, notably Japan, the Philippines and Thailand, are watching the talks closely, with an eye to joining the controversial trade pact."

"U.S. dairy interests are especially concerned that the trade deal will damage family farmers, dairy processors and consumers," the press release said, and warned that "the pending trade deal could have tremendous impact on where and how dairy products are produced and processed."

"New market access for New Zealand's monopolistic dairy sector would be especially damaging to U.S. dairy farmers and those who produce and process nonfat dry milk, butterfat or cheese," the letter states.


Dairy Farmers of America faces additional legal action resulting from alleged activities by its former leaders, according to DairyBusiness Update's Dave Natzke in Friday's DairyLine broadcast.

Another antitrust lawsuit, this one filed in the U.S. District Court of Vermont by cheese consumers in five states, alleges former officials with DFA manipulated Chicago Mercantile Exchange cheese prices nearly a decade ago. As a result, the lawsuit says, dairy consumers were forced to pay higher prices for cheese.

Back in 2004, former DFA officers allegedly purchased cheese on the CME in an effort to keep wholesale prices from falling. Those prices are used in formulas to set federal milk marketing order minimum prices paid to farmers for their milk.

Without admitting or denying U.S. Commodity Futures Trading Commission findings, DFA and its former officers paid a $12 million civil monetary penalty in 2008. A number of antitrust lawsuits have been filed against the co-op and its subsidiaries since then, and the latest suit will likely be merged with others already combined in the U.S. District Court of Northern Illinois. DFA, the nation's largest dairy co-op, holds its annual meeting, March 18-20, in Kansas City.

Drugs and dairies

U.S. Representatives Louise Slaughter and Henry Waxman introduced legislation requiring more information regarding the use of antibiotics and antimicrobials in food-producing animals. Under the "Delivering Antimicrobial Transparency in Animals Act," drug manufacturers would be required to increase information reported on the amounts of antibiotics used in food-producing animals. And, for the first time ever, large-scale livestock producers would be required to report the types and volumes of antibiotics and antimicrobials contained in medicated feeds they provide to their animals.

As reported a couple of weeks ago, latest FDA reports indicate the number of incidences of antibiotic residues found in milk declined again last year, with no residues found in milk and dairy products headed to consumers, Natzke said.

Sometime this spring, FDA is expected to release a report on a study attempting to determine whether there is a link between antibiotic residues found in meat from culled dairy cows, and drug residues found in milk from the same farms.


The Agriculture Department has again raised its 2013 milk production estimate in this month's World Agricultural Supply and Demand Estimates report largely due to a slower pace of herd reduction and higher first-quarter milk per cow. Look for the nation's dairy cows to provide 201.9 billion pounds, up 900 million pounds from last month's report, and compares to 200.3 billion pounds in 2012.

The 2013 fat-basis export forecast was raised largely on stronger shipments of butter. Skim-solid exports were raised based on greater nonfat dry milk. Imports were unchanged on both a fat and skim solids basis.

Prices for cheese and whey were lowered based on expectations of increased production and moderate demand. The forecast butter price was unchanged from last month and the range was tightened. The forecast price of NDM was raised as stronger export demand is expected to support prices.

Look for a 2013 Class III price average of $17.55-$18.15 per hundredweight, down from the $17.70-$18.40 predicted a month ago, and compares to $17.44 in 2012. The Class IV price was increased due to higher predicted NDM prices and is projected to average $17.35-$18.05, up from $17-$17.80 expected last month.

January butter production totaled 185 million pounds, according to USDA's latest Dairy Products report, up 7 percent from December and 2.6 percent above January 2010. Nonfat dry milk output slipped to 143 million pounds, down 9 percent from December and 6.9 percent below a year ago.

American cheese, at 375 million pounds, was down 2.4 percent from December but up 2.4 percent from a year ago. Total cheese production stood at 933 million pounds, down 2 percent from December but 2.4 percent above a year ago.

"The number that moved the most was the nonfat dry milk stocks figure," said FC Stone dairy economist Bill Brooks in the March 5 eDairy Insider Opening Bell. "Stocks of whey and nonfat are heavy." Nonfat dry milk stocks were 57.2 percent higher than a year ago, and whey stocks were up 19.9 percent.

FC Stone dairy broker, Dave Kurzawski also pointed out in that same issue that "there could be some short-term risk to the downside (on Class III futures), due to current inventories, but with New Zealand and Australia drying out, output flat in Europe, and poorer-quality feed threatening to hamper the U.S. flush, some of the more distant fundamentals are supportive."

USDA data shows 2012 commercial disappearance of dairy products totaled 201.8 billion pounds, up 1.7 percent from 2011and exceeded 2012 by 1.5 billion pounds. Butter was up 1.6 percent from a year ago. American cheese, up 2 percent; other cheese, up 1.6 percent; nonfat dry milk, up 17.9 percent; but fluid milk products were down 1.9 percent.

Fluid sales in December fell to 4.4 billion pounds, down 4.3 percent from a year ago. After adjusting for calendar composition, sales totaled 4.5 billion, down 2.2 percent. That put total 2012 sales at 52.85 billion, down 1.6 percent from 2011.

The cash dairy markets strengthened the first week of March. Block cheese closed that Friday at $1.60 per pound, up 2 1/2-cents on the week and 10 3/4- cents above a year ago. Barrel closed at $1.58, up 2 on the week and 7 3/4-cents above a year ago. Twelve cars of block were sold on the week and six of barrel. The AMS-surveyed U.S. average block price slipped 0.1 cent, to $1.6608. The barrels averaged $1.6503, up 2.1 cents.

Cheese markets continue to look for a clear price direction, according to USDA's Dairy Market News, and higher than expected milk volumes are headed towards cheese plants in the East and Midwest. This is leading to increased production and inventory. Due to less than hoped for demand, some plants are pushing back on excess intakes to balance inventories.

Processing cheese demand is moderate with buyers looking for price breaks to add to orders. Retail demand is being helped by Easter and Passover ordering. Mozzarella sales are good as promotions from pizza makers increased. Export demand is said to be better and the CWT program is assisting.

CWT accepted 12 requests for export assistance this week to sell 6.4 million pounds of cheese, 8.8 million pounds of butter and 85,980 pounds of whole milk powder to customers in Asia, Europe, the Middle East, North Africa, Oceania and South America. CWT's 2013 cheese exports now stand at 30.1 million pounds, plus 21.6 million pounds of butter and 218,258 pounds of whole milk powder.

Cash butter was bid higher, closing at $1.63, up 5 1/2-cents on the week and 18 cents above a year ago. Only one car was sold all week and the AMS butter average hit $1.5935, up 1.4 cents. AMS powder averaged $1.5510, down 2.3 cents, and dry whey averaged 63.51cents, up a half cent.

Butter production is "strong" in the Northeast, "heavy" in the West and "active" in the Central Region, according to DMN. Demand is good in the Northeast but production continues to add to inventories at some plants. FC Stone's March 7 Insider Opening Bell reported that butter stocks in selected warehouses were up 47.1percent from year-earlier levels. By the way, you can subscribe to these daily updates by logging on to their newly enhanced website at www.dairy.nu


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