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Mielke: Milk prices drop faster than feed prices

Published on November 10, 2011 3:01AM

Last changed on December 8, 2011 8:29AM

Lee Mielke

Lee Mielke


For the Capital Press

The bottom line isn't improving on the farm. Profitability declined for the third month in a row as milk prices fell faster than feed costs. The Agriculture Department's latest Ag Prices report pegged the October All-Milk price at an estimated at $19.90 per hundredweight, down $1.20 from September.

The cost of feed to produce 100 pounds of milk was $11.12, down just 35 cents from September. Corn dropped 45 cents, to $5.92 per bushel, and soybeans lost 30 cents, slipping to $11.90. Alfalfa hay jumped $7, to $203 per ton, and that left income over feed costs of $8.78 per hundredweight, down 85 cents from September. The DDR points out that, over the last 10 years, the IOFC averaged $9.09 per hundredweight.

Bill Van Dam, of California's Alliance of Western Milk Producers, gave some perspective on whey in his recent newsletter, writing that in an interesting switch, dry whey prices in the U.S. are higher than prices in the export trade. However, marketers of dry whey understand that it is important to maintain market share and are willing to sell to the export market at prices below what they can get from domestic markets.

This imbalance cannot last very long, he said, and prices will equalize at some point. Prices in Europe have in the past two weeks already increased 4.5 cents. It is also interesting to note that lactose prices are strong and are now 8 to 9 cents higher than dry whey, he wrote.

In dairy politics

We learned of a new study from two dairy economists, reported in Wednesday's DairyLine by Jerry Slomionski, senior vice president of legislative and economics issues at the International Dairy Foods Association. Slominiski reported that the study was conducted by Charles Nicholson of Cal Poly and Mark Stephenson of the University of Wisconsin-Madison, who did the economic modeling for National Milk Producers Federation's original Foundation for the Future plan.

"Nicholson and Stephenson have looked at the latest proposal, introduced in Congress by Rep. Collin Peterson as the Dairy Security Act, and found that it will have some very eye-opening results," Slominski said.

"The economists say one of their original findings remains consistent: milk price volatility would be substantially reduced under the proposed plan," Slominski said. "But that reduced volatility comes at a price for dairy farmers: significantly lower farm milk prices and lower net farm income across all sizes of dairy farms." He said this new look suggests the reforms could lower the U.S. all-milk price by 92 cents per hundredweight and lower cumulative net farm operating income 32 to 48 percent.

He also quoted a press release from the Professional Dairy Business Association in Wisconsin, where one of the authors concluded that "the proposal would cause small farms to leave the dairy industry at a faster pace than without the program."

For more details, log on to www.dairy.wisc.edu

An NMPF press release questioned the "selective and simplistic interpretation of new dairy legislation by organizations opposed to the Dairy Security Act." At issue are government costs of the program and speculation as to how many dairy producers would participate in DSA's safety net provisions.

Federation CEO Jerry Kozak said "these contrary findings clearly illustrate the challenges associated with simplistic attempts to communicate results from complex economic modeling," adding that "assumptions about how producers will respond to the program is highly uncertain."

See www.nmpf.org for more details.

Top executives of six of the country's biggest dairy exporters have written members of the Joint Select Committee on Deficit Reduction expressing opposition to the DSA. They outlined what they consider to be the "negative effects the act would have on domestic and global dairy markets," according to an IDFA press release, and said it has no place in deficit-reduction talks.

The bill is expected to be part of the recommendations submitted by House and Senate Agriculture Committee leaders to the super committee for inclusion in the debt-reduction bill.

In another news item this week, the IDFA and Organic Trade Association declared victory after the state of Ohio agreed to drop its regulations for so-called "absence claims" on dairy product labels. Dairy Profit Weekly editor Dave Natzke reported in Friday's DairyLine that the action comes more than three years after those organizations filed a lawsuit against a 2008 regulation covering milk and dairy products labeled as rbST-or bovine growth hormone-free.

A lower court initially upheld Ohio's labeling requirements but a three-judge panel in the Sixth Circuit of the U.S. Court of Appeals ruled in favor of IDFA and OTA in 2010. The organizations claimed the labeling rule requirements violated dairy processors' First Amendment rights and consumers' rights to know regarding food production. Proponents of the rule said the labels implied product quality or safety differences that did not exist.

Global picture

The DDR reported that China only imported 15.4 million pounds of whole milk powder in September, the smallest figure in almost three years. June to September imports were down 43 percent from the prior year. From January 2010 to May 2011, China imported 69.7 million pounds of WMP per month, but that pace dropped significantly this summer, leaving New Zealand suppliers to find other markets for their products, the DDR said.

Global Dairy Trade auction prices were down on most products in the Nov. 1 auction, while skim milk prices were flat, according to the DDR. The weighted average price was $1.49 per pound, up 0.2 percent from the Oct. 18 auction. SMP from the U.S. (Dairy America) averaged $1.44 per pound for December delivery and $1.43 for January delivery.

Anhydrous milk fat dropped 9.3 percent, to $1.50 per pound, and cheddar cheese for industrial use fell 3.2 percent, to $1.54. The weighted average price for whole milk powder was $1.58 per pound, down 0.8 percent.

Anhydrous milk fat dropped 9.3 percent, to $1.50 per pound, and cheddar cheese for industrial use fell 3.2 percent, to $1.54. The weighted average price for whole milk powder was $1.58 per pound, down 0.8 percent.

The New Zealand season continues strong, with milk deliveries still running about 4 to 5 percent above year-ago levels. Australian milk receipts are around peak levels, and if not now, within the next few weeks. The forecast continues for increased milk production for the current season but not nearly as optimistic as New Zealand.

Back home

USDA reports that milk production continues to be at the seasonal low point in the Northeast and Mid-Atlantic. Milk volumes in the mid- to upper Midwest are steady to slightly lower. Milk components are rebounding to near annual peaks. California is mostly steady to slightly higher and at levels above a year ago. Milk production in New Mexico is tending to flatten out at current levels.

Most of the growth in production is in the Western states, according to University of Wisconsin Professor Emeritus Bob Cropp in Tuesday's DairyLine. Texas was up substantially, he said, while California slowed as output per cow dropped. High feed and hay prices and lower milk prices took their toll.

He also believes the growth in cow numbers has slowed. If milk production gains stay around 1.5 percent or less, milk prices might be a little stronger than the futures are portending -- the high $16s, maybe the low $17s, he said.

Fluid sales update

I wrote about declining fluid milk sales last week but this week we learned that June to August sales were off 1.5 percent from a year ago, according to USDA and California data. August sales were up 0.9 percent, but it's only the second positive month in the last 21, according to the CME's Daily Dairy Report. Year-to-date sales were down 1.5 percent from last year and down 2.9 percent from two years ago.

The September U.S. Consumer Price Index for all food is 230.6, up 4.7 percent from September 2010, according to the latest data. The dairy products index is 219.4, up 10.2 percent from a year ago. Fresh whole milk is was up 13 percent; cheese, up 10.2 percent; and butter, up 9.2 percent.

Commercial disappearance of dairy products in the first eight months of 2011 totaled 131.2 billion pounds, 1.2 percent above the same period in 2010. Butter was up 10.9 percent; American cheese, up 0.8 percent; other cheese, up 4.7 percent; NDM, down 3.1 percent, and fluid milk products, were off 1.5 percent.

Milk prices

The Agriculture Department announced the October federal order Class III benchmark milk price Friday at $18.03 per hundredweight, down $1.04 from September, $1.09 above October 2010, and equates to about $1.55 per gallon. The decline pulled the 2011 Class III average to $18.25, up from $14.36 at this time a year ago and an anemic $10.72 in 2009. The Class IV price is $18.41, down $1.12 from September, but $1.26 above a year ago.

The NASS cheese price averaged $1.7471 per pound, down 11.2 cents from September. Butter averaged $1.7893, down 19.9 cents. Nonfat dry milk averaged $1.5109, down 3.3 cents, and dry whey averaged 61.52 cents, up 2.3 cents.

The November Class III futures contract was trading late Friday morning at $18.89 and December at $18.40, which would result in a 2011 average of $18.32, up from $14.41 in 2010 and $11.36 in 2009.

California's October 4b cheese milk price was $15.78 per hundredweight, down 55 cents from September, but 12 cents above October 2010, and $2.25 below the comparable federal order Class III price. The 4b price has trailed the federal order Class for 13 months, ranging this year from a low of 8 cents in February to a high of $3.07 in August. The Golden State's 4b price average now stands at $16.41 but is still $3.15 above the level at this time a year ago.

The 4a butter-powder price is $18.29, down a dollar from September but $1.64 above a year ago. Its 2011 average now stands at $19.15, up $4.48 from 2010.

Cash cheese saw some holiday strength for the third week in a row. The blocks closed the first Friday in November at $1.88 per pound, up 10 3/4-cents on the week, and 40 cents above that week a year ago. Good demand for barrel pushed the price above the blocks, to $1.92, up 15 1/4-cents on the week, and 41 cents above a year ago. Only five cars of block traded hands on the week and six of barrel. The NASS-surveyed U.S. average block price slipped a half-cent to $1.7226 and barrel averaged $1.7411, down 0.1 cent.

Cash butter headed down Friday, reversing four weeks of gains, and closed the week at $1.8325, down 4 3/4-cents, and strangely 4 3/4-cents below a year ago when it plunged 30 1/2-cents on the week for no real clear discernable reason. Sales for Halloween week amounted to eight carloads. NASS butter averaged $1.8290, up 2 1/2-cents. NASS nonfat dry milk averaged $1.4872, down a penny, and dry whey averaged 62.38 cents, up 0.3 cent.

Milk is being channeled to the churn and the dryer. September butter production was reported at 138 million pounds, up 3.5 percent from August, and a whopping 21 percent above October 2010, according to USDA's latest Dairy Products report. Nonfat dry milk and skim milk powder output totaled 139.5 million pounds, up 10 percent from a year ago.

American-type cheese output, at 337 million pounds, was down 3.2 percent from August, and 4.2 percent below a year ago. Total cheese production hit 867 million pounds, down 0.2 percent from August, and 0.6 percent below a year ago.


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