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Powder market competition may increase

Land O'Lakes breaks off deal with DairyAmerica


Capital Press

Land O'Lakes ended its association with DairyAmerica on Jan. 1 and will begin marketing its own milk powder, said Rob Vandenheuvel, manager of Milk Producers Council.

That will be a significant change as DairyAmerica plants have made up nearly all of the California Weighted Average Price of powder sales. The CWAP is used to set prices for milk going to Class I and Class 4a -- butter or powder -- uses.

While DairyAmerica will still represent a significant portion of powder production in the West, the market will now have multiple players, including Land O'Lakes and some existing minor players, he said.

"Now instead of having one major party reporting, we now have two," he said. "It changes the dynamic of the California Weighted Average Price."

This move by Land O'Lakes could result in more competition in the market, he added.

"You don't want to sell for less than the competition. You want to get as much money as you can. Hopefully, this will result in competition that is positive for producers, not negative," he said.

Land O'Lakes concluded its membership in DairyAmerica at the end of December, said Jeanne Forbis, Land O'Lakes' director of corporate communications.

"By assuming the marketing function for our powdered milk products, we are positioned to build direct, highly responsive customer relationships," she said. "Land O'Lakes is expanding the marketing role from primarily a transactional function -- in which powdered milk products are sold as a commodity on global markets -- to a value-added business."

If the change results in better prices for powder, that translates into better prices for producers, Vandenheuvel said.

"It directly impacts the price the producer is paid for the milk he sent to the plant," he said.

News of the structural change could also be responsible for a sudden sharp drop in nonfat dry milk prices for shipments from California plants recently. For the week ending Dec. 24, the price dropped to $1.13 per pound from $1.19 a week earlier. That price was back up to $1.18 for the week ending Dec. 31.

"Some might have been trying to clear out inventories before the new year with this new dynamic," Vandenheuvel said.

At least one company wanted to clear its inventories as much as possible before the end of the year, said John Kaczor, editor of a Milk Producers Council publication.

The amount of product sold that week, at 28.3 million pounds, backs up a big movement. Sales were 10.6 million pounds in both the week prior and week following.


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