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Mielke: Global trade in dairy products strengthens

Published on December 15, 2012 3:01AM

Last changed on January 12, 2013 8:30AM

Lee Mielke

Lee Mielke


For the Capital Press

Dairy Profit Weekly reports that the value of October U.S. dairy exports, at $413 million, was up 3 percent from September but virtually unchanged from October 2011. It marked the 20th consecutive month export values surpassed $400 million. Year-to-date exports are estimated at $4.403 billion, up 10 percent from the same period last year.

At $261 million, the value of October imports was up 6 percent from September and 5 percent more than October 2011. Year-to-date imports are estimated at $2.563 billion, up 10 percent from January-October 2011. The 2012 dairy trade surplus stands at $1.84 billion, compared to $1.65 billion a year earlier.

October cheese imports, at $92 million, were down 5 percent from September and 16 percent below October 2011. Year-to-date 2012 cheese imports are estimated at $828 million, down 2 percent from the year before.

A recent U.S. Dairy Export Council teleconference pointed out that current dairy markets are "satisfied and complacent," but shortages are expected ahead. The markets absorbed the "Oceania flush," but most Oceania production is "booked" and milk output elsewhere is down, according to the USDEC.

Cooperatives Working Together accepted 24 requests for export assistance this week to sell 2.1 million pounds of cheese and 947,988 pounds of butter, to customers in Asia, the Middle East and North Africa. The product will be delivered through May and raised CWT's 2012 cheese exports to 115.7 million pounds, plus 71.5 million of butter, 127,868 pounds of anhydrous milk fat, and 171,961 pounds of whole milk powder to 36 countries.

Dairy politics

DPW reports that: "If and when Senate and House leaders negotiate the final terms of a 2012 Farm Bill, U.S. Sens. Kirsten Gillibrand (D-N.Y.) Olympia Snowe (R-Maine) want to make sure their amendment addressing federal order reforms remains intact. In a letter to Senate Ag Committee chair Sen. Debbie Stabenow (D-Mich.) and ranking member Sen. Pat Roberts (R-Kan.), they and seven other senators joined in requesting amendment S.1481 be in the final bill."

Ultimately, the goal of the legislation is the elimination of end-product pricing formulas. The amendment requires USDA to collect information on various pricing systems, and to assess the impact of a change to end product pricing on price volatility, producer payments and overall fairness and efficiency in pricing. USDA is also required to report analysis to the Agriculture Committee. At present, this language is only included in the Senate farm bill proposal, and not in the House ag committee proposal.

The Snowe-Gillibrand amendment would allow industry groups to present milk pricing reforms to USDA for consideration in a public hearing setting, and order the secretary of Agriculture to release the USDA's final proposal to Congress.

Shifting trends

Changing nonfat dry milk production trends along with the regulated dairy product price reporting system are helping to lift Class II and IV milk prices, according to the Dec. 7 Daily Dairy Report. Editor Mary Ledman talked about it in the Dec. 7 Daily Dairy Discussion on the DDR website.

Prior to 2011, California, Washington, Idaho and Arizona accounted for 78 percent of U.S. NDM production, she said. From 2005 to 2010, the Central region's NDM production declined, while the Atlantic region was able to maintain production levels.

Ledman said this is significant because the location of plants ultimately influences Class II and Class IV milk prices which are calculated from the average National Dairy Products Sales Report NDM and butter prices. NDPSR rules stipulate that sales are reported free-on-board the plant, which means transportation costs are excluded from the reporting. In addition, only the first sale of product is included in the report.

For example, if a manufacturer sells NDM to a broker and then the broker sells that product to an end-user, only the sale from the manufacturer to the broker is included in the NDPSR price. As a result, the NDPSR price tends not to include very high or very low spot prices.

Based on historical DMN reports, both the Central and East NDM prices tend to hold a premium to the West NDM price, Ledman said. Historically, significant NDM production from the West, particularly California, has heavily influenced the NDPSR NDM price and subsequently the federal order Class II and IV prices.

As of late, California's influence on the NDM market is lessening, she said, and while California is still the largest NDM producer in the country, for the first ten months of 2012, it accounted for 48 percent of total U.S. NDM production, down from 56 percent in 2010 and 51 percent in 2011.

Shifting production from NDM to skim milk powder, or SMP, has accounted for some of the declines in NDM production, she explained, and SMP prices are not included in the NDPSR NDM price. It appears that the addition of two NDM plants, one in Colorado and the other in Michigan, in late 2011 has altered NDM production trends in the United States, she concluded.

On alert

Dairy producers in several states are being warned to be alert for letters from a Virginia company identified as FDA Registrar Corporation offering to complete a Food and Drug Administration food facility registration, for a fee of $195.

DPW's Dave Natzke reported in Friday's DairyLine that, according to the FDA, dairy farms are not required to register as a food facility under a law that was implemented shortly after the terrorism attacks of 9/11. The law requires owners and operators of all domestic and foreign facilities that manufacture, process, pack, or hold food that will be consumed in the U.S. to register. However, dairy farmers are exempt. If they receive similar letters, dairy producer organization leaders are urging their members to destroy them and take no action.

He also reported that a number of lawsuits around the country are targeting labels on Greek yogurt, alleging some yogurt makers are misleading consumers. This week, a Minnesota federal district court judge dismissed one of those suits against General Mills and Yoplait. The lawsuits allege some yogurt makers are using milk protein concentrates to thicken their product, instead of going through an extensive and expensive straining process required to make Greek yogurt.

The FDA proposed a rule in 2009 regarding standards of identity for yogurt, which would identify allowable ingredients. However, the agency has never held a public hearing on the proposal, according to court documents, according to DPW.

Production forecast

The 2012 and 2013 milk production forecasts were unchanged from last month's World Agricultural Supply and Demand Estimates report. Projected 2012 output remained at 199.7 billion pounds up from 196.2 billion in 2011, and expected 2013 output remained at 199.7 billion pounds, unchanged from 2012.

Lower forecast fat basis exports in 2012 reflect weakness in butter exports, according to the WASDE, but exports in 2013 were raised on higher expected cheese and whey protein solids shipments.

Cheese prices were forecast lower in 2012 on current weakness but the forecast was raised for 2013 as demand is expected to improve. Butter prices for both 2012 and 2013 were lowered as demand is expected to remain relatively weak. Nonfat dry milk, or NDM, and whey prices were raised for 2012 and 2013.

The Class III milk price for 2012 was reduced on the lower cheese price but the Class IV price was unchanged as the lower butter price is offset by a higher NDM price. The 2012 average is now projected to range $17.40-$17.50 per hundredweight, down 15 cents from last month's projection, and compares to $18.37 in 2011 and $14.41 in 2010. The projected 2013 average was put at $18-$18.80, up from the $17.85-$18.75 projected a month ago.

The 2012 Class IV average remained at $15.95-$16.15, down from $19.04 in 2011 but above 2010's $15.09. The 2013 average was put at $17-$17.90, up from the $16.90-$17.90 projected last month.

Milk prices

California's January 2013 Class I price is $20.24 per hundredweight for the north and $20.51 for the south. Both are down $2.84 from December 2012 but are 36 cents above January 2012. The January federal order Class I base price is announced by USDA on December 19.

Milk supplies available for cheese manufacturing have increased and cheese plants are working additional hours to accommodate the increased volumes, according to USDA's December 7 Dairy Market News. The surge of milk from the holiday combined with increasing yields of fat and protein have built cheese inventories in the short run. School closings for the Christmas and New Year's holidays will send more milk to the vat, churn and dryer.

Cash block cheese lost 3 1/2 cents the second week of December, slipping to $1.7250 per pound, 16 1/4 cents above a year ago when they plunged 9 1/4. Barrel lost ground for the third week in a row, closing Friday at $1.6250, down 3 1/2 on the week, 9 cents above a year ago, but a dime below the blocks. Two cars of block were sold on the week and seven of barrel. The AMS-surveyed block price national average fell 5.6 cents, to $1.8641. Barrel averaged $1.8093, down 2.7 cents.

Bill Brooks, economist at INTL FCStone, noted in the Dec. 14 eDairy Insider Opening Bell that "most cheese for holiday use has shipped and prospects for an early December pop in prices appears to have passed. Demand isn't strong enough for buyers to be aggressive enough to push prices higher," Brooks said.

Cash butter reversed four weeks of decline -- kind of -- and closed at $1.5950, up a half-cent, but three-quarter cents below a year ago. Seven cars were sold on the week. AMS butter averaged $1.6351, down 7.4 cents. AMS powder averaged $1.5436, up 1.4 cents, and dry whey averaged 66.32 cents, up 0.6 cent.

Churning in the West is somewhat above expectations, DMN reports, where cream remains readily available and club store sales are excellent with heavier orders coming in. Central butter production is active. Butter inventories are building seasonally but interest for December was sluggish and generally lower than projected by some manufacturers.

Seasonal increase

Milk production is increasing steadily, following typical November and December trends, according to DMN. Components are variable from week to week but processors indicate the overall trend on components shows a seasonal increase. Spot milk load availability increased substantially the first week of December. Milk handlers point to two major reasons for the sudden increase: cheese market volatility and mechanical issues at some Central plants. California milk production is slowly building along expected seasonal patterns. Overall output is behind a year ago as farms continue to struggle with profitability issues.


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