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Cheese prices slip as milk production forecast increases

Published on January 17, 2013 1:28AM

Last changed on February 14, 2013 7:10AM

For the Capital Press
Cash cheese prices at the Chicago Mercantile Exchange saw more slippage the second week of the New Year.
The 40-pound blocks closed the second Friday of the year at $1.72 per pound, down 4 cents on the week but 12 1/2-cents above that week a year ago. The 500-pound barrels lost 4 3/4-cents, closing at $1.6725, 12 1/4-cents above a year ago. One car of block was sold on the week and 13 of barrel. The lagging AMS-surveyed U.S. average block price lost 1.8 cents, slipping to $1.7472, while the barrels averaged $1.7032, off 0.1 cent.
Cheese production increased again New Year’s week as the holidays shortened the work week, reports the Jan. 4 Dairy Market News. Class I bottlers were quiet early in the week and some Class II plants took advantage of the holiday to shut down. Increased volumes of milk were available for cheese plants with discounts being offered to clear supplies, especially in the Midwest. NFL football playoffs are expected to increase demand in the short term as fans gather for parties, according to DMN.
Cash butter dropped to $1.4475 but inched back a little on Friday to close at $1.4450, down 4 1/2-cents on the week and 15 3/4-cents below a year ago. Six cars were sold on the week. AMS butter averaged $1.5344, down 2.3 cents.
Butter manufacturers cleared holiday cream supplies in most regions without too many problems, according to DMN. New churning facilities in the West helped manufacturers keep up with the holiday supply. Retail interest is light as the holidays marked the end of active consumer interest for the near term. The recent active production of butter has increased bulk butter inventories, but manufacturers and some brokers indicate the current market price allows them to “build inventories with confidence. “
Cash Grade A nonfat dry milk lost 2 1/2-cents on the week, closing at $1.5350. Extra Grade held at $1.56. AMS powder averaged $1.5766, up 5.7 cents, after dropping 4 cents the previous week. AMS dry whey averaged 64.82 cents, down a penny.
Production forecast up
The Agriculture Department increased its milk production forecast for 2012 in its latest World Agricultural Supply and Demand Estimates report based on a slower decline in cow numbers and greater output per cow in the fourth quarter. Milk production for 2012 was put at 200 billion pounds, up 300 million pounds from the previous month’s estimate. 2013 output was raised 200 million pounds, to 199.9 billion, as the decline in cow numbers was dampened from last month.
Butter and cheese prices for 2013 were lowered based on current price weakness and weaker expected demand. NDM and whey prices for 2013 were forecast higher on current price strength.
The Class III milk price forecast was reduced as lower forecast cheese prices more than offset the higher whey price. Look for the 2013 average to range $17.65-$18.45 per cwt., down 35 cents from last month’s projection and compares to $17.44 in 2012. The Class IV price was lowered as the forecast decline in butter prices more than offset higher NDM prices. The 2013 Class IV is now projected to range $16.90-$17.80, down a dime from a month ago.
The second week of holiday-interrupted milk handling saw manufacturers scrambling, in some cases, to handle the increased volumes, according to DMN. Early in the week, many Class I facilities ran reduced schedules along with some Class II plants.  As the holiday passed, cream was backed up in some Eastern and Southwestern plants. Dryers were busy with increased skim milk supplies.
New Zealand milk production is easing as the season progresses, according to USDA. Indications are that seasonal totals through October were up 6 percent. Official forecasts are being set at zero growth for the season, projecting further future declines based on lower output per cow and climate.
Australian output for November was pegged 1 percent higher than a year earlier. The milk growth rate implications are trending lower, reflective of the drier and sporadically hot weather patterns the last two weeks.
Back on the home front; commercial disappearance of dairy products in the first 10 months of 2012 totaled 168.9 billion pounds, up 2.3 percent from 2011. Butter was up 4.8 percent, American cheese up 2.8 percent, other cheese up 2 percent, nonfat dry milk up 25.6 percent and fluid milk products, off 1.8 percent.
California’s February Class I milk price was supposed to be announced Jan. 10 but, pending the outcome of a Dec. 21 hearing regarding the possible increase in all classes of the Golden State’s milk, the Class I announcements will be delayed to no later than Jan. 22. The Federal order Class I base price is announced on Jan. 16.
Looking “back to the futures,” first half 2013 Class III contracts portended $18.26 per hundredweight average on Dec. 7, down from $18.74 the week before, $18.47 on Dec. 14, $18.33 on December 21, $18.39 on Dec. 28, $18.40 on Jan. 4, and was trading around $17.99 late morning Jan. 11.
CWT accepts bids
The Cooperatives Working Together program announced its first bid acceptances for 2013 this week. Ten requests for export assistance were accepted to sell 1.358 million pounds of cheese, 2.519 million pounds of butter and 44,092 pounds of whole milk powder to customers in Asia, the Middle East, North Africa and South America. The product will be delivered through July.
CWT reported that 2012 was a record year for the farmer-funded export assistance program. It accepted 676 bids from 11 member co-ops, resulting in the sale of about 125 million pounds of cheese; 73 million pounds of butter; 127,868 pounds of anhydrous milkfat; and 171,961 pounds of whole milk powder.
On a milkfat basis, the sales are the equivalent of 2.743 billion pounds of milk, were made to 42 countries, and represented the annual milk production of 130,637 cows or 72 percent of the increase in 2012 production. CWT added that the shipments added an average 45 cents per cwt. to 2012 farm milk checks.
Speaking of exports; the U.S. Dairy Export Council reports that, minus November and December data, U.S. dairy suppliers were on track to ship $5 billion in exports for the first time. Through the first 10 months of 2012, the volume increased a combined 5.5 percent to more than 2.8 billion pounds.
“Although growth had softened in recent months, U.S. cheese and whey protein concentrate were poised to shatter volume records, and nonfat dry milk/skim milk powder was tracking at or near record levels,” according to USDEC. “For the second consecutive year, U.S. export volume accounted for more than 13 percent of total milk solids produced in the United States.”
“Such numbers would represent a solid performance in any year. But the fact that the industry posted them in 2012 is a clear indication of the United States’ growing maturity as a world dairy player,” said Tom Suber, USDEC president.
In its annual review of U.S. dairy export performance, USDEC said, “By any measure, 2012 held more than its share of dairy business challenges: the devastating U.S. drought, unfavorable commodity pricing for much of the year, historically high global milk production in the first half, political upheaval and slowing economic growth around the world.”
“U.S. dairy suppliers in the past might have retreated from international business under these conditions. Last year, they not only fought to defend hard-won market share, they invested in future growth,” said Suber. “They earmarked considerable dollars specifically to make products demanded by global buyers, adapted their business structures and invested in overseas offices and dedicated export personnel.”
Dairy business notes
Checking the latest in dairy politics, while dairy farmers must take a wait-and-see attitude regarding Congress and how a new farm bill develops, there have been several developments affecting dairy processors. Dairy Business Update’s Dave Natzke reported.
Natzke stated that “2013 is already off to a busy start regarding some national and regional dairy companies.” One of the largest deals was the $1.45 billion sale of Dean Foods’ subsidiary, Morningstar Foods, to a Canadian company, Saputo. Morningstar operates 10 manufacturing facilities in nine states, producing a variety of dairy products, from creams and creamers to sour cream and cottage cheese. Saputo is the 12th largest dairy processor in the world, and the third largest cheese manufacturer in the United States.
Another Canadian company, Agropur, announced the purchase of the dry dairy ingredients business of Wisconsin-based Foremost Farms dairy cooperative. Terms of the agreement were not disclosed, according to Natzke, who pointed out that the ingredients business primarily produces dry dairy products used in the baking industry.
On a more somber note, California-based OpenGate Capital, the parent company of southeastern Wisconsin’s Golden Guernsey, said it is seeking Chapter 7 bankruptcy protection for the milk bottling plant, which was abruptly closed last weekend. OpenGate said it was unable to negotiate lower overhead and labor costs since purchasing Golden Guernsey from Dean Foods in 2011, under a settlement in an antitrust lawsuit, Natzke said.
There have been recent developments in what’s called the “Southeast Milk” class-action antitrust lawsuit. The court has approved a five-year settlement payment plan to distribute $145 million, paid by Dean Foods and the Southeast Marketing Agency. Legal costs will eat up more than one-third of the total, Natzke reported, but approximately 6,200 dairy farmers will receive payments based on eligible milk production dating back to 2001, ranging from a low of less than $200, to a high of more than $20,000 per farm.
 The trial date for remaining defendants in the case, including Dairy Farmers of America, the nation’s largest dairy cooperative, was also delayed one week. It’s now scheduled to resume Jan. 22, in the U.S. District Court for the Eastern District of Tennessee.
A group calling itself the Dairy Policy Action Coalition held a press conference at the Pennsylvania Farm Show in Harrisburg where four dairy farmers explained why they oppose supply management for dairy in the next farm bill and why margin insurance is important to their family farms.
“Last year the Senate passed a Farm Bill and the house introduced a Farm Bill that made significant changes to federal dairy policy, generally known as the Dairy Security Act,” a press release stated. “The DSA has some constructive suggestions in it and some language that very much concerns dairy farmers.
“The part that concerns dairy farmers,” according to the DPAC, is the Dairy Market Stabilization Program that places quotas on dairy farms if they want to participate in the proposed margin insurance program. The speakers at the press event explained why they feel DMSP is “too much government intervention and will damage the growing US dairy export market.”




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