By LEE MIELKE
For the Capital Press

Last year, the dairy industry completed an in-depth study on how to deal with globalization. The report recommended that the dairy industry take a more active role in the global market.

Margaret Speich, of the U.S. Dairy Export Council, pointed to the Bain Study, which was conducted on behalf of the Innovation Center for U.S. Dairy. The study weighed a number of strategic options, and recommended the U.S. pursue a "consistent exporter" strategy.

She said the U.S. is viewed as a residual supplier of dairy products and that actually costs U.S. dairy farmers. Oceania suppliers, for instance, have been getting a higher price in the international market because they are the preferred supplier to global buyers, according to Speich.

"As the suppliers of last resort, we get the lowest price, because we cycle in and out of markets more abruptly and that adds to volatility," Speich said.

"The United States will be vulnerable to global booms and busts whether we pursue being a consistent exporter or not," she said. Exporting more or less would not have prevented the wide price swings the U.S. endured the last four years, she said.

Changes in technology, logistics, living standards, dietary habits and government policies have altered the market dynamics for dairy worldwide, Speich said. Price volatility is an inherent trait of an increasingly globalized industry and is why the report recommended structural changes to the business, to better compete in this new global environment.

Milk data

The June Federal order Class III milk price was announced Friday at $13.62 per hundredweight, up 24 cents from May, $3.65 above June 2009, and $1.39 above California's comparable 4b price. The 2010 Class III average now stands at $13.58, up from $10.19 at this time a year ago, but compares to $18.26 in 2008.

Class III futures portend more gain to come. The July contract settled Thursday at $13.51, August at $14.34, and September at $14.87, with a peak of $14.85 in October before the seasonal downturn.

The Class IV price is $15.45, up 16 cents from May and $5.23 above a year ago.

The NASS-surveyed cheese price averaged $1.4475 per pound, up 2.2 cents from May. Butter averaged $1.5946, up 1 1/2 cents. Nonfat dry milk averaged $1.2631, up 1.1 cent, and dry whey averaged 36.88 cents, up fractionally.

California's June 4b cheese milk price is $12.23, down 17 cents from May but $2.71 above a year ago. The 2010 average now stands at $12.29, compared to $9.84 a year ago. The 4a butter-powder price is $15.26, up $1.31 from May, and $5.20 above a year ago.

The cash block cheese price closed June Dairy month at $1.4550 per pound, up 4 1/2-cents on the week and 34 cents above a year ago. Barrel closed at $1.40, up a half-cent on the week, and 30 cents above a year ago. Ten cars of block traded hands on the week and three of barrel. The NASS U.S. average block price lost 3.6 cents, dipping to $1.4063. Barrel averaged $1.3885, down 0.2 cent.

Cash butter closed Friday at $1.75, up 3 cents on the week, 55 3/4-cents above a year ago, and the fifth consecutive weekly increase. Only one car was sold on the week. NASS butter averaged $1.6478, up 4.7 cents.

Cash Grade A nonfat dry milk lost 2 cents on the week, closing Friday at $1.23. Extra Grade held all week at $1.2450. NASS powder averaged $1.2159, down 9 1/2 cents, and dry whey averaged 36.34 cents, down 0.8 cent.

Dairy farm bottom lines were a little stronger in June, according to USDA's latest Milk-Feed Price Ratio, which came in at 2.33, up from May's revised estimate of 2.19, and compares to 1.45 in June of 2009. The All Milk Price was estimated at $15.80 per hundredweight, up 70 cents from last month's estimate, and $4.50 above a year ago.

Dairy farm bottom lines were a little stronger in June, according to USDA's latest Milk-Feed Price Ratio, which came in at 2.33, up from May's revised estimate of 2.19, and compares to 1.45 in June of 2009. The All Milk Price was estimated at $15.80 per hundredweight, up 70 cents from last month's estimate, and $4.50 above a year ago.

Corn averaged $3.38 per bushel, down a dime from May, and 63 cents below a year ago. The soybean price, at $9.39 per bushel, was down 2 cents from May, and $2.01 below a year ago. Alfalfa baled hay was $119.00 per ton, down $2.00 from May, and $9.00 below a year ago.

Gould advice

The University of Wisconsin's Brian Gould said the butter market is anticipating improved exports, and given the "normal level of stocks," any increase in butter exports is "really going to have a positive impact on prices." The upward trend since May is indicative of that.

Cheese prices are reacting to the year-over-year increases in milk production, he said, and the "exceedingly high stocks of cheese."

Workshops

Gould also commented on Friday's Department of Justice/USDA workshop on competition and regulatory issues in the dairy industry. He said a primary concern of a lot of the attendees was a possible change in the Capper-Volstead act, which exempts cooperatives from antitrust litigation. The message that came out from the workshop, he said, was that there would not be any changes.

The workshop featured three panels, one dealing with the state of the industry, one with market consolidation and one on price and market transparency. Gould said it was a packed house and remains to be seen whether anything of substance will come of it.

He expressed concern that most of the comments that were made in the two public comment periods were centered on milk pricing, which was really not the focus of the workshop.

The workshop was the third in a series but focused on dairy, according to a special report from Dairy Profit Weekly's Dave Natzke. U.S. Agriculture Secretary Tom Vilsack acknowledged the financial struggle in rural America, particularly among dairy farmers, and emphasized the importance of cooperatives in agriculture and said the purpose of the workshop was not to weaken coops.

Assistant Attorney General Christine Varney said they are working to improve competitiveness and is mindful of concern in the industry over competitiveness at the farm as well as at retail and foodservice, including school milk.

Natzke reported that a lawmaker and producer panel dealt with market transparency as one of the issues in the morning session. Criticism was directed at the Chicago Mercantile Exchange for being too thinly traded and easily manipulated. The farmer's share of the retail dollar was also discussed, Natzke reported, as it is being squeezed by large retailers and concentration and consolidation among large processors.

Wisconsin Democratic Sens. Herb Kohl and Russ Feingold, Vilsack and Varney said the CME will likely be a focus of an investigation, Natzke reported. Several farmers pointed to the CME as the reason for the severe volatility in cheese, which in turn affects all milk prices.

There was also concern voiced regarding trading against interest, Natzke said, where organizations bought cheese at low prices on the CME and then sold it back on the CME at a higher price, effectively keeping a lid on prices.

Vat flows

The Agriculture Department's latest Dairy Products report shows milk flowing into the vat instead of the churn or dryer. May butter production totaled 131.4 million pounds, down 1.7 million pounds or 1.3 percent from April and 7.8 million pounds, or 5.6 percent below May 2009.

Nonfat dry milk output, at 154.4 million pounds, was up 2 million pounds or 1.3 percent from April, and 3.9 million pounds or 2.6 percent above a year ago.

Mozzarella cheese output totaled 293.9 million pounds, up 5.6 million pounds or 1.9 percent from April, and 22 million or 8.3 percent above a year ago.

Cheddar production totaled 286.3 million pounds, up 15.3 million pounds or 5.7 percent from April, but 1.1 million pounds or 0.4 percent below a year ago.

American-type cheese amounted to 369.3 million pounds, up 10.8 million pounds or 3 percent from April, and 1.3 million pounds or 0.3 percent above a year ago.

Total cheese output came to 877.9 million pounds, up 15.9 million pounds or 1.8 percent from April, and 21.8 million pounds or 2.5 percent above a year ago.

Supply management

The supply management drumbeat continues. Rob Vandenheuval, general manager of California's Milk Producers Council's, said in a July 2 broadcast that he is traveling around the country, explaining legislation that has already been introduced on Capitol Hill to deal with dairy's financial crisis.

Vandenheuval said the Dairy Price Stabilization Act, with active support form the MPC, would "try to align future growth in milk production with future growth in demand for milk." He said it fits nicely with some of the other proposals being talked about, like National Milk's, which is much broader and includes a "basket of concepts." The House bill MPC supports is HR5288, and the Senate version is S3531.

Some believe the Midwest is balking at supply management while the West is in favor of it, but it was not that long ago that the West was opposed and the Midwest had support for it.

Vandenheuval said that in the past, supply management conjured up the idea of a Canadian-style quota system and, while there may have been some interest in that in the past, there's never been enough broad support for it to make it happen.

Vandenheuval said that in the past, supply management conjured up the idea of a Canadian-style quota system and, while there may have been some interest in that in the past, there's never been enough broad support for it to make it happen.

The last couple of years have seen the development of ideas such as the Dairy Price Stabilization Act or the Marginal Milk Pricing idea, which, he said, has been popular in other parts of the country.

"We get the same benefits of a supply management program, without having the downside of a quota system," he said.

"We found a way to allow continued growth, which we need in this industry," Vandenheuval said, "But (we would) do a better job of aligning that growth with demand."

He admitted the Midwest is a high-growth area right now and will be for the next decade.

"We have structured a plan that all parts of the country can be comfortable with," he said. "They can do the growing that they need to do, while at the same time ensure that not all 65,000 dairymen are growing at the same time and create the chronic surpluses that we've seen over the last 10 to 20 years."

Cooperatives Working Together

The Cooperatives Working Together program announced export assistance bids from Foremost Farms, Darigold and DFA this week on 892,872 pounds of cheddar and Monterey Jack cheese to the Middle East and Asia. The product will be delivered July through October, 2010 and moves CWT's export total to 38.9 million pounds.

Antibiotics

The U.S. Food and Drug Administration has issued a draft guidance intended to "help reduce the development of resistance to medically important antimicrobial drugs used in food-producing animals." The draft outlines the FDA's current thinking on strategies to assure that antimicrobial drugs that are important for therapeutic use in humans are "used judiciously in animal agriculture," according to an FDA press release.

National Milk's vice president of Scientific and Regulatory Affairs, Jamie Jonker, pointed out the "medically important antimicrobial drugs" are drugs used in both human and animal medicine. "When thinking of the drugs used in dairy animals, we have to consider how they are used."

The FDA is looking at antibiotics used in human medicine that are also used in feeds to improve feed efficiency or rate of gain in animals, according to Jonker, who said there are restrictions on the use of those drugs in dairy animals because they may show up as residues in the milk.

"We do have products that we use in dairy animals that are not used in human medicine, such as ionophores," Jonker said. They are used routinely in growing dairy animals and lactating dairy animals to improve feed efficiency and, as of now, are not considered in the FDA draft guidance.

One concern for dairy producers, according to Jonker, is medicated milk replacer, which uses important antimicrobial drugs also used in humans. However, it's unclear whether FDA views the way that they are used in milk replacers as growth enhancement -- a non-therapeutic use -- versus a therapeutic use. That's something that has to be explored further.

National Milk will consider that, he said, as it prepares comments on the draft guidance in the next 60 days.

There is a legitimate concern regarding the overuse of antibiotics. One can hardly buy a hand soap today that doesn't have antibiotics in it. Jonker said it's not just the use of antimicrobials in animal livestock, but wants to know if there is a general overuse of antmicrobials across the general human population.

"If you look where you are most likely to find bacteria that are resistant to a lot of different types of antimicrobials, you find them in hospitals," Jonker said. "I think that there needs to be a balanced approach at looking at antimicrobial use, not just within animals but across all uses in animals and humans."

Say Cheese magazine

DairyLine's parent company, DairyBusiness Communications, launched Say Cheese magazine in January. Editor Pat Dailey talked about the publication's goal, which is to sell more cheese.

"We want to educate consumers and readers about the many different kinds of cheese that are available, how to use them, how to enjoy them and integrate them into their lives so that they understand how to navigate the cheese counter much more effectively."

The magazine features a lot of educational material, according to Dailey, and introduces them to new cheeses, how cook with them, and how to pair them with different accompaniments.

Say Cheese started in California with about 55,000 copies. The reception has been so strong, the third issue, coming in July, will go to Oregon and Washington. The January issue will be expanded to the East Coast.