Dairyline: Mixed signals on cheese market

By LEE MIELKE
For the Capital Press

The cash cheese market sent some mixed signals the second week of November. The blocks inched a penny higher on Monday and stayed there until Friday, when they gained another half cent, to close at $1.5750 per pound, but that's 14 1/4-cents below a year ago. Barrels lost 9 cents during the week but regained three quarters on Friday, to close at $1.4425, 25 1/4-cents below a year ago and 13 1/4 below the blocks. Twenty-five cars of block traded hands on the week and 12 of barrel. The NASS U.S. average block price inched 0.7 cent higher, to $1.4756. Barrel averaged $1.5029, up 2.9 cents.

Butter started the week with a 2 1/2-cent jump, to $1.5250, and that was all she wrote. That's 11 cents below a year ago. Twenty-nine cars traded hands on the week. NASS-surveyed butter averaged $1.3140, up 1.9 cents.

Cash powder was pretty quiet all week, though Grade A gained a penny to close at $1.38, while Extra Grade held at $1.40. NASS powder averaged $1.1215, up 10.2 cents. Dry whey averaged 34.39 cents, up 0.4 cent.

There were no price support purchases on the week nor were there any Dairy Export Incentive program bid acceptances.

The butter market is "red hot," according to market analyst Alan Levitt. He said it was being driven by market psychology, lower milk production in the Western region, and international markets. The butter price gained more than 27 cents in three weeks alone, Levitt reported, and is above $1.50 for the first time in nearly a year.

Butter futures were averaging $1.60 per pound, he said, and he attributed a lot of that to the September Dairy Products report which showed butter output down 22 percent from a year ago so there's certainly a fear of shortages going forward.

Manufacturer and marketer orders are very strong, Levitt reported, particularly for retail and butterfat exports, which have been dormant most of the year have picked up. International prices are strong, he said, and Dairy Market News reported international butter prices at around $2 per pound from Europe and $1.40 from Oceania.

Cash cheese was marching higher as well, according to Levitt, and blocks seem to have support above $1.50 per pound, but he cautioned that traders recognize that the bulk of the holiday buy-in should be winding down and that could lead to a letdown in the market.

"I'm not saying it's going to," he said. "But it's one of those things that hanging out there."

The Agriculture Department, in its latest World Agricultural Supply and Demand Estimates report, raised its 2009 and 2010 milk production forecasts as milk per cow was forecast higher and the rate of decline in cow inventories was slowed. Improved milk prices are expected to more than outweigh higher feed costs and slow the pace of liquidation, according to USDA.

Look for 2009 output to hit 189.1 billion pounds, up 200 million pounds from last month's estimate. 2010 output is projected to slip to 187.7 billion pounds, up 500 million from October's estimate.

Improving global demand and concerns about world supplies of dairy products have pushed international dairy prices higher and are expected to result in higher U.S. dairy exports during the remainder of this year and into 2010. Import forecasts were lowered for 2009. Fat-basis ending stocks were forecast higher for 2009, but 2010 stocks were forecast lower on both a fat and skim-solids basis as supplies tighten.

Improving domestic and export demand and lower year-to-year milk production is expected to lead to higher prices for cheese, butter, nonfat dry milk and whey.

Class III and IV price forecasts for 2009 and 2010 were raised from last month. Look for the 2009 Class III price to average $11.20-$11.30 per hundredweight, up 20 cents from last month's projection. The 2010 average is now expected to range $14.95-$15.85, up a dime. The 2008 average was $14.65.

The Class IV price will average $10.75-$10.95 in 2009, according to USDA, up 40 cents from last month's estimate. The 2010 average is now put at $14.20-$15.20, up $2.20 from the October estimate. The 2008 average was $14.65. The all milk price is forecast at $12.60 to $12.70 2009 and $16.05 to $16.95 for 2010.

California's December Class 1 milk price is $16.04 per cwt. for the north and $16.31 for the south. Both are up a dollar from November but 53 cents below a year ago. The 2009 Class 1 average for the north is $13.12, compared to $19.79 in 2008. The 2009 average for the South is $13.39, down from $20.07 in 2008.

Meetings

Dairy producers met in Grapevine, Texas, this week for the joint annual meetings of National Milk, the National Dairy Board and United Dairy Industry Association. National Milk's Chris Galen said the highlight was the greater sense of optimism among attendees that 2010 will be a better year financially.

Discussion centered on what the federation has done, both for the short term and the long term, to help improve dairy farm economics. Short term, the spotlight was on CWT activities and what might be done differently in 2010, Galen said. Discussion also centered on what the federation asked of Congress regarding reactivating the Dairy Export Incentive Program, raising price supports and purchasing cheese to stimulate farm prices in the short term.

A big focus of the meeting is what comes next, Galen said. Farmers recognize that the status quo in terms of dairy economics can't stand but must be changed, according to Galen. The Foundation for the Future program was outlined, which includes a multi-faceted approach to changing the federal order system, changing CWT and changing dairy safety nets "with an eye toward making certain that this terrible price crisis that we've had can be averted in the future."

Echoing Galen's report, Dairy Profit Weekly editor Dave Natzke said dairy farmers at the meeting heard better news regarding the 2010 price outlook, with most forecasts predicting a return to positive margins in 2010. But he quickly added that farmers seeking a major overhaul in federal dairy policy in the short term probably won't be as pleased.

"With health care reform and climate change dominating time in Congress, any major change probably won't come until the 2012 Farm Bill," Natzke said. "Another hot-button issue, immigration reform, will have to be tackled in early 2010, or it will also be pushed aside until after fall elections, because the topic is just too controversial for lawmakers seeking reelection."

Addressing dairy farmers, UDSA Undersecretary Jim Miller said USDA is finalizing a plan to distribute the $290 million in emergency aid approved by Congress. Once approved by the Office of Management and Budget, farmers should start receiving payments in mid- to late December.

The meeting coincided with Veteran's Day and a highlight was the delivery of 800 slices of Domino's pizza to patients in the Dallas Veterans Affairs hospital. Sponsored by dairy farmers and the nonprofit "Pizza 4 Patriots," it was part of a five-city project, delivering pizza and milk to hospitalized veterans. Farmers participating in the project were reminded of the sacrifices our veterans make to preserve the freedoms we all enjoy, Natzke said.

Back on the farm

California dairy producer Brad Scott says the Beef Checkoff has been "very beneficial" to dairy producers because it's "marketing our products." Scott said dairymen need to remember they are not only dairy producers but are also meat producers because their animals go to market and end up in the food chain.

The Beef Checkoff provides education, research, and promotion and dairy producers do have opportunity to have their voices heard as to how their dollars are spent in promoting beef consumption, which in turn contributes to their bottom line.

Scott believes that he sees a return on his investment, pointing out that the dollar he spends on the checkoff does things that he himself can't do himself in getting the message out to consumers about the quality product that farmers produce.

Scott also gave high marks to the staff of the Beef Checkoff and is glad that dairy farmers have seats on the beef board to insure that the money dairy farmers invest is used in areas they deem important.

"Keep doing what you're doing," Scott said. "They're continually educating the public that what we produce is a wholesome, quality, nutritious product and that farmers take good care of their animals so that, when they do reach the market, they are of a good quality for the consumer."

Gregg Miller, executive vice president of research, regulatory and scientific affairs with Dairy Management Inc., had something to say about a buzz word among health professionals: "nutrient rich."

He said the dairy checkoff is communicating with consumers and health professionals about the nutrient value of dairy foods, with the goal of changing the paradigm in the nutrition community from nutrient avoidance.

"Don't eat fat, don't eat salt, and don't eat sugar" was the previous mantra, Miller said. But now the focus is one that balances choices over time, choosing nutrient-rich foods to get a healthy diet.

"When people try to avoid saturated fat, they cut whole food groups out of their diets, like dairy foods," Miller said. "That's really wrong for the nutritional quality of their diet."

This message is being picked up globally now, according to Miller. The Global Dairy Platform, the International Dairy Foods Association and European Dairy Association are all carrying nutrient-rich foods messaging.

It's really not a new message, as the dairy industry has known all along, Miller said. The dairy industry has emphasized the calcium content of dairy products in the past, but "now it's time to re-enlighten the image of dairy foods with consumers and talk about the whole nutrient package that dairy delivers."