Mielke: Sandy shakes up milk industry
Updated: Saturday, December 01, 2012 11:10 AM
By LEE MIELKE
For the Capital Press
Hurricane Sandy dominated the news this week as it wreaked havoc on the Eastern Seaboard. New York and the New York Stock Exchange were shut down for the first time since 1888 due to weather, according to FC Stone's Oct. 30 eDairy Insider Opening Bell. Market analyst Ryan Cox warned that "dairy will be affected by the storm. The upstate New York 'dairyshed' is an issue but we don't know how badly it will be affected yet."
Their Nov. 1 issue reported that millions of homes and business remain without power. FC Stone dairy economist Bill Brooks said "for dairy companies in New York City and New Jersey, it could be a while before they get back online. While those plants might not be able to process milk, demand from consumers who are unable to leave their homes has also come to a near standstill."
The Oct. 29 Daily Dairy Report pointed out that almost 20 percent of U.S. milk production is located along the East Coast and more than 45 percent is consumed in the fluid bottle. It added that "a storm of this magnitude could wreak havoc on the milk supply chain. Areas hardest hit by damaging winds and floodwaters are likely to struggle to pick up farm milk, and power outages could prevent dairy processors from running plants at capacity. The net impact is a lot of dumped milk and stronger milk and dairy product prices in the near term."
The Agriculture Department announced the October federal order benchmark Class III milk price this week at $21.02 per hundredweight, up $2.02 from September and $2.99 above October 2011. That is the highest it has been since August 2011 and equates to about $1.81 per gallon. The 2012 Class III average now stands at $16.98, down $1.27 from this time a year ago but $2.62 above 2010 and $6.26 above the disastrous 2009 average.
The November Class III futures contract was trading late Friday morning at $21.20 and December was at $20.40. The October Class IV price is $18.54, up $1.13 from September and 13 cents above a year ago.
The AMS-surveyed cheese price averaged $2.0479 per pound, up 18.3 cents from September. Butter averaged $1.9168, up 9 cents. Nonfat dry milk averaged $1.4636, up 8.7 cents, and dry whey averaged 62.05 cents, up 3.6 cents.
California's comparable 4b cheese milk price is $19.43, up $1.93 from September, $3.65 above a year ago, the highest since November 2007, but $1.59 below the FO Class III price. Its 2012 average now stands at $15.16, down from $16.41 at this time a year ago and compares to $13.26 in 2010.
The 4a butter-powder price is $17.96, up $1.34 from September but 33 cents below a year ago. Its 2012 average is $15.18, down from $19.15 a year ago and $14.67 in 2010.
Cash block cheese closed the first Friday of November at $2.11 per pound, down a penny on the week but 23 cents above that week a year ago. Barrel fell to $2 but rallied 8 cents on an unfilled bid Friday to close at $2.08, unchanged on the week but 16 cents above a year ago. Only two cars of block traded hands on the week and four of barrel. The AMS-surveyed U.S. average block price fell 1.7 cents, to $2.0715, while the barrels rolled 3.7 cents lower, to $2.0274.
Cheese plants would like to increase production, but are wary of paying premiums for additional milk, according to USDA's Dairy Market News.
Butter closed at $1.8875, down a quarter-cent on the week but 55-cents above a year ago. Fourteen cars found new homes on the week. AMS butter averaged $1.8948, down 3.6 cents.
Cash Grade A nonfat dry milk inched a penny higher to $1.57. Extra Grade held at $1.56. AMS powder averaged $1.4861, up 1.4 cents. Dry whey averaged 62.98 cents, up a half-cent.
Churning schedules across the country remain generally active and dependent on cream availability and price, according to DMN. Producers and handlers report good butter orders have been placed and continue to be placed.
Exports continue aided by the Cooperatives working Together program, which accepted 26 requests for export assistance this week to sell 4.3 million pounds of cheese, 2.5 million pounds of butter, and 85,980 pounds of whole milk powder to customers in Asia, the Middle East, North Africa and South America. The sales raised CWT's 2012 cheese exports to 106.3 million pounds plus 61.2 million of butter, 127,868 pounds of anhydrous milkfat, and 85,980 pounds of whole milk powder to 35 countries.
September butter production totaled 136 million pounds, according to USDA's latest Dairy Products report, up 5.3 percent from August, but 1.1 percent below September 2011. Nonfat dry milk output totaled 84.4 million pounds, down 20.5 percent from August and 18.7 percent below a year ago.
American cheese, at 346 million pounds, was down 2.1 percent from August but 2.3 percent above a year ago. Italian type, at 370 million pounds, was down slightly from August and 0.3 percent above a year ago. Total cheese amounted to 871 million, down 1.9 percent from August but 0.3 percent above a year ago.
USDA monthly Milk Cost of Production data for September shows total dairy farm production costs were likely the highest on record, according to Dairy Profit Weekly editor Dave Natzke in Friday's DairyLine broadcast.
The index, which covers everything from feed and labor to overhead costs, estimated total costs to run a dairy farm averaged more than $28 per hundred pounds of milk sold in September. Operating costs, such as feed, supplies and services, averaged nearly $20 per hundredweight, slightly higher than the national average price farmers received for milk in September.
USDA also released its monthly milk-feed price ratio, an index based on the current milk price in relationship to feed costs. Natzke reported that the data showed economic conditions improved somewhat last month, with higher milk prices offsetting slightly higher corn and alfalfa hay prices. At 1.68, the October index was the highest since January, but still below a year ago, and the 19th consecutive month below 2.0.
"The squeeze on dairy producer margins is having an impact on the value of both cull and replacement dairy cows," Natzke said. "With high feed prices, more dairy cows are being sent to slaughter, and average prices for cows sold for beef in October, dipped to their lowest average of the year. And, with the nation's dairy herd shrinking from its peak last April, the average price paid for a replacement cow fell in October, to $1,390 per head, the lowest average since January 2011.
"Adding to the improved outlook are announcements that October and November milk prices will be the highest so far this year, helping offset the higher feed costs as we move into winter," he said. "How long the improved economic conditions last, and what safety nets are in place, could depend on next Tuesday's elections, and what, if any action is taken on a 2012 Farm Bill."
The farm bill was a big topic of discussion at this week's annual meeting of National Milk Producers Federation, the National Dairy Promotion and Research Board, and United Dairy Industry Association in Florida. NMPF Chairman Randy Mooney and President and CEO Jerry Kozak discussed the organization's progress over the past year, beginning with the impasse in Congress, where representatives failed to pass a new farm bill before the old law expired on Sept. 30.
They reported that NMPF's dairy policy reform package, initially known as Foundation for the Future, had come a long way before being introduced in Congress last fall as the Dairy Security Act.
"The DSA was included by the members of the Senate Agriculture Committee in the draft farm bill approved last spring," Kozak explained. "Subsequently, the Senate approved a farm bill containing the DSA. Then, the House Agriculture Committee approved its own version of the farm bill earlier this summer."
"Despite this support, and NMPF's success in defeating challenges to the DSA (like the Goodlatte amendment, which would have stripped the market stabilization plan from the program), the farm bill was not brought to a vote by the full House," according to an NMPF press release.
"The House of Representatives has punted," Mooney said. "The House Ag Committee did its job and passed by a wide, bipartisan margin a farm bill in July. There was enough time for the full House to act on the bill, but they didn't."
With the expiration of the old farm bill, NMPF has been increasing pressure on Congress and urging its member cooperatives and farmers to ask their representatives for a "Farm Bill Now" when Congress returns after the elections.
Attendees were also told that the dairy checkoff's strategy of working with powerful partners is helping to "secure dairy's future" by contributing to billions of additional pounds of milk sales and enhancing dairy's image.
"Working with industry leaders McDonald's and Domino's represents a business strategy that helps the dairy checkoff 'do more with less,'" said California producer Steve Maddox, NDB chairman. NDB carries out coordinated promotion and research programs to help build demand and expand domestic and international markets for dairy products, he said.
"In the past, checkoff efforts were largely focused on generic promotion to help raise consumer awareness," Maddox said. "We had some great ads that producers were extremely proud of, but we didn't grow sustained dairy sales."
The war of words continues in California where the Milk Producers Council's Rob Vandenheuvel fired back in his Oct. 26 newsletter at the statement issued last week by the Dairy Institute of California, the main lobbying organization for many of California's dairy product processors.
The main contention is the gap between California's 4b cheese milk price and the comparable federal order Class III milk price. Vandenheuvel charged that, what was an average gap of 45 cents per hundredweight for the first seven years of the chart he posted in his newsletter, has expanded to $1.24 in 2010 and blew up to a gap of $2 in 2011. He reports that so far in 2012, the California Class 4b price has averaged $1.85 per hundredweight below the federal order Class III price.
MPC claims that, if CDFA would have maintained the roughly 45 cent per hundredweight gap that existed from 2003 to 2009, California's cheese manufacturers would have had to pay more than $600 million more into the California "pool" for the milk they purchased. He touched on the question whether it's the state's or the processors' responsibility to manage the milk production by California's dairy farmers. Details are at www.milkproducers.org
In another California development, the Alliance of Western Milk Producers, a coalition of California dairy processing cooperatives representing 60 percent of California's milk, announced that it will cease operation as of Nov. 1.
A press release stated that "The Alliance members, California Dairies, Inc. (CDI) and Dairy Farmers of America Western Area (DFA), have determined that a formal organization is no longer necessary to accomplish a concerted effort of California cooperatives."
"Our commitment to working together for the mutual benefit of our respective members remains strong. However, the landscape of the dairy industry has changed dramatically over the last 21 years," said Tony Mendes, chairman of the board. "As successful as the alliance has been, the leadership of CDI and DFA has concluded that the ability to collaborate and communicate is most efficiently and effectively achieved through a less formal and more flexible structure. I look forward to effectuating this new approach to meet the mutual challenges facing the members of CDI and DFA."
Meanwhile, the board of directors for Wisconsin-based Family Dairies USA, Manitowoc Milk Producers Cooperative, and Milwaukee Cooperative Milk Producers have unanimously voted to recommend a unified merger for their membership. Combined, these three cooperatives could soon become the largest Midwest dairy marketing cooperative.