For the Capital Press

Help is on the way for financially struggling dairy farmers. The U.S. House and Senate have passed and sent to President Barack Obama legislation that includes $290 million for direct support to dairy farmers and $60 million to purchase cheese and dairy products for food banks and nutrition programs.

The bill hit some opposition from California Sen. Barbara Boxer, who was concerned over how the direct payments would be made, fearing they would be targeted to smaller dairy operations. After meeting with Agriculture Secretary Tom Vilsack, Boxer said she was encouraged that USDA "is committed to ensuring that these emergency funds are distributed to our dairy producers in a way that is regionally equitable."


USDA has again raised its 2009 and 2010 milk production forecasts due to higher milk per cow and a slower rate of decline in cow numbers in 2010. Output in 2009 is now predicted to hit 188.9 billion pounds, up 500 million from last month's estimate. 2010 production is projected at 187.2 billion pounds, also up 500 million pounds from a month ago.

Import forecasts were raised as butterfat and cheese imports are stronger than expected. Stronger world dairy prices and a weak U.S. dollar are expected to increase export demand for U.S. dairy products, according to USDA.

Net removals reflect adjustments in CCC and Dairy Export Incentive Program activities for nonfat dry milk, butter and cheese. Firmer domestic and export demands are expected to support prices for cheese, whey and NDM. However, butter prices are forecast lower as supplies remain large.

Class III prices for 2009 and 2010 were raised from last month, and Class IV prices were raised for 2009. Look for the 2009 Class III price average to range $11 to $11.10 per hundredweight, up from the $10.65 to $10.85 projected a month ago. The 2010 average will jump to $13.85-14.75, according to the report, up from the $13.75-14.75 projected last month.

The 2009 Class IV is expected to average $10.35-10.55, up from $10.10-10.40, and the 2010 average is now $12-13, up a nickel from last month's projection.

The August Dairy Products report tells us where the milk is going. Butter production hit 100.2 million pounds, down 14.1 million pounds or 12.3 percent from July and 15.7 million or 13.6 percent below August 2008. Nonfat dry milk output amounted to 105.6 million pounds, down 26.4 million or 20 percent from July, and 9.6 million or 8.3 percent below a year ago.

Mozzarella cheese output totaled 274.2 million pounds, down 0.9 million pounds or 0.3 percent from July, but 13.9 million or 5.3 percent above a year ago.

Total Italian-type cheese, at 349.8 million pounds, was up 0.5 million pounds or 0.1 percent from July, and 13.2 million or 3.9 percent above a year ago.

Cheddar production totaled 262.8 million pounds, down 4.3 million pounds or 1.6 percent from July, but up 5.6 million pounds or 2.1 percent from a year ago.

American-type cheese amounted to 345.2 million pounds, down 7.2 million pounds or 2 percent from July, but up 5.4 or 1.6 percent from a year ago.

Total cheese output came to 849.5 million pounds, up 8.2 million pounds or 1 percent from July, and 21.2 million or 2.6 percent above a year ago.

The report reflected what has already happened, said market analyst Alan Levitt, editor of the CME's Daily Dairy Report.

"It told us what I think we already knew," Levitt said. "More milk has gone into the cheese vat than in butter-powder, so total cheese production was up 2.6 percent and August butter production was the lowest in three years, down 13.6 percent from a year ago." Milk powder output was down from a year ago and the smallest since September 2007.

Manufacturer stocks of nonfat dropped 54 million pounds, down 28 percent in July and August and are actually below a year ago for the first time in two years, so that's likely driving the powder market up, he said.

Commenting on reports last week on legislation that would purchase dairy products for government meal programs, Levitt said it depends on the timing and the particulars.

About $60 million would go to purchasing cheese, he said, and would equate to about 40 million pounds. If it's all cheddar and it's all purchased at once, that would instantly short the market, he said. If it's other varieties or is spread over a number of months, the impact could be lessened.

The total cheese inventory, as of Aug. 30, was 105 million pounds above a year ago, Levitt said. "If we took 40 million out of that, it will certainly help -- but the devil is in the details."

He quickly added that this might already be priced in the market as there have been rumors that some industry groups wanted USDA to buy 100 million pounds of cheese, so that might have already been a factor as the price has been climbing the past few weeks.

Herd removal

Last week's CWT herd removal came as a surprise to Levitt. CWT has eliminated more than 175,000 cows in the past five months -- 2 percent of the dairy herd, he said.

"That could be a bit significant, depending on who is left and how many more bids they get over the next two weeks.

"They're kind of riding the tail end of the wave," he said. "Milk production is already in decline, so this will piggyback on that, but it's certainly going to help bring things back into balance."

Legal issues

Dairy Profit Weekly editor Dave Natzke said the California Superior Court for Los Angeles County awarded Dairy Farmers of America $14.3 million in its breach of contract lawsuit against Cacique Inc., a California cheese maker. DFA alleged the company unlawfully terminated a milk purchasing contract on short notice, and the court awarded damages for lost milk sales and additional costs to market and transport milk.

Natzke said the Alliance of Western Milk Producers petitioned the California Department of Food and Agriculture for an emergency hearing to consider increasing the state milk marketing order's class milk prices. The petition seeks a 50-cent-per-hundredweight increase in the Class I price, and a 26-cent increase in Class II and III prices paid to farmers. In filing the petition, the alliance noted that California milk production has declined for 11 consecutive months, and the state's dairy farmers continue to suffer from low milk prices and high feed costs.


California farmers attending this week's Alltech Global Dairy 500 Conference in Kentucky shared a common bond with hundreds of dairy farmers from around the world, Natzke said.

Based on discussions he had with farmers, he said, it's apparent that dairy producers are similar no matter where they live and work.

They're generally an optimistic group, but all are suffering economically. Alltech founder and CEO Pearse Lyons estimated only about 2 percent of the world's dairy farmers are profitable under today's conditions.

More legal issues

A class-action antitrust lawsuit was filed this week on behalf of Northeastern dairy farmers against DFA and Dean Foods in Burlington, Vt. The suit charges DFA and Dean Foods with monopolizing a level of milk distribution in the Northeast and forcing dairy farmers to join DFA or its affiliate Dairy Marketing Services.

DMS and milk processor HP Hood were also named in the suit for "aiding DFA's and Dean's monopolization" and, in the case of DMS, for price-fixing with DFA.


Cash dairy product prices keep strengthening. The block cheese price hit $1.5025 per pound the second Friday in October, up 63/4 cents on the week and the highest it has been since last December, but 373/4 cents below that week a year ago.

Barrel closed Friday at $1.43, up a penny on the week, but 401/2 cents below a year ago. Only two cars of each traded hands on the week. The lagging NASS surveyed U.S. average block price slipped 0.3 cent, to $1.3106. Barrel averaged $1.3428, up 3.8 cents.

Butter gained a penny and then gave some back Friday, closing at $1.2375, up a quarter-cent on the week, but 461/2 cents below a year ago. Eight cars were sold. NASS butter averaged $1.2065, down 0.1 cent.

Cash Grade A nonfat dry milk closed the week at $1.28 per pound, up a dime on the week. Extra Grade closed at $1.22, up 7 cents. NASS powder averaged $1.0102, up 3.2 cents, and dry whey averaged 30.18 cents, down 0.1 cent.

There were no price support purchases on the week, and the new fiscal year began Oct. 1. DEIP bid acceptances this week included 3.3 million pounds of anhydrous milkfat, 423,283 pounds of cheddar cheese, 90,389 pounds of mozzarella cheese and 881,840 pounds of butter.


There's been a lot of discussion the past few months about the various ways the government can provide emergency relief for dairy farmers. The International Dairy Foods Association's Peggy Armstrong said, "When you take a look at how this funding could be used by one program, USDA's Women, Infant and Children's program, or WIC, it's clear that this approach has long-term benefits for consumers, dairy producers and processors."

The WIC program provides nutrition education and retail food vouchers to almost 10 million low-income mothers, infants and children, Armstrong said. Dairy products are a critical part of its nutritional food packages because they provide nine essential nutrients and the protein and calcium that are especially important for women who are pregnant and for young children.

IDFA estimates that approximately $2 billion will be used by WIC participants to buy dairy products, Armstrong said. However, due to changes in the program, WIC does not allow yogurt to be included, despite a recommendation to do so from the Institute of Medicine. In 2008 USDA said it would cost an additional $88 million a year to allow for the yogurt purchases, which was not part of the budget.

"Today, we have the opportunity to use some of the emergency appropriation to add yogurt to the WIC program," Armstrong said. "Offering yogurt as a dairy option for mothers that use WIC would introduce a whole new generation to its nutritional health benefits, increase demand for milk in many states, and help bolster long-term demand for dairy products among a segment of the population that so critically needs it.

"It is time to ask USDA to include yogurt as an allowable dairy product under the WIC program," she said.


National Milk's Chris Galen talked about another short-term help for dairy farmers, the CWT's third herd retirement of 2009 and the fifth in the past 18 months.

He said CWT hopes this will be the final push needed to bring the milk supply in line with demand, and it believes there are other producers, due to the economic stress out there, that are interested in this program. CWT exists in the first place to help those farmers as well as those that want to remain in the business to benefit from higher milk prices.

When asked why another herd removal is being run so quickly, Galen said CWT knew at the end of last year there was going to be a severe imbalance between supply and demand, and CWT has been whittling that away in the herd removal of the winter of 2008 and the first two of 2009, but resources are still available, Galen said.

There's still a need within the dairy industry to further reduce supply, so CWT will step up to the plate and trim production to have better alignment between supply and demand and stronger prices.

Dairy Management Inc. CEO Tom Gallagher continued his discussion from last week on sagging pizza sales. He talked specifically about DMI's partnership with Domino's and said that, in a seven-month period, by increasing the amount of cheese on their pizzas, they in effect purchased an additional 100 million pounds of milk.

Hopefully, that replicates itself year after year, he said. They spent $50 million in promotion of those pizzas, too.

Beyond that, this has stimulated others to do the same, and local "mom-and-pop pizza restaurant" as well as other large chains are marketing the fact that they have more cheese on their pizzas. Domino's success has "caused a stir in the marketplace," he said.

There have been short-term gains and copycat actions, Gallagher said, so DMI believes that, as these chains see that adding more cheese to their pizzas results in greater sales, there'll be an incentive to keep the cheese level high.

That helps dairy farmers, of course, because it increases the amount of milk used and sold through pizza, Gallagher said, and he again pointed out that, if each pizza had 1 more ounce of cheese on it, we'd sell 21/2 billion pounds more of milk.


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