Dairy product prices continue to climb

Lee Mielke

By LEE MIELKE

For the Capital Press

Dairy farmers are seeing more light at the end of their financial tunnel as dairy product prices continue to climb. The cash block cheese price closed the first Friday of November at $1.56 per pound, up a nickel on the week and the highest since mid-December 2008, however it's still 9 cents below a year ago. Barrel closed Friday at $1.5250, up 3 3/4-cents on the week, but 11 1/4 cents below a year ago. Twenty-three cars of block was sold on the week and seven of barrel. The lagging, milk-price-dictating, NASS-surveyed, U.S. average block price hit $1.4690, up 1.7 cents on the week. Barrel averaged $1.4738, up 1.5 cents.

Cash butter closed the week at $1.50, up 9 cents, but still 13 1/2-cents below a year ago. Only four cars were sold. NASS butter averaged $1.2968, up a nickel.

Cash Grade A nonfat dry milk closed Friday at $1.37, up 3 1/2-cents on the week, while Extra Grade closed at $1.40, up 13 cents and even saw a trade this week. The NASS-surveyed powder price averaged $1.0190, down 1.6 cents, and dry whey averaged 34.02 cents, up 1.4 cents.

There were no Dairy Export Incentive Program bid acceptances this week and no price support program purchases, leaving the cumulative powder purchase total at 132,276 pounds, compared to 37 million pounds a year ago.

Market analyst Mary Ledman, principal of Keough Ledman and Associates Inc. in Libertyville, Ill., said that Monday's slippage in cheese prices will "serve milk prices better in the long run if we pause to see if these prices are sustainable." Apparently they were as prices climbed the rest of the week.

Market analyst Mary Ledman, principal of Keough Ledman and Associates Inc. in Libertyville, Ill., said that Monday's slippage in cheese prices will "serve milk prices better in the long run if we pause to see if these prices are sustainable." Apparently they were as prices climbed the rest of the week.

She warned that punching through the $1.50 per pound level may be difficult because there would have to be a slowdown in milk production -- and cheese production -- and an eroding of stocks before hitting that $1.60 level. The $1.40-$1.50 range seems to be sustainable, she said, but we need to see a correction in milk production before we will hit $1.60.

"Whether it's disappointment from lower numbers on the CWT or a realization that we have about 10 percent higher stocks than what we had a year ago, even as a percentage of total production over the last eight months, that's close to 26-27 percent, which is a strong inventory level versus production," Ledman said.

Cheese

U.S. milk production may be slipping, but milk is flowing into the cheese vat, according to the Agriculture Department's latest Dairy Products report. September butter production amounted to only 94.6 million pounds, down 6.2 percent from August and a whopping 21.9 percent below September 2008.

Nonfat dry milk output, at 87.1 million pounds, was down 17.7 percent from August, but was up 1.8 percent from a year ago. The CME's Daily Dairy Report said "the shift from butter/powder to cheese reflects reduced milk supplies in the Western region and increased supplies in the Midwest."

Total cheese output hit 845 million pounds, down a half percent from August, but 4.4 percent above a year ago. American cheese hit 341 million pounds, down 1.1 percent from August, but 6.4 percent above that of a year ago. Cheddar production was up 8 percent from a year ago and mozzarella was up 4.4 percent.

Back on the farm

The October Milk-Feed Price Ratio is 2.04, up from September's revised estimate of 1.98, according to USDA's latest "Ag Prices" report, and compares to 2.02 in October 2008.

California's October 4b cheese milk price is $12.69 per cwt., up $1.29 from September, but $3.94 below October 2008 and 13 cents below the comparable Federal order Class III price. The 4a butter/powder price is $11.54, up 46 cents from September, but $2 below a year ago.

Despite wide regional variation, U.S. average replacement cow prices continue to be pressured by low milk prices and herd liquidation. Dairy Profit Weekly editor Dave Natzke said USDA's October estimate indicates average prices declined to $1,240 per cow, down $680 from a year ago, and the lowest quarterly average dating back to April 1999.

Of the 23 major dairy states, 17 reported lower average prices compared to the previous quarter, with only California and Oregon reporting small increases.

In a contrasting story, Natzke reported that, in its quarterly financial report, Dean Foods announced this week that third-quarter profits totaled $49.7 million, up 32 percent compared to the same quarter a year ago. Quarterly net income was up from $37.8 million for the third quarter of 2008. Net income for the first nine months of 2009 was estimated at $190 million, compared to $117 million for the same period last year.

The price Deans paid for raw milk averaged $10.41 per cwt. during the quarter, down 45 percent from a year earlier. In its report to investors, Deans said it anticipates increasing milk prices through the end of 2009 and 2010.

Eyes on Ohio

The eyes of livestock producers nationwide were on Ohio this week where voters approved a referendum to establish a Livestock Care Standards Board. Natzke reported that the state was under pressure from animal rights activists to ban some methods of livestock production, and the Ohio vote is largely seen as a victory for farmers because the guidelines and enforcement will now be overseen by a 13-member board.

The eyes of livestock producers nationwide were on Ohio this week where voters approved a referendum to establish a Livestock Care Standards Board. Natzke reported that the state was under pressure from animal rights activists to ban some methods of livestock production, and the Ohio vote is largely seen as a victory for farmers because the guidelines and enforcement will now be overseen by a 13-member board.

Capitol Hill

National Milk's Chris Galen said climate change, along with health care reform, is one of the biggest ticket, most controversial issues being dealt with in 2009 on Capitol Hill.

Earlier this year, the House passed a cap and trade bill and the Senate is now considering one. The Senate's Environment Committee was to mark up a similar bill this week but "got bogged down in partisan wrangling over whether it's the right approach," Galen said. Republicans were boycotting the process.

"The good news is that there are some amendments pending that would make the bill friendlier to agriculture," Galen said. National Milk believes that the legislation has to keep the needs of dairy farmers and other agricultural interests in mind, Galen reported. The USDA needs to play a major role in supervising the carbon credit and offset markets that might be generated through this legislation. The federation also wants to grandfather in pre-existing projects and avoid regulation of agricultural sources that may emit greenhouse gases.

"We know there are some potential benefits to agriculture, particularly to dairy, if we get a well constructed cap and trade bill," he said.

Flavor

"On the farm, milk comes in only one flavor," said Michelle Matto, dssistant director of Nutrition and Labeling at the International Dairy Foods Association. "But as you take a walk down your grocery store aisle or a school lunch line, you'll see many more."

Matto said flavored milk encourages kids to drink milk. Chocolate has been joined by strawberry, vanilla and other flavors to tempt the taste buds of the American consumer, Matto said, while providing all the nutrient benefits of milk.

Chocolate and other flavors of milk start with white milk and have flavoring and sweeteners added, she said. In general, they meet the standard of identity for milk, including the required levels of milk solids, and are available in a variety of calorie and fat levels. There are rich milkshake-type products for people looking for a special treat and there are fat-free, no sugar added products for those that want great taste and nutrition with fewer calories.

She reported that in 2007 almost 4.4 million pounds of flavored milk was sold in American retail stores -- about 8 percent of total retail milk product sales. Per capita consumption was 14.5 pounds, an increase from about 12 pounds in 2000 and "an area of growth amid the continued decline in milk consumption."

While children can select from a variety of milks, Matto said it's not surprising that most milk sold in schools is flavored, with the majority being low-fat.

"This is a great option for children to enjoy the nine essential nutrients of milk," she said. "It's particularly important for milk to be attractive to children because most kids over the age of 8 are not drinking enough."

Dairy processors are working to formulate new flavors and products with different levels of fat, sugar and calories to meet the demands of consumers, especially school districts, Matto said. These products may use different flavoring systems, or a combination of caloric and non-caloric sweeteners, while still meeting the standard of identity for milk.

Dairy processors are working to formulate new flavors and products with different levels of fat, sugar and calories to meet the demands of consumers, especially school districts, Matto said. These products may use different flavoring systems, or a combination of caloric and non-caloric sweeteners, while still meeting the standard of identity for milk.

"By providing more choices, milk can better compete with other beverages," she said. "When adults and children drink more flavored milk, they drink more milk, getting the nutritional benefits and supporting the dairy industry."

Slow-gurt

Yogurt, which is and has been a driving and growing force in the dairy industry, has slowed recently, according to Dairy Management Inc. CEO Tom Gallagher.

He said the reason was that the size of the package was reduced by two ounces. Unit numbers were not changed but there were 2 ounces of yogurt per unit that wasn't sold. This demonstrated the importance for the dairy checkoff, working on behalf of farmers, to work with the rest of the industry, namely processors.

The challenge, he said, is to make sure changes like that don't negatively affect the industry. One of the ways they're doing that is to broaden the playing field in terms of sales availability -- in other words, making more yogurt more available.

An example of that is the partnership between the dairy checkoff and General Mills to make a fruit-and-yogurt smoothie now found in the frozen foods section. The product has yogurt chips with fruit that are mixed with milk at home to make a smoothie. General Mills said trial markets show that this product has tested better than any other product they've ever introduced.

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