Dairyline: Antitrust spotlight turns on dairy

Lee Mielke

By LEE MIELKE

For the Capital Press

The Obama administration's look into antitrust issues focuses its attention on the dairy industry June 25.

Agriculture Secretary Tom Vilsack, Attorney General Eric Holder and Assistant Attorney General Christine Varney are to participate in what's billed as a "public workshop" to examine competition and regulatory issues in the dairy industry.

Wisconsin Gov. Jim Doyle, state agricultural secretary Rod Nilsestuen and many of Wisconsin's Democratic congressional representatives were also to participate.

Organizers have promised time for dairy farmers, processors and academia to provide input during the workshop, which is set for 9 a.m.-6 p.m. June 25 on the University of Wisconsin campus in Madison.

The Obama administration has stepped up investigations related to antitrust issues in the dairy industry, and Wisconsin is in the center of one of those storms.

Last January, the Justice Department filed a suit challenging Dean Foods' 2009 acquisition of two fluid bottling plants from Foremost Farms, a Wisconsin-based cooperative, alleging the deal hurt competition in the sale of milk to schools and stores in the Upper Midwest. Dean and Dairy Farmers of America, the nation's largest dairy cooperative, also face an antitrust lawsuit in Vermont.

The dairy session is the third in a series of five workshops planned by the Obama administration. The Department of Justice and USDA will hold another public workshop Aug. 27 in Fort Collins, Colo., where the focus will be on the livestock industry. That will be followed by a workshop on financial margins in agriculture Dec.8 in Washington, D.C. Previous workshops covered general agriculture and the poultry industries.

Cheese prices up

The cheese price roller coaster headed back up midway through June Dairy Month as the market awaited the May Milk Production report.

Cash block closed June 18 at $1.4050 per pound, up 3 1/2-cents on the week, 28 3/4-cents above a year ago, and reversed three weeks of decline. The barrels closed at $1.3850, up 5 1/2-cents on the week, and 31 1/2-cents above a year ago.

Fourteen loads of block traded hands on the week and 35 of barrel, all of them on June 18. The National Agricultural Statistics Service-surveyed block price average lost a penny, slipping to $1.4581. Barrel averaged $1.4274, down 5.2 cents.

Butter continued its climb, closing June 18 at $1.6350, up 2 1/2-cents on the week, and 43 cents above a year ago. Only three cars were sold on the week. NASS butter averaged $1.5766, up 3.4 cents. NASS powder averaged $1.3039, up 0.1 cent, and dry whey averaged 36.83 cents per pound, down 0.3 cent.

Cheese prices are in a familiar pattern of $1.35-$1.50, market analyst Alan Levitt said. Orders are good, but he warned of the inventories hanging over the market, causing buyer resistance when prices approach $1.50. That level has been tested three times, he said, and will likely be tested a fourth time.

One factor that may help draw stocks down, he said, is the shift in trade. April cheese exports totaled 32 million pounds, while imports only totaled 19 million pounds so there were about 13 million more pounds exported than imported and "that's pretty unusual because historically we import much more than we export."

School closings will divert more milk into the cheese vat but Levitt pointed out that we're past the seasonal peak in milk production and component levels are lower so supplies are going to shrink over the next couple months and there may be a shortage of current cheese trading on the market in July and August. That could help push prices above $1.50, he said.

Cream and butterfat supplies remain tight and the seasonal pull of cream from ice cream manufacturers has been heavy, Levitt said. "Butter users feel comfortable building and holding inventory because they're expecting things will be tighter later in the year," he said, plus, with component levels being down seasonally and versus a year ago, milk production may be up, but the amount of fat being produced is about the same as it was a year ago.

Dave Kurzawski, Downes-O'Neill dairy broker, predicted more upside on the cheese market. He said the market appears to be in balance in the mid $1.30s per pound.

He didn't anticipate much market reaction to the National Milk Producers Federation's proposed changes to dairy policy. He doesn't see anything in the proposal that is bullish or bearish for milk and called it "progressive," and one he likes.

Dairy processors also praised the plan with the exception of its supply management provisions. Kurzawski said that when you compare National Milk's version of supply management with other proposals, it's leaner and milder, has a sunset provision and appears a little bit more palatable than some of the other growth management programs being discussed.

When asked about the Chicago Mercantile Exchange's June 21 startup of a new cheese futures and options contract, Kurzawski said, "It's going to be a great contract," praising it as another risk management tool for dairy producers or end users.

He warned that a lot of times a new contract will have problems in its infancy but he doesn't believe that will be the case for this one.

"Only time will tell," he said.

NMPF's plan debuts

National Milk CEO Jerry Kozak talked about the "Foundation for the Future" plan. He called it a "comprehensive look at all aspects of our milk pricing system." He admitted they have a "massive challenge" to communicate what the plan is about, explain the reasoning behind it and welcomed input from producers and others in the agricultural community.

Various other proposals have already been made, such as the Specter-Casey bill, Holstein Association plan, Milk Producers Council plan, and when asked about charges that National Milk being late, Kozak explained that their proposal was a year-long project dealing with a lot of "tough stuff."

He referred to National Milk's expertise in dairy policy and the time it took to research the direction to go. He said they evaluated many of the other proposals and included a number of the ideas from other groups in the Federation plan.

"Rather than saying we like or don't like certain proposals," Kozak said, "I think it's far better to focus on the fact that the difference with our proposal is that it is a comprehensive proposal." He said tit looks at revising farm safety nets, revising the federal order system, establishes a new margin protection program and establishes a dairy market stabilization effort.

"If you look at all of the other proposals," Kozak said, "Most of them are sort of single-focused and, with all due respect to proposals that have been put up by the Congress, I think we're in a better position to try to control our destiny and our membership is in a better position to tell the Congress what we think we should do rather than for the Congress to tell us."

Milk dump proposed

Grassroots effort is under way for a Fourth of July Milk Dump to get U.S. lawmakers' attention to the financial plight of dairy farmers. It is organized by West Winfield, N.Y., dairy producers Dave and Robin Fitch. Robin Fitch told DairyLine "We have been suffering in the dairy industry for over a year and a half now with the lowest of lows."

Fitch said officials told her there was no hope for change until the 2012 Farm Bill but dairy farmers across the country are expressing support for the milk dump. She added that the effort is not just for farmers but for consumers as well who "want safe quality food that is produced in our country."

Milk dumps in the past have garnered headlines but have not achieved change in police or prices.

"We can all sit at our tables and we can talk and we can complain but until we do something, nothing is going to change so it is up to the farmer to take back their independence," she said. For more information, call Dave or Robin at 315-822-5093 or email to fitchrnd@yahoo.com.

July milk price set

The July federal order Class I base milk price was announced June 18 at $15.66 per hundredweight, up 38 cents from June and $5.40 above July 2009. That pushed the year's average to $14.60, up from $11.08 a year ago but compares to $18.79 in 2008. The advance Class IV pricing factor was again the "higher of" in driving the Class I value. There will be no Milk Income Loss Contract payment to producers.

The NASS butter price averaged $1.5620 per pound, down 2.6 cents from June. Nonfat dry milk averaged $1.3037, up 5.8 cents. Cheese averaged $1.4726, up 6.1 cents, and dry whey averaged 36.98 cents, up just under a penny.

CWT export bids OK'd

The CWT program announced the acceptance of one bid from Foremost Farms, two from Dairy Farmers of America, and five from Darigold to export just over 2 million pounds of cheese to the Middle East and Asia, delivered June through December. That raised CWT's 2010 export total to 38 million pounds to 18 countries.

DMI works with McDonald's

Dairy Management Inc.'s Joe Bavido completed his series on the objectives of the dairy checkoff, focusing on the partnership with McDonald's. The world's largest fast food chain is working to develop and launch new menu items that include dairy as a key ingredient and is part of a multi-year partnership with the checkoff.

New menu offerings in the last 18 months include Frappes, which are 50 percent milk. Offered in 80 percent of McDonald's 14,000 outlets, they are available nationwide this summer, he said, and require an additional 100 million pounds of milk annually.

Real fruit smoothies are another new addition, according to Bavido, and use low fat yogurt in strawberry-banana and wild berry flavors. They launch nationally in July and require an additional 23 million pounds of milk annually.

Specialty coffees have been available nationwide for over a year. They use up to 80 percent milk and will require an additional 300 million pounds of milk annually, he said.

Improved milkshakes are a new formulation that includes real whipped cream in a plastic cup that will require an additional 320 million pounds of milk annually.

Finally, the Angus burgers that were introduced for a limited time in 2009 were so popular that they have become a permanent menu item, Bavido reported. The burgers use two slices of cheese per sandwich and require an additional 60 million pounds of milk annually. To meet the needs of those customers wanting a snack size option, the chain will also introduce Angus "Snackwraps" that include one slice of cheese.

"By using partners, the checkoff is gaining and increasing demand for dairy products," Bavido said.

Lee Mielke is a syndicated columnist and farm broadcaster based in Lynden, Wash. Learn more at www.dairyline.com

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