The last week of September and first two days of October was a big news week for dairy -- and it was the week of World Dairy Expo, which I attended and enjoyed so very much.
First, a U.S. House-Senate Conference Committee agreed to a plan to spend $350 million to help cash-strapped dairy farmers. About $60 million will go toward dairy product purchases, primarily cheese, for government feeding programs, and $290 million will be made as direct payments to producers. Details have to be worked out yet, Congress must approve the legislation, and the president must sign it.
Then came the announcement of a third herd retirement program for 2009 by Cooperatives Working Together. Bids will be accepted through Oct. 15, 2009. The maximum bid again is $5.25 per hundredweight with bids paid in two installments, 90 percent up front and 10 percent, plus interest, if the producer and his farm stays out of dairying for a year.
The September federal order Class III milk price was announced Friday at $12.11 per hundredweight, up 91 cents from August, $4.17 below September 2008, and 71 cents above the comparable California 4b price. The federal order Class IV price is $11.15, up 77 cents from August, but $4.30 below a year ago.
What a difference a year makes. The 2009 Class III average now stands at $10.49, down from $17.93 a year ago, and compares to $17.55 in 2007.
The October Class III futures contract was trading late Friday morning at $12.77. November was at $13.95 and December at $14.32. That would portend a 2009 average of just $11.29, down from $17.44 in 2008 and $18.04 in 2007.
The NASS-surveyed cheese price averaged $1.3522 per pound, up 9.2 cents from August. Butter averaged $1.1811, down 2.2 cents. Nonfat dry milk averaged 96.64 cents, up a dime, and dry whey averaged 29.79 cents, up fractionally.
California's September 4b cheese milk price is $11.40 per cwt., up 11 cents from August, and $5.23 below September 2008. The 4a butter-powder price is $11.08, up 87 cents from August, but $4.43 below a year ago.
Cash cheese prices moved a little higher the week of September 28 but uncertainty over what the government was going to do likely kept traders from venturing out very far.
The 40-pound blocks closed Friday at $1.4350 per pound, up 2 1/4-cents on the week, but 37 1/2-cents below that week a year ago when the blocks fell 13 cents to $1.81. The 500-pound barrels closed Friday at $1.42, up 4 1/4-cents on the week, but 37 1/4-cents below a year ago. Twelve cars of block traded hands on the week and four of barrel. The lagging NASS-surveyed U.S. average block price slipped 2.2 cents, to $1.3135. Barrel averaged $1.3046, up a penny.
Cash butter closed Friday at $1.2350, down 2 1/2-cents on the week and 51 cents below a year ago. Only three cars were sold on the week. NASS butter averaged $1.2076, up 3 cents.
Cash Grade A nonfat dry milk closed at $1.18, up 11 1/2-cents on the week, and Extra Grade closed at $1.15, up 14 cents. NASS powder averaged 97.78 cents per pound, down 0.7 cent. NASS whey averaged 30.26 cents, up 0.1 cent.
A slowdown in milk production is leading to the recovery of milk prices, according to Bob Cropp, professor emeritus at the University of Wisconsin-Madison. He called the recovery a slow process.
"With a loss in the export market, particularly in powder and of course cheese and butter, with butter being way down, we've had to get milk production down," Cropp said. He pointed out that August output was only down 0.2 percent, but he believes that some of the strength in the market "might be just the fact that milk production is down seasonally and fluid sales are up a little bit."
Cropp remains optimistic that the federal order Class III price will rise to around $14 by the end of the year. He believes the market is going to be stronger than what some believe and said "I think the futures are a little pessimistic in the long term. Production coming down and cow numbers declining, there will be some signs of improvement."
The September Milk-Feed Price Ratio is 1.93, up from the August revised estimate of 1.78, according to USDA's latest "Ag Prices" report, and compares to 1.90 in September 2008.
The All Milk Price was estimated at $12.70 per cwt., up 70 cents from last month's estimate, but $5.50 below a year ago. Corn averaged $3.32 per bushel, down a penny from August, and $1.69 below a year ago. The soybean price, at $9.85 per bushel, was down 95 cents from August, and also 95 cents below a year ago. Alfalfa baled hay was $110 per ton, down $1 from August, and $65 below a year ago.
A new FARM animal well-being program aims to bolster consumer trust in the U.S. dairy industry. FARM stands for Farmers Assuring Responsible Management.
The National Milk Producers Federation announced the initiative's guidelines and principles last year at World Dairy Expo in Madison. A news conference was held to discuss how the industry is going to demonstrate to customers and consumers that dairy animals are being well cared for.
A comprehensive animal care resource manual was unveiled, along with a quick reference user guide and other materials. Those items will be used to help educate farmers, processors, retailers and consumers about the best practices for animal care.
"We will use these materials to reach out to the entire marketing chain, particularly for those companies that may want to demonstrate their animal care commitment," said NMPF's Chris Galen. He called it a corroboration of what most dairy producers are already doing
"A lot of this is not heavy lifting or rocket science," he said. "We are in an environment where food production is increasingly under the spotlight, and there is concern from consumers where food comes from, who processes it and who produces it. We need to have this new dairy FARM national program to demonstrate the on-going commitment that dairy farmers have to animal well-being."
Producers can expect an on-farm evaluation process next year by the farms and marketing entities who choose to take part. A trained veterinarian, extension educator or a co-op field staff person will go through the guidelines on the farm. In 2011, a third party verification will take place, where a small sampling of farms will be visited by someone who's not affiliated with the farm to demonstrate that the program is working.
"Those are things that still have to come," Galen said. "And this week's unveiling was a huge step in the National Dairy FARM program."
The bloom has come off the rose, or I should say the cheese has come off the pizza. It's one of the reasons U.S. pizza sales have declined the last five years, according to Dairy Management Incorporated CEO Tom Gallagher.
Cheese is "one of the price points that can controlled by pizza makers and sellers," Gallagher said. "With the volatility the pizza industry sees with cheese, once they take the cheese off the pizza, they're not going to put it back on, only to take it back off when the price goes back up."
He pointed out that if each pizza had one more ounce of cheese on it, we'd sell 2.5 billion more pounds of milk. The other factor is that the consumer likes more cheese on the pizza. Pizza vendors understand that and consumers understand that, he said, but price volatility is one of the key issues.
DMI has worked with a number of pizza manufacturers such as Domino's to get them to put more cheese on a percentage of their pizzas and market that, Gallagher said. It's worth $50 million this year in the case of Domino's.
That has stimulated others to do the same, he said, especially when cheese prices are down but "We have to work for the longer term to make sure they understand that, if they keep more cheese on the pizza, the consumer will pay for it," he said.
World Dairy Expo
World Dairy Expo 2009 took place this week in Madison, Wis. Expo General Manager Mark Clark noted the upbeat attitude in the industry, despite the hurting dairy economy.
Over 740 companies were on the grounds, with 120 brand new exhibitors to Expo. Many companies use Expo to launch new products and services, Clark said.
"There's lot of really neat and exciting new things to see and, with the dairy economy like it is, this is the place to be this year to learn what's new and what can make you more profitable," Clark said.
Dairy market reform
Dairy Farmers Working Together is a national grassroots organization dairy producer organization formed about three years ago was one of the exhibitors at Expo. DFWT's Kylie Quesnel, a Vermont dairy producer, said we need to find some "measureable solutions" to the dairy crisis the industry is now in and said they will be found by farmers working together.
DFWT supports the Dairy Price Stabilization plan, according to Quesnel, although they are not limited to it but believe it has the greatest amount of legs behind to move forward. They envision the plan being governed by a group of dairy farmers and others affiliated with the dairy industry, that would use market tools to predict what demand will be and then match our supply to meet it, thus sending correct market signals to dairy farmers.
The plan is not a base quota plan, she said, as it would not discourage growth but rather encourages responsible growth, and that is the direction our industry needs to head because this 2 percent surplus plays such a role on the price on the rest of the milk that we're selling and that's an unsustainable practice for our industry. For more information, log on to www.dairyfarmersworkingtogether.org.