Dairyline: Cash market calm, but changes coming

Lee Mielke

By LEE MIELKE

For the Capital Press

Downes-O'Neill dairy economist Bill Brooks said the cash dairy markets are "pretty calm right now" and that last week's block cheese activity may have resulted from excess production over the Labor Day holiday.

"There's good demand for product, but not enough to push the prices higher," he said. "As we go forward, we'll see a little more milk and more milk components, and that may start our seasonal decline at some point in the cheese market."

Butter has gone 12 straight sessions without having a bid left on the board, he said.

"Instead of bids and a little bit of trading, we are now starting to see offers," he said. He warned that's understandable given the current price level. "Demand might pull back away from the marketplace when you get up over $2.20."

The August milk production report was a little stronger than Brooks had anticipated.

"It's always hard whenever we have the kind of weather we had across a large part of the country there in July and August to know how exactly that's going to impact milk production," he said.

The surprise, according to Brooks, is how we arrived at the 2.8 percent gain.

"There was a bit of decline in cow numbers in August, but many were looking for an increase in cow numbers and milk per cow to drop more than what it did," he said. "There was a stronger than average decline in milk per cow in August, but wasn't enough to knock back production as much as we were anticipating."

Milk production levels may stay the same for the next few months as 2009 production levels, compared to 2008, were down. In fact, August 2009 was the first month in the red relative to 2008, he said, and milk production levels were below the previous levels through January of this year.

"We are going to continue to compare ourselves to a little weaker production from the previous year, so 2 1/2 to 3 percent is probably not going to be out of the realm of possibilities through the end of this year," Brooks said.

Dairy numbers

August milk production in the 23 major states totaled 15 billion pounds, up 2.8 percent from August 2009, according to USDA's preliminary data. The 50 state output totaled 16.1 billion pounds, up 2.7 percent. July data was unrevised at 15.3 billion pounds, up 3 percent from July 2009.

Cow numbers in the 23 states totaled 8.36 million head, down 8,000 from July due primarily to the Cooperatives Working Together herd removal program, and 10,000 less than August 2009. Output per cow averaged 1,796 pounds, up 51 pounds from a year ago.

California production was up 4.9 percent from a year ago, despite milking 37,000 fewer cows. However, output per cow gained 130 pounds. Wisconsin was up just a half percent, on 6,000 more cows. Output per cow was unchanged. New York was up 4.8 percent, on 7,000 fewer cows but output per cow was up 100 pounds. Idaho was up 7.8 percent, on 25,000 more cows and a 60-pound increase per cow. Pennsylvania was up 3 percent. Cow numbers were down 4,000 head but output per cow was up 60 pounds. Minnesota was down 0.8 percent, despite 1,000 more cows, however there was a 15-pound loss per cow.

The biggest increase was in Idaho, up 7.8 percent. Washington was next, up 7.4 percent, and Oregon was third highest in milk production, at 6.9 percent. The biggest decline was in Missouri, down 8.8 percent, due to 7,000 fewer cows, and output per cow was down 30 pounds from a year ago. Illinois was next, down 5.2 percent with 3,000 fewer cows, and output per cow down 35 pounds. Iowa had the third biggest drop at 2.7 percent with 8,000 fewer cows, but output per cow was up 20 pounds.

Meanwhile, August butter stocks totaled 151.8 million pounds, down 41.7 million pounds or 22 percent from July and 107.8 million pounds or 42 percent below August 2009, according to preliminary data in the Agriculture Department's latest Cold Storage report. July revised butter estimates were lowered nearly 6.1 million pounds.

The August American cheese inventory, at 624.6 million pounds, was down 14.9 million pounds or 2 percent from July, but 25.9 million pounds or 4 percent above a year ago. July revised estimates were lowered nearly 1 million pounds.

Total cheese stocks amounted to over 1.034 billion pounds, down 19.2 million pounds or 2 percent from July, but 36.5 million pounds or 4 percent above a year ago. July revised estimates were raised nearly 4.5 million pounds.

USDA's National Ag Statistics Service estimated 230,900 culled dairy cows were slaughtered under federal inspection in August 2010, up about 5,300 head from July 2010, but 8,000 head less than August 2009. January-August 2010 dairy cull cow slaughter totaled about 1.826 million head, down about 85,900 from the same period a year earlier.

The cash dairy markets didn't seem to be affected by the milk production report. The block cheese price closed the last Friday of September at $1.75 per pound, up 1 1/2-cents on the week, and 35 1/2-cents above 2009, but 19 cents below 2008. The barrels closed at $1.7350, up 2 1/2-cents on the week, 35 3/4-cents above 2009, but 21 3/4-cents below 2008. Four cars of block traded hands this week and none of barrel. The NASS-surveyed U.S. average block price jumped to $1.7056, up 3.7 cents, and the barrels averaged $1.7060, up 1.5 cents.

Butter closed Friday at $2.2300, up 3/4-cent on the week, 97 cents above a year ago, and 48 1/4-cents above 2008. Two cars were sold on the week. NASS butter averaged $2.1863, up 5.5 cents. NASS nonfat dry milk averaged $1.1359, up 1.6 cents, and dry whey averaged 36.19 cents, up 0.2 cent.

Cooperatives Working Together

The CWT program announced it has accepted an export assistance bid from Seattle-based Darigold to sell 253,532 pounds of American cheese to a customer in Asia. The product will be delivered in September and October and raised CWT's cheese exports to 44 million pounds since the export assistance program was reactivated March 18.

Spill plans

National Milk has completed development of a self-certification tool to assist dairy producers develop Spill Prevention, Control and Countermeasure plans that cover on-farm fuel and oil storage. National Milk's Jamie Jonker said the federation received a grant from USDA and the Natural Resources Conservation Service earlier this summer to develop this tool.

Dairy farms that have been in existence prior to Aug. 16, 2002, are required to have an SPCC plan in place now. This tool is designed to assist farmers complete that process. It also allows that local extension staff or a representative from their milk cooperative or proprietary processor might also be able to help. Training opportunities are also available to learn how to assist producers in using the tool. The template is free and available on the NMPF website at www.nmpf.org/washingtonwatch/environment/spcc

It is mandatory for farms that have more than 1,320 aggregate gallons of storage capacity for fuel and oil, containers 55 gallons and larger, Jonker said. While the EPA hasn't been enforcing this against dairy farms, he warned that the lack of having a plan can result in fines of thousands of dollars per day.

Trade balance

While the overall U.S. trade balance continues to rack up large monthly deficits, the nation's dairy product trade balance remains a bright spot, according to Dairy Profit Weekly editor Dave Natzke, who reported USDA's July U.S. trade estimates.

"Although dairy product exports declined somewhat from June, they remain well above a year ago," Natzke said. July exports were valued at $317 million, down 10 percent -- $34 million -- from June, but 65 percent -- $125 million -- more than July 2009. It marked the fifth straight month that exports were valued at about $300 million or higher.

At $207 million, imports were up 3 percent from June 2010 and just 2 percent more than July 2009. Cheese imports were up slightly from June, but, on an annual basis, are running about 9 percent less than a year ago. July 2010 dairy product exports were equivalent to about 12 percent of U.S. milk solids production during the month, while imports as a percent of domestic milk solids production were less than 3 percent.

Exports of dry products, such as nonfat dry milk and skim milk powders, are finding strong markets in China, Southeast Asia and the Middle East. Cheese exports were also higher, driven by sales in Japan, South Korea, Mexico, the Middle East and North Africa. Many of those same regions were strong customers for U.S. butterfat. Add it all up, and through the first 10 months of this fiscal year, U.S. dairy trade has been running a surplus of about $645 million.

One final note on dairy-related trade: Exports of U.S. dairy cows and heifers through the first seven months of 2010 have already topped the total for all of last year. July exports, at more than 3,200 head, pushed the 2010 total to 21,000, a record high and nearly 5,000 more than for all of 2009.

World Cheese Awards

U.S. cheesemakers will vie for international recognition at the upcoming World Cheese Awards competition on Nov. 24 in Birmingham, England. The U.S. Dairy Export Council's Amy Foor said it's one of the world's largest cheese events and it's expected that this year's event will be bigger due to the fact that it will take place in conjunction with the BBC Good Food Show, the U.K.'s largest consumer foods exhibition.

Last year's cheese awards competition drew more than 2,500 entries from over 34 countries, according to Foor, and organizers expect that and more this year. The event boasts over 300 judges representing leading cheese buyers, retailers, chefs and food journalists from around the world and the pavilion will be opened after the cheese judging has occurred to the expected 95,000 visitors to the Good Food Show to taste the winning cheeses.

The USDEC has been a long time supporter of the awards, Foor said, and sponsors an annual prize for the best U.S. cow's milk cheese. All U.S. cheesemakers are encouraged to take advantage of this opportunity to receive global reconigition, Foor said.

U.S. cheesemakers' performance in 2009 was "incredible impressive," Foor said. Thirty-six companies collected 83 medals in 43 cheese categories and, of those 83 medals, 21 were gold, 27 silver and 35 were bronze.

"Every one of those numbers not only surpassed results from previous contests, they pretty much obliterated them, more than doubling the average annual medal totals in previous years," Foor said.

Beef Checkoff

Pat Kilsdonk understands how the Beef Checkoff impacts his Wisconsin veal operation.

"The Beef Checkoff is a continuous reinvestment in their business," Kilsdonk said. "Without research, without education, without promotion, no business can grow and thrive, and that's what the checkoff allows us to do in the veal industry."

Kilsdonk, who partners with veal growers throughout central Wisconsin, sees the benefits of pairing veal and Beef Checkoff dollars to extend his investment.

"We were able to undertake a muscle profiling study and, through that, we were able to identify some underutilized cuts which we have put into the foodservice industry and casual dining establishments and had great success enhancing the value of a part of the carcass that had been previously undervalued," Kilsdonk said. "We're real happy with that program."

Another program he is excited about is retail promotion for different uses of veal products. These promotions are primarily on the East Coast and some other large cities where there is a fairly substantial customer base for veal consumers. The promotion works with large grocery chains to help move the product that's not quite as expensive. Consumers are spending more of their food dollars in the grocery store versus restaurant, so it helps maintain market share for veal.

The best part of the checkoff in Kilsdonk's eyes is that, because veal is a very small industry, it can't afford to undertake some of these particular projects without the assistance of beef dollars. Partnering with the beef side of the checkoff program enables Kilsdonk and others to manage and maintain the value of a small industry.

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

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