Dairyline: Cheese market under pressure going in to 2010

Lee Mielke

By LEE MIELKE

For the Capital Press

I wish DairyLine readers a happy and blessed 2010.

It seems like only yesterday we were closing out 2008. It's been said that "time flies when you're having fun." I think I can add that it flies even when you're not, as 2009 was a very trying year for many. My prayer is that 2010 will be a far better one.

November milk production in the top 23 producing states hit 14 billion pounds, down 1 percent from November 2008. Revisions lowered the October estimate 12 million pounds, to 14.3 billion, down 1.2 percent from October 2008.

Milk cow numbers totaled 8.31 million head, down 6,000 from October and 209,000 head less than November 2008. Production per cow averaged 1,679 pounds, up 25 pounds from a year ago.

California output was down 5.4 percent, due to 80,000 fewer cows and a 20 pound drop per cow from a year ago. Wisconsin was up 4.5 percent, thanks to a 65 pound gain per cow and 4,000 more cows. New York was down 2.1 percent. Cow numbers were off 13,000 but output was unchanged. Idaho was down 0.4 percent, with a decrease of 8,000 cows. Pennsylvania output was up 1.3 percent from November, on a 50 pound gain per cow but 11,000 less cows, and Minnesota was up 1.1 percent on a 10 gain per cow and 2,000 more cows.

The biggest increase was Wisconsin. Indiana was next, up 3.8 percent, followed by Iowa and Texas, both up 2.6 percent. The biggest decline occurred in Arizona, down 10.7 percent due to a 20,000 decline in cow numbers. Colorado was next, down 9.2 percent with 14,000 fewer cows, followed by Florida, down 6.4 percent.

USDA's latest Livestock Slaughter report estimated that 208,900 culled dairy cows were slaughtered under federal inspection in November, down about 17,900 head from October 2009, but 700 more than November 2008. The January-November 2009 cull cow slaughter totaled about 2.584 million head, up about 221,600 head from January-November 2008.

Checking the cupboard

Preliminary data in the Agriculture Department's latest Cold Storage report put November butter stocks at 142.2 million pounds, down 48.4 million pounds or 25 percent from October but 22.3 million or 19 percent above November 2008. October stocks were revised down 4.5 million pounds.

The American cheese inventory, at 582.7 million pounds, was unchanged -- up about 2.9 million pounds -- from October but 55.8 million pounds or 11 percent above a year ago. The CME's Daily Dairy Report points out that the November increase is not the norm and stocks are at a record high level for the month.

Total cheese stocks amounted to 961.4 million pounds, down 7.8 million pounds or 1 percent from October, but 142.6 million or 17 percent above those a year ago. October stocks were revised up slightly, by 0.8 million pounds.

The CME cash dairy markets didn't react much to the milk production data but the Cold Storage data sent it a chill. The block cheese price closed the shortened week at $1.5675 per pound, down 13 1/2- cents on the week, but 29 3/4-cents above that week a year ago. Barrel closed Thursday at $1.44, unchanged on the week, 13 1/4-cents above a year ago, and 12 3/4s below the blocks. Twenty seven cars of block traded hands on the week and six of barrel.

Butter closed Thursday at $1.3275, up a quarter-cent on the week, and 18

3/4-cents above a year ago. Twelve cars were sold on the week.

Market analyst Alan Levitt said the cheese market appears to be under pressure. The previous week saw a lot of product sold below the market price before final transactions pushed the price back up, and some of that was repeated Christmas week. He warned that more milk will be moving to manufacturing because of school breaks for the Christmas and year-end holidays and more milk will move into the block vat, away from the barrels.

He warned that the block price might slip.

"The short term outlook isn't as bullish as we'd like," he said.

Butter has lost 20 cents in the month, he said, "but medium and longer term there's reason to be positive."

The November Milk Production report was down 1 percent from a year ago, he said, and that followed a 1.2 percent decline in October. Cow numbers are down almost a quarter of a million since the beginning of the year, so Levitt said that decline in milk production should lead to tighter supplies in 2010 and prices that finally will return farmers to profitability.

When asked about export prospects, Levitt said they're "pretty decent." The world market has been stronger, he said. Prices the last four to five months were up 60 to 100 percent since mid-year on most basic commodities.

"A lot depends on whether U.S. suppliers will get out there and make the products that the world market is looking for and try to be that supplier of first resort, which we haven't always been," he said.

Exports

National Milk and the U.S. Dairy Export Council have called on U.S. Trade Representative Ron Kirk to exclude dairy from any trade agreement between the U.S. and New Zealand or any Asia-Pacific agreement.

National Milk's Chris Galen said the Obama administration appears to be moving ahead with a trans-Pacific agreement with Australia, Chile, Singapore, Peru, Brunei, Vietnam and New Zealand. The U.S. already has agreements with all of them except New Zealand, Vietnam and Brunei. For the most part, Galen said this is fine, but the concern is New Zealand and "its unique dairy industry structure."

New Zealand is the world's largest dairy exporter, Galen said, and "benefits tremendously from what is essentially a dairy monopoly, where one company (Fonterra) controls more than 90 percent of the country's milk production and because of the extremely unlevel, uneven playing field that exists there, we think that dairy should be excluded."

NMPF will take that message to lawmakers as well, Galen said.

"We want to make sure dairy farmers are not adversely affected by this potential trade agreement," he said.

The U.S. has a trade agreement with Australia, and Galen said they had to negotiate "tooth and nail to try and get the best deal possible for U.S. dairy farmers." New Zealand is an even bigger dairy exporter than Australia, he said.

"This is going to be a real challenging situation for us," Galen said. "The U.S. is not against balanced trade, but when it comes to this potential dairy situation with New Zealand, it would be so unbalanced, in favor of that country, that we really want to make certain that the U.S. is not adversely affected by this."

Checkoffs

The Beef Checkoff-funded Beef Quality Assurance program benefits dairy producers as well, according to Michigan dairy producer and Beef Board member Ken Nobis.

"Our primary concern is quality milk, but dairy producers have significant sales of beef," Nobis said. "We want to see those sales continue to be strong and anything to increase consumption helps that part of our dairy operation."

Dairy farmers are in tune with quality assurance because of the milk issue, Nobis said. He said he educates himself and his employees on injection sites and treatment of the animals. The Beef Checkoff is "another piece of the puzzle that helps the dairy farmer," Nobis said.

"It all runs together and we think it's all very helpful to increase the profitability of our dairy farm," he said.

Animal care has come to the forefront the last year and a half, ever since the downer cow issue in California. Nobis said his co-op has been asked if its members have protocols established to treat animals.

Michigan had a threat in the form of a ballot initiative driven by the Humane Society of the United States, and he was involved in dealing with that issue in the first part of 2009. He helped formulate state legislation to preempt the ballot initiative. That broke down, he admitted, but the issue was primarily aimed at the egg and pork industry.

The issues have been raised in dairy as well, he said

"We get questions now from the people we sell our milk to at the co-op regarding quality assurance and we look forward to establishing an animal care issue with our co-op here in Michigan," he said.

Offense

An old football strategy says, "A good offense makes a good defense" and that could be the rationale behind the "Telling Your Story" program of Dairy Management Inc. The checkoff-funded program provides dairy farmers training to address the questions and challenges they face from consumers.

California dairyman and DMI board member Brad Scott said the program made him and other producers more aware of the urgency and the need to communicate the positive things that dairy farmers.

Animal welfare and environmental concerns give farmers a chance to tell how they are good stewards of the land and their animals with the end result being a good, nutritious food product for consumers.

One of the messages that the program communicates is that, if dairy farmers don't tell their story, someone else will. Scott said people need to see that "there is a face behind the dairy and that is the family dairy farmer."

Scott admits that he does get challenged from time to time, but he attributed that to people being misinformed. The "Telling Your Story" training is a great opportunity for farmers to tell the facts, he said, and the public feels more comfortable talking face-to-face to a farmer.

Scott recommended his fellow producers take the training.

"It's very easy," he said. "Just like talking to your friends at school or people at church, or your neighbors, all you're doing is communicating to them what you do on a daily basis and that's very helpful."

Lee Mielke is a syndicated columnist and farm broadcaster based in Lynden, Wash.

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