Dairyline: Dairy checkoff grows sales

Lee Mielke

By LEE MIELKE

For the Capital Press

Happy June Dairy Month! Though easily taken for granted, consumers need to be reminded of the valuable contributions dairy products make to their life. I believe the dairy checkoff is a responsible way to do that and, with that in mind, Dairy Management Inc.'s Joe Bavido reviewed the goals and objectives of the checkoff.

He began by reminding us that, since the checkoff was established in 1984, the goal has been to "increase sales and maintain and build a positive perception of dairy and dairy products among consumers." Producers helped do this through general image-building campaigns and short-term sales-building efforts such as the "Got Milk" and "Ah, the Power of Cheese" campaigns in the past.

These efforts helped, he said, but national and local dairy promotion leaders began a new direction in 2005 through a strategic business plan that directs funds to agreed-upon strategies to grow sales over the short and long term.

The approach works, Bavido said, by identifying partners, goals and beliefs that are aligned with those of producers. One example is the partnership with HP Hood and its Lactaid brand to bring consumers back to fluid milk. Many have stopped drinking milk, he said, because of real or perceived lactose intolerance.

HP Hood developed two new lactose-free products currently in test markets, according to Bavido. "By sharing key nutrition and consumer insights with the brand, dairy producers and Lactaid are partnering to educate health professionals about the role of lactose free products as part of a healthy diet," he said.

Numbers

The May federal order Class III benchmark milk price was announced by USDA at $13.38 per hundredweight, up 46 cents from April, $3.54 above May 2009, and 98 cents above California's 4b cheese milk price.

That pulled the 2010 Class III average to $13.57, up from $10.23 a year ago, but compares to $17.86 in 2008. Thursday's Class III futures portend a $13.52 Class III price in June, $13.28 in July, $13.87 in August, $14.52 in September, and a peak of $14.70 in November before retreating. The May Class IV price is $15.29, up $1.56 from April and $5.15 above a year ago.

The four-week NASS-surveyed cheese price averaged $1.4257, up 4.3 cents from April. Butter averaged $1.5801, up 10.3 cents. Nonfat dry milk averaged $1.2520, up 13.1 cents, and dry whey averaged 36.45 cents, virtually unchanged from April.

California's May 4b cheese milk price is $12.40 per hundredweight, up a dime from April, and $2.86 above May 2009. The 4a butter-powder price is $13.95, up 46 cents from April and $3.92 above a year ago.

CME cash cheese prices continued to weaken in the Memorial Day holiday-shortened week. The blocks closed Friday at $1.3975, 6 3/4-cents below the previous week, but 25 cents above a year ago. Barrel closed at $1.3575, down 7 1/4-cents on the week, and 25 3/4-cents above a year ago. Nineteen cars of block traded hands and 14 of barrel. The lagging NASS-surveyed U.S. average block price gained 3.4 cents, hitting $1.4325. Barrel averaged $1.4544, up 3.9 cents.

Butter strengthened, closing Friday at $1.5750, up 1 3/4-cents on the week and 32 1/4-cents above a year ago. Nothing was sold. NASS butter averaged $1.5858, up 0.2 cent.

Cash Grade A nonfat dry milk closed Friday at $1.25, down a nickel on the week. Extra Grade closed at $1.26, down 3 cents. NASS powder averaged $1.2878, up 1.6 cents, and dry whey averaged 37.01 cents, up 0.6 cent.

University of Wisconsin Emeritus Professor Robert Cropp said the cheese market is responding to USDA's April Milk Production report, which showed output above a year ago for the second month in a row. He added that there's still a fair amount of cheese in storage, with American stocks the highest since April 1986.

Cheese recovered the second week in May, he said, but now it has dropped and he sees it hovering in the $1.40-$1.45 per pound range until we work some of this inventory off or see some sign that milk production is going to slow and cow numbers not keep climbing.

He said it's hard to say if the CWT's herd removal announcement last week will have an impact. It depends on how many cows are removed, he said, but he pointed to the maximum bid of $3.75 as being down a fair amount from the last removal program.

Cropp is not convinced the removal program will get a big response.

"If they can move out 30, 40, or 50,000 cows, it may help a little bit," he said. He stressed the need to get cow numbers going down, but warned that "there's a lot of replacement heifers out there."

Butter sales are fair, according to Cropp, as there's interest in the export market. Butter stocks are down about 13 percent from a year ago, and the cream supply is tighter, "so $1.55-$1.60 butter seems to be reasonable," he said.

The Agriculture Department's latest "Ag Prices" report shows an improved profit for dairy farms. The May index, at 115, was up 2.7 percent from a month ago and 29 percent higher than May 2009. The All Milk price of $15 per hundredweight is up 40 cents from last month and $3.40 from May 2009. The fluid grade price increased 40 cents and the manufacturing grade price 20 cents from the previous month.

USDA's latest Dairy Products report put April butter production at 138.6 million pounds, down 0.1 percent from March and 3.6 million pounds or 2.5 percent below April 2009. Nonfat dry milk output, at 150.1 million pounds, was up 10.7 million pounds or 7.7 percent from March, but 3 million pounds or 2 percent below a year ago.

Mozzarella cheese output totaled 288.6 million pounds, down 11.7 million pounds or 3.9 percent from March, but 18 million or 6.6 percent above a year ago.

Total Italian-type cheese, at 366.5 million pounds, was down 14.1 million pounds or 3.7 percent from March, but 20.5 million or 5.9 percent above a year ago.

Cheddar production totaled 272.7 million pounds, down 9.3 million pounds or 3.3 percent from March, but unchanged from a year ago.

American-type cheese amounted to 360.1 million pounds, down 2.2 million pounds or 0.6 percent from March, but up 5.3 million pounds or 1.5 percent from a year ago.

Total cheese output came to 862.8 million pounds, down 28.8 million pounds or 3.2 percent from March, but 15.2 million or 1.8 percent above a year ago.

Cooperatives Working Together

Many factors could be cited as rationale for Cooperatives Working Together's decision to launch its 10th herd retirement program. CWT CEO Jim Tillison said one of the factors was dairy cow culling, which has picked up dramatically.

"Cull cow prices are very strong," he said. "And cow prices on the market are not as strong. So we thought that now would be an ideal time to keep things moving in the right direction and to take out as many cows as we could with the limited funds that CWT has available."

There is no bred-heifer program in this round. Tillison said its original intent was to "take out future milk production," but this time the most effective use of CWT money is be to remove cows being milked or soon to be milked. He added that the bred-heifer program was not "strongly subscribed to" in the past.

When asked about criticism over the maximum bid only being $3.75 per hundredweight, Tillison said, "One of the things that we can't do is pay much more than what cows are selling for in the marketplace."

He said that CWT always set a maximum bid, but it's just been in the last three removals that a maximum bid was announced. He said the committee considers what top springers are selling for across the country.

"If you look at the sales, and I'm not talking about purebreds, I'm talking about top springers, they're selling for around $1,500," he said. They also consider beef prices, which are running as high as 80 cents but average closer to 60 cents per pound.

"When you take those two factors together, $3.75 is a pretty good price," Tillison said. "A producer bidding in the program with a 20,000-pound cow, production wise, is going to get probably close to $1,500 per head, depending on the milk production of the cow," he said.

CWT also announced this week the acceptance of one bid from Foremost Farms and two from Darigold for the export of 421,524 pounds of cheddar cheese to the Middle East and Asia. That raised its export assistance total this year to 34.9 million pounds to 17 countries.

Consolidation

A New Zealand dairy products company has made greater inroads into the U.S. dairy industry with the purchase of a Midwest cheese company. Dairy Profit Weekly editor Dave Natzke said DairiConcepts, a joint venture between New Zealand dairy company Fonterra and Dairy Farmers of America, the largest dairy cooperative in the United States, has purchased the U.S.-based Italian hard cheese business owned by Rochester Cheese, a wholly-owned affiliate of Swiss Valley Farms and another large U.S. dairy co-op.

The deal includes Rochester's Italian cheese plant in Dalbo, Minn. Rochester Cheese will retain ownership of another plant, in Springfield, Minn., but transfer all Italian-cheese production to the Dalbo plant.

DairiConcepts, formed in 2000 by Fonterra and DFA, manufactures dairy and cheese ingredients for retail, food service and industrial customers. The deal would make DairiConcepts the second-leading maker of Italian cheeses in the U.S., according to Natzke.

Pasteurization

With U.S. milk production anticipated to grow and dairy farm milk price recovery continuing to be slow, dairy policy discussions are heating up, Natzke said. A meeting to gain support for a national dairy supply management proposal was held in California this week, and the second meeting of the Dairy Industry Advisory Committee wrapped up Friday in Washington, as U.S. Agriculture Secretary Tom Vilsack seeks input on federal dairy policy proposals.

The House Ag committee has been holding field hearings on the 2012 Farm Bill for about a month, and Senate Ag committee chair Blanche Lincoln, D-Ark., announced that her committee will kick off Senate hearings on the next Farm Bill on June 30. Also, a joint USDA and Department of Justice hearing on antitrust issues related to the dairy industry will be held in Madison, Wis., on June 25.

For a number of years, the Energy Star logo has appeared on household appliances that demonstrate a measurable savings in energy usage. When the Environmental Protection Agency extended the program to include industry, the International Dairy Foods Association saw an opportunity for dairy processors to be recognized for their energy savings and commitment to the environment, according to IDFA's Peggy Armstrong.

Under the Energy Star Challenge for Industry, manufacturing sites establish an energy intensity baseline, set a 10 percent reduction goal, implemented energy efficiency projects, tracked energy use and verified their savings, Armstrong said. Through this program, EPA estimates that Americans could save nearly $10 billion and reduce greenhouse gas emissions equal to about 12 million vehicles.

"Through a partnership with EPA, we established the Energy Star Challenge for dairy, which is different than the broader challenge," Armstrong said.

IDFA, not EPA, will be the point of contact to sign up, she said, and the dairy group will track who succeeds and convey that to EPA. IDFA advocates for increased energy efficiency in U.S. dairy processing facilities. EPA provides expertise, training, energy management guidance and management tools, she said.

Working with members, IDFA has already taken the first step and identified energy-intensity metrics that will be used within the dairy-processing industry.

Facilities that join the dairy program and achieve a 10 percent reduction in energy intensity within five years are recognized by the EPA and earn a certificate from EPA's Energy Star program, a profile on the Energy Star website, letters from EPA to the company's CEO and to the plant's senators and representatives and materials for communicating the site's Energy Star Challenge achievement to employees, stakeholders, customers and others.

"We're excited about the potential for real, measurable energy efficiencies this program offers," Armstrong said. "Participation is open to all dairy processing facilities."

The website www.idfa.org has more details.

Update

A quick update on one of last week's stories regarding legislation by Rep. Candice Miller, R-Mich. The EPA will not require milk silos, tanks and other equipment to comply with the Spill Prevention, Control and Countermeasure Rule when the rule's obligations go into effect in November.

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

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