Dairyline: Ice cream picks up as temperatures rise

Lee Mielke

By LEE MIELKE

For the Capital Press

The cheese price roller coaster is back in business as the blocks tumbled 10 cents the second week of April, ending Friday at $1.3975 per pound, still 22 3/4-cents above that week a year ago. The barrels rolled 7 1/2-cents lower, to $1.3650, but that's 25 1/2-cents above a year ago. Only two cars of block traded hands on the week and 13 of barrel. The lagging NASS-surveyed U.S. average block price hit $1.3166, up 3.1 cents. Barrel averaged $1.3598, up 6 cents.

University of Wisconsin professor Robert Cropp recalled that it was just a few weeks ago the price was at $1.26 or $1.27 and "that seemed way too low," then it approached $1.50, and "now we're going back down again."

February cheese stocks were relatively high, he explained, and the other disturbing thing is that USDA revised its 2010 milk production forecast again. It had once predicted a 0.7 percent decrease from 2009 but is now expecting a 0.3 percent increase, plus growing cow numbers is another concern, he said.

"The concern is that milk production is not going to decline as we thought," Cropp said. That, with plentiful stocks and a weaker than expected export market on nonfat dry milk, portends cheaper powder and more milk going to cheese.

The market has to strengthen in the second half, he warned, because these cheese prices portend a Class III milk price below $14 and that will continue to stress farmers, with no recovery for lost equity. That could mean second half decreases in the milk supply and a recovery in prices, he said. Cropp looks for cheese to "bounce around $1.40-$1.45 until we move further into summer.

Butter remains strong and closed Friday at $1.56 per pound, up 6 cents on the week, and 35 3/4-cents above a year ago. Only four cars were actually sold on the week. NASS butter averaged $1.4749, up 2.3 cents.

Cropp said cream supplies are tighter as temperatures rise and more cream goes into ice cream. Butter sales are "halfway reasonable," he said, and earlier, there was some inventory building by buyers who recognize that the cream supply and butter production will get tighter as we move into summer. Butter stocks are also slightly below a year ago, he said.

Cash Grade A nonfat dry milk closed Friday at $1.2925, up 2 3/4-cents on the week. Extra Grade closed at $1.21, up 2 cents. NASS powder averaged $1.1111, up 4.5 cents. Dry whey averaged 36.34 cents, up 1.9 cents.

California's May Class 1 milk price is $15.37 per hundredweight for the north and $15.64 for the south. Both are up $1.00 from April. The northern price is $2.69 above a year ago and the southern price is up $2.68.

The CWT program announced the acceptance of one export assistance bid this week from Seattle-based Darigold, three bids from Land O'Lakes, and seven bids from DFA to export 3.5 million pounds of cheddar cheese to the Middle East, Asia, and Africa. Most of the product will be delivered April through July with a small quantity into October. The program has exported 9 million pounds to 13 countries so far, according to a CWT press release.

Trade

Dairy trade is one of the positive aspects of the dairy economy, according to Dairy Profit Weekly editor Dave Natzke. Natzke said February estimates show the value of dairy exports has now exceeded imports in six of the past seven months.

February exports were valued at $225 million, unchanged from January, but $65 million more than a year ago, according to Natzke. February imports were up slightly, to $198 million, but that's $61 million less than February 2009.

Through the first five months of the fiscal year, exports are up 9 percent from the same period last year, while imports are down 22 percent. The fiscal year dairy trade surplus stands at about $54 million.

On a volume basis, February exports of milk powder, whey, cheese, butterfat and lactose all posted gains compared with year-ago levels, Natzke said. The important trade balance measure for dairy farmers is that exports were equivalent to 9.8 percent of U.S. milk solids production for the month, up from 8.7 percent in January. February imports equaled 2.9 percent of total milk solids production, down from 3.1percent in January.

The CME's Daily Dairy Report says "tight supply from Europe and Oceania has led to firmer international markets. Europe's spring flush is 4-6 weeks later than usual and the milking season is winding down in Oceania, with many New Zealand farmers drying cows off early due to drought-parched grazing areas." Iceland's volcanic activity and recent earthquakes may also impact markets.

On another trade note, the U.S. has averted a trade dispute that could have had a negative impact on dairy exports. The U.S. and Brazil have agreed to negotiate an end to a long-running dispute over U.S. cotton subsidies and export credits, Dave Natzke reported, and "that's good news for dairy farmers."

In 2009, a World Trade Organization dispute panel ruled the U.S. cotton subsidies violated WTO rules, and allowed Brazil to establish retaliatory measures, including tariffs on skim milk powder and whey products imported from the U.S.

That would have effectively priced the U.S. out of the Brazilian market, Natzke said. The U.S. exported about 11,000 metric tons of skim milk powder and dry whey to Brazil in 2008-09.

MILC fluctuations

National Milk dairy economist Roger Cryan raised his May Milk Income Loss Contract Payment projection and then lowered it. He had projected something around 12 cents per hundredweight last week but, based on updated NASS product prices he raised his projection to 17cents.

Then, based on the latest NASS prices released the next morning, the higher-than- expected powder prices caused him to raise his estimate of the May Class I base projection by a little over 30 cents. That reduced his MILC projection to just 2 cents and he warned that it could drop to zero if, for example, the powder price gains another penny. The April payment was 21 cents.

Cryan estimates that dairy producers will receive about $30 million in MILC payments this year, down from $1 billion in 2009. He sees no additional MILC payments for the next two years, based on what current futures are indicating. This is despite some weak projected milk feed margins, according to Cryan,

A milk feed cost adjuster was added to the MILC program in the last farm bill, he said, calling it an improvement. But "that adjustor only covers a fraction of the feed cost increases we've seen and leaves producer margins exposed when corn is as high as $3.80 and soy is $9.50."

Existing legislation mandates the MILC program run until September 2012 and, as things look now, Cryan does not project any payments for the rest of the program, although he admits things change and "this program does respond to the markets." Cryan's updates are posted at our website at www.dairyline.com .

Vilsack talks dairy

Agriculture Secretary Tom Vilsack met this week for the first time with the newly established Dairy Industry Advisory Committee and challenged them to come up with some answers to dairy's financial woes and "get control of itself." He said the government cannot continue its "bandage approach" to help farmers by purchasing products or raising the price support in a time of budget restraints.

Jim Docheff is a Longmont, Colo., dairy producer who believes in the beef checkoff. He said it's "dollars well spent and something every dairy producer needs to pay into and be happy to do it."

"Ultimately, all these milk cows become beef and enter the food chain," he said. While he admits that beef sales on a dairy farm are a small part of its income, in financial times like now, "we looking for every dollar out there and if we can raise the price of those beef cows, $10-$15 a head for that dollar we're paying, I think that's a pretty good return for our money."

He pointed out that a lot of culled dairy cattle go to ground beef and he suggests a partnership with the dairy checkoff to promote cheeseburgers, especially with summer grilling upon us, he believes we could increase beef and cheese sales at the same time. He has suggested this to the Beef Board to not just promote beef, but include dairy and this would be "good for everybody involved."

He admits the calf issue is a tough one. They do have a value, he said, "we just need to determine what that value is."

"It's a sore subject for dairy farmers," he said. "I can't say that we've seen a real bang for our buck on those, but we need to get some brains together on that, sit down and see what we can come up with because there has to be something we can do with those dairy calves."

Preparedness

Dairy Management Incorporated's senior vice president of industry relations, David Pelzer, explained why dairy farmer checkoff dollars were used to fund the March 31 dairy crisis drill in Seattle in Monday's "DMI Update. "

"We're all in this together," Pelzer said. "In making sure that we maintain public confidence in the dairy industry and dairy products, especially in an industry wide crisis where the safety of dairy products would be called into question."

"Dairy farmers rely on the whole dairy market chain to supply products to consumers," Pelzer said. "And we want to make sure that we get everybody (processors and cooperatives) on board in using unified messaging."

He said it's important they're aware of the various crisis management tools that the dairy checkoff offers and to recognize the importance of crisis preparedness and to communicate with a common voice to the public during a crisis situation.

Two of these drills were conducted last year, according to Pelzer, and there'll be one in Atlanta in July and one in Dallas in November.

A number of companies have gone back and done their own drills internally, Pelzer said. He reported that state and regional organizations also work with companies if they desire council in increasing their crisis preparedness.

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

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