Dairyline: National Milk unveils stabilization plan

Lee Mielke

By LEE MIELKE

For the Capital Press

Calls for major changes in U.S. dairy policy were made this week by key players in the industry. National Milk announced that its board of directors has adopted a multi-faceted proposal outlined in a press conference June 11.

The plan would transition existing safety nets into a Dairy Producer Margin Protection Program to guard against periods of severe financial pressures, establish a Dairy Market Stabilization Program to help address periodic imbalances in production and demand and reform the market order program.

Dairy Farmers of America CEO Rick Smith offered a ringing endorsement of the proposal in a June 10 conference call. As dairy prices are now determined by global factors, the resulting extreme price volatility never allows dairy farmers to succeed, he said.

He called the current down cycle "unparalleled" in severity and length, causing many farmers to lose a generation of wealth.

"We really need to take the risk of new dairy policy and we can't wait for the 2012 Farm Bill," he said.

National Milk's plan also drew praise from dairy processors. The International Dairy Foods Association commended the margin insurance program but warned that the Dairy Market Stabilization Program would have "dire consequences for our industry and consumers."

"Supply management will decrease demand for dairy products and dairy ingredients," the organization stated. And "will drive low-cost non-dairy substitutions in foods and restaurants across the country."

Cheese

The bleeding continued in the cash cheese market although prices reversed gears and regained a penny on Friday. The blocks closed June 11 at $1.37 per pound, down 2 3/4-cents on the week but still 22 cents above a year ago. The block price has lost 13 cents in three weeks. Barrel closed Friday at $1.33, also down 2 3/4-cents on the week, and 23 3/4-cents above a year ago. Thirty one cars of block traded hands on the week and 32 of barrel. The NASS-surveyed U.S. block price average gained 3.6 cents, hitting $1.4680. Barrel averaged $1.4795, up 2.5 cents.

On a brighter note, cash butter gained 3 1/2-cents on the week, closing Friday at $1.61, 38 1/4-cents above a year ago. Nothing was sold all week, the gains all came on unfilled bids. NASS butter averaged $1.5425, up 4.3 cents.

Cash Grade A nonfat dry milk closed Friday at $1.25, unchanged on the week, and Extra Grade closed at $1.25, down a penny. NASS powder averaged $1.3034, up 1.5 cents, and dry whey averaged 37.16 cents, up 0.2 cent.

How low will cheese prices go?

"You would anticipate that our level of support would be $1.3650, which we hit on April 20th," Downes-O'Neill dairy economist Bill Brooks said. He pointed out that cheese has been trading between $1.30 and $1.50 for the most part.

"Whenever we have had pullbacks in our price, we've established higher lows on the downturns, so that would indicate that maybe we'll stay above the $1.3650," he said.

The low $1.30s would be the next point of support, he said.

Midwest weather is a little warm but not too bad, according to Brooks, but a lot of that milk is going into cheese and demand is not keeping up with production.

The U.S. block price is well below the world price, meaning Australia and New Zealand, Dairy Market News reports. Two weeks ago, it was at $1.8144 down slightly from the previous level, and this week's price was $1.7917.

"The problem we run into in exporting cheese, is getting geared up for it and making the cheddar the international market wants," Brooks said. "That is a white cheddar that is much whiter than what the world market is used to."

That makes it difficult to get into that market, he said, even with the lower price.

Butter continues to move higher. The gains haven't been outlandish, Brooks said, but good and steady. Those who have butter are holding it with confidence, but a lot of butterfat is moving out of the churn into Class II products: ice cream, frozen desserts, sour creams and dips. That's keeping things tight.

Anticipation of the tight world market for butterfat is spilling into the U.S., although Brooks is not sure U.S. butter makers will be able to take advantage of it because of the difference in product and the color issue.

"It's helping and is kinda the only bright point right now for dairy prices," he said.

Class price

California's July Class I milk price is $17.14 per hundredweight for the north and $17.42 for the south, up $1.46 and $1.47 respectively from June, and $5.26 and $5.27 above July 2009. The federal order Class I base price is announced June 18.

The Agriculture Department's latest World Agricultural Supply and Demand Estimate report raised the 2010 milk production forecast again, to 190.4 billion pounds, up 200 million pounds from last month's estimate, reflecting a slower decline in cow numbers and stronger expected growth in milk per cow. Milk production for 2011 was unchanged at 193 billion.

The Class III price forecast for 2010 was reduced slightly on a lower whey price forecast as international whey prices are weaker. Look for a 2010 average of $13.95-$14.35 per hundredweight, down a dime on the high end from what was projected a month ago, and compares to $11.36 in 2009. The 2011 average should range $14.35-$15.35, up a dime from last month's estimate.

The Class IV price forecast for 2010 is raised on higher butter and nonfat dry milk price forecasts, to a range of $14.45-$14.95, up from the $14.15-$14.75 projected last month, and compares to $10.89 in 2009. The 2011 average is expected to range $14.35-$15.45, up 20 cents from last month's estimate.

Improving domestic and export demand is expected to support NDM prices. The cheese price forecast was raised as higher butter/powder values are expected to divert milk from cheese production. Coupled with higher forecast exports and lower imports, tighter supplies are expected to support prices.

Cooperatives Working Together announced the acceptance of one bid from Dairy Farmers of America and two from Darigold to export 1.7 million pounds of cheddar cheese to the Middle East, delivered June through December 2010.

Spills and plans

National Milk expressed concern this week that dairy farmers would need to file a plan to avoid oil spills from their bulk tanks if changes in pending Environmental Protection Agency regulations aren't changed. The way they are written, the butterfat in milk would be considered an oil and thus the law of unintended consequences is about to kick in this fall.

NMPF's Jamie Jonker reported in Thursday's DairyLine that the regulations referred to as the Spill Prevention Control and Countermeasure Rule looks to ensure that oils are not spilled from containers, and if it does happen, there's a way to quickly clean up those spills. Animal fats would fall under this definition he said, and that would include milk.

The regulations have nothing to do with the oil gushing out of the ocean floor in the Gulf of Mexico as they were written long before, but revisions were made a couple of years ago. Jonker reported that NMPF worked with the EPA and other interested groups to obtain an exemption for bulk storage of milk products. The EPA was amenable to that in January of 2009 but had not finalized that exemption yet.

He emphasized the importance for the dairy industry because of approaching November compliance deadlines, but a NMPF press release Friday stated that the EPA did agree to delay the deadline for spill control regulation of milk tanks.

Beef

Dairy producers need to be involved and informed of what's going on in the beef side of the business, according to Ted Greidanus of Tipton, Calif.. Greidanus raises black and white bull calves in the heart of California's dairy industry and is a current Beef Board member and Operating Committee member.

Greidanus said a good percentage of dairy calves go to beef production along with their market-ready cows, thus dairy animals make up a good percentage of U.S. beef production and that beef goes throughout the world.

Dairy producers have an investment via the Beef Checkoff on their bull calves and cows, according to Greidanus, who called it a "very good investment" based on statistical information, which shows that their one dollar investment returns about five dollars to the farmer.

"The Beef Checkoff does so much," Greidanus said, and he knows it first-hand because he serves on the Operating Committee that makes recommendations to the Executive Committee on how the checkoff money is to be spent, be it advertising, research, developing international markets or food safety.

Domino's and dairy

Dairy Management Inc.'s Joe Bavido spotlighted the dairy checkoff's partnership with Domino's Pizza. He said the checkoff is working with Domino's and other leading pizza chains to reenergize the pizza category by focusing on cheese, the core ingredient of pizza, as well as in their menu development via DMI's consumer marketing efforts.

Checkoff consumer research communicated the consumer's "love affair with cheese," Bavido said, and that influenced Domino's strategy to increase the amount of cheese offered on their pizza. Domino's reported an increase in same store sales of over 14 percent between January and March of 2010 and attributed the increase to their new pizza recipe, which included an increase in the amount of cheese used as well as the type of cheese, having included a hint of Provolone, along with improved sauce and crust.

The chain also doubled the amount of cheese on its cheese-only pizzas and this is in addition to last year's creation of its American Legends specialty pizza line which includes 40 percent more cheese than Domino's traditional pizzas. Domino's increased cheese use resulted in an additional 120 million pounds of milk in 2009, Bavido reported, and that demand will grow even further in 2010.

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

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