Dairyline: Supply control plans spark controversy

Lee Mielke

By LEE MIELKE

For the Capital Press

With U.S. milk production on the rise and more than a billion pounds of cheese in storage, attention remains on a establishing supply-demand balance controls, according to Dairy Profit Weekly editor Dave Natzke.

Earlier this month National Milk proposed sweeping changes to federal dairy policy, and one of the most controversial components is the Dairy Market Stabilization Program, he said. Simply put, the plan deducts money from a dairy farmer's milk check if national average income margins fall below trigger levels. Only dairy farmers who produce more their designated milk base would pay the deduction, getting a signal to cut the milk supply.

Connie Tipton, head of the nation's dairy processor organization, vowed to fight any proposals establishing supply management controls, saying a mandated program would raise consumer prices, decrease dairy product demand, encourage non-dairy substitutes in manufacturing and hurt U.S. dairy exports.

That drew outrage from Rob Vandenheuvel, general manager of California's Milk Producers Council, a dairy farmer organization that has been promoting a supply-demand balancing program of its own as a means to help financially struggling dairy farmers. Another organization promoting its own supply management plan, Holstein USA, is holding its annual convention in Minnesota this weekend. One of the topics will likely be whether to endorse National Milk's proposal.

In an interview with Holstein World magazine, Holstein Association CEO John Meyer said the association is pleased that National Milk's Foundation for the Future plan contains a supply management component.

"It is clear the Holstein Association's Dairy Price Stabilization Program has had an impact," he said.

He said their board has not taken an official position on the NMPF program, but he and NMPF CEO Jerry Kozak have had a good discussion on their program and related issues and "the communication lines are open."

By the numbers

May milk production in the 23 major producing states totaled 15.7 billion pounds, up 1.3 percent from May 2009, according to USDA's preliminary estimate. Output in the 50 states was a record 16.98 billion pounds, up 1.1 percent from a year ago. Revisions added 14 million pounds to the April estimate and totaled 15.2 billion pounds, up 1.8 percent from April 2009.

May cow numbers in the 23 major states totaled 8.33 million head, up 4,000 head from April but 143,000 less than May 2009. Production per cow averaged 1,889 pounds, up 55 pounds from a year ago.

California production was up 0.2 percent from a year ago despite cow numbers being down 65,000 head. Output per cow gained 75 pounds. Wisconsin was up 5.8 percent, thanks to 5,000 more cows and 95 pounds more per cow. New York was down 0.4 percent, on 13,000 fewer cows but output per cow was up 30 pounds. Idaho was up 1.8 percent, on 4,000 more cows and a 20 pound increase per cow. Pennsylvania was up 1.3 percent. Cow numbers were down 6,000 head but output per cow was up 40 pounds. Minnesota was up 3.8 percent, due to 1,000 more cows and a 60 pound gain per cow.

The biggest increase was in Wisconsin. Washington state was next, up 5 percent, on 10,000 more cows though output per cow was off 15 pounds. Michigan saw the third biggest increase, up 4 percent on 1,000 more cows and an 80 pound gain per cow.

The biggest decline was in Missouri, down 7.5 percent, due to 9,000 fewer cows, however output per cow was up 10 pounds. Colorado was next, down 6.3 percent, on 11,000 fewer cows, however output per cow was up 50 pounds. Kansas had the third biggest drop, at 2.7 percent, with 5,000 fewer cows, but output per cow was up 25 pounds.

USDA's National Ag Statistics Service estimated 209,100 culled dairy cows were slaughtered under federal inspection in May, down 25,600 from April, and 2,600 less than May 2009. The January to May cull cow slaughter totaled 1.155 million head, down 34,000 from the same period a year earlier.

Butter and cheese

May butter stocks totaled 211.5 million pounds, up 5.2 million pounds or 3 percent from April, but 41.8 million or 16 percent below May 2009, according to preliminary data in the Agriculture Department's latest Cold Storage data. April stocks were revised down 1.3 million pounds from last month's estimate.

The May American cheese inventory, at 617.2 million pounds, was up 7.7 million pounds or 1 percent from April, and 31.1 million pounds or 5 percent above a year ago. April revised estimates were lowered nearly 4.5 million pounds.

Total cheese stocks amounted to just over 1 billion pounds, up 10.4 million pounds or 1 percent from April, and 48.4 million or 5 percent above a year ago.

The cash dairy markets had little reaction to the Cold Storage report. Block cheese closed Friday at $1.41 per pound, up a half-cent on the week, and 29 cents above that week a year ago. Barrel closed at $1.3950, up a penny on the week and 30 1/2-cents above a year ago. Only two cars of block traded hands on the week and six of barrel. The lagging NASS-surveyed U.S. average block price lost 1.7 cents, slipping to $1.4414. Barrel averaged $1.3909, down 3.6 cents.

Butter closed Friday at $1.72, up 8 1/2-cents on the week, 51 1/2-cents above a year ago, and the highest it has been since September 2008. Only six cars were sold on the week. NASS butter averaged $1.6012, up 2 1/2-cents.

Cash Grade A nonfat dry milk held all week at $1.25. Extra Grade lost a half cent, closing at $1.2450. NASS powder averaged $1.3059, up 0.2 cent, and dry whey averaged 37.18 cents, up 0.4 cent.

'Plenty of milk'

Market analyst Mary Ledman, principal of Keough Ledman and Associates Inc. in Libertyville, Ill., predicted sideways trading in cheese until we see a down tick in milk production. She reported that there's a strong flush occurring in the Midwest, citing the May Milk Production data for Wisconsin, Minnesota, and Michigan.

"We have to see a moderation in the growth of milk production before we'll see any clear upward signals on cheese prices," she said.

The May increase in milk output was not as much as many had expected, however Ledman pointed to USDA revisions on March cow numbers which added about 6,000 head to the herd and said USDA's revisions have tended to be increases and not decreases.

"There's plenty of milk in most areas of the country," Ledman said. "And a considerable amount of condensed skim in the marketplace."

She believes it's being priced very competitively against nonfat dry milk powder, resulting in less cream being available in the market and enhancing butter prices.

She also attributed the strength in butter to seasonally low component levels in milk. She said that some believe feed is having a negative impact as well, but this is also the seasonal high demand period for butterfat and the increased sales of condensed skim is shorting the amount of cream available for the churns as well.

Alfalfa and Roundup

Natzke also reported on another controversial topic, this one related to dairy feed. The U.S. Supreme Court ruled 7 to 1 that a California federal judge went too far when he imposed a nationwide ban on planting genetically engineered alfalfa seed, known as Roundup Ready alfalfa.

USDA approved the seed in 2005, but U.S. District Court Judge Charles Breyer issued the ban, ordering the agency to conduct a more extensive environmental impact study of the herbicide-resistant seed. USDA issued a draft environmental impact statement last November, and is expected to take final action next spring, which could pave the way for farmers to plant the seed next growing season.

Exports strong

U.S. dairy exports are strong again and April data was reported in Monday's "DMI Update" by the U.S. Dairy Export Council's Margaret Speich. Speich reported that milk powder, whey proteins, cheese, butterfat and lactose exports posted gains over a year ago.

April exports were valued at $291 million, she said, up 68 percent from a year ago and the highest figure, on a daily average basis, since September 2008. Looking more broadly at the first four months, exports were valued at $1 billion, up 52 percent, according to Speich.

On a product basis, exports of milk powder remained strong in April, up 51 percent in volume. Exports of whey proteins were the highest in two and a half years, principally led by big volume gains of 45 percent to China and 57 percent to Southeast Asia. In addition shipments to Mexico were up 12 percent.

Cheese exports in April saw a record high in volume, up 72 percent from April 2009. And, if you look at the first four months of this year, U.S. exports of cheese were up 43 percent, she said, and looking at a percentage basis, in the first four months of this year, U.S. exports were equivalent to 29 percent of the milk powder produced, 63 percent of whey proteins, and 3.1 percent of cheese.

Overall, April exports represented 12.3 percent of U.S. milk solids production, according to Speich, the most since August 2008.

The Cooperatives Working Together program accepted three export assistance bids this week from Dairy Farmers of America on 496,040 pounds of cheddar cheese to the Middle East. That raised the CWT cheese export total so far to 38.5 million.

Herd retirement

June 25 was the deadline for CWT members to submit a bid if they wanted to participate in the current herd retirement program. National Milk's Chris Galen said "this is the 10th time that we have been down this road," the first one running in the summer of 2003.

He said it will be interesting to see how bids are submitted as there has been a large number of phone calls and e-mails but, as is typical, most bids do not come in until just before the deadline or after it.

The maximum bid is $3.75 per hundredweight, which is low, Galen admitted, but "reflects the real world price of cows." He quickly added that, with beef prices being what they are, "producers on an average basis will get a good deal on their cows because they also keep the beef value."

There is no bred-heifer program this time around, according to Galen, and the timing is important because of the low milk prices.

"The decline in the dairy herd leveled off at the beginning of 2010 and has started to creep back up," he said. "We're hoping this will help push cow numbers back in a negative direction, which we think will be ultimately positive for milk prices the rest of this year."

Will this be the final CWT herd removal? Galen said it depends on what the members want to do.

"We do think that this is the right time to use this important tool because it has had a positive impact on prices back to 2003," he said.

Checkoff

State beef council checkoff dollars help add value to beef and dairy farmers and help drive consumer demand for beef through events like the "Boilermaker" event in Utica, N.Y., in July, according to Jean O'Toole, New York Beef Industry Council director of retail, food service and consumer events.

O'Toole said the "Boilermaker" includes a 15-kilometer road race, the largest in the U.S., a 5-kilometer run, a 3-milk walk and a kid's run. Beef is involved in a "massive way." A large tent will have the theme "Beef Up Your Health" and they will offer glucose and blood pressure testing. They will have the "Beef, It's What's For Dinner" culinary stage to teach attendees how to cook beef properly, a "Beef Booth" and a "Power of Protein challenge."

Beef, veal, and dairy producers are competing in the ZIP team, which stands for zinc, iron and protein. The local dairy princess is involved as Upstate Dairy donated chocolate milk to the kid's run so they have a "nice recovery drink," one of chocolate milk's many attributes, and the local Beef Council dietician is there for nutrition consulting.

The event draws radio, newsprint and TV coverage.

"When you have 100 runners wearing our "Team ZIP" shirts, you get the media's attention," O'Toole said. The shirts read, "Beef, It's What's For Dinner."

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

Recommended for you