For the Capital Press

Hot weather remained in the spotlight Aug. 17 as Class III futures entered the $20 zone for the first time in a long time.

Block cheese hit $1.90 per pound but gave some back Aug. 17 to close at $1.87, up a penny and a half on the week but still 3 cents below a year ago.

Barrel closed at $1.8350, also up 1 1/2-cents on the week and 2 3/4-cents below a year ago when they rolled almost 22 cents lower. Only two cars of block traded hands this week and 13 barrels. The AMS-surveyed U.S. average block price inched 0.6 cent higher, to $1.7170. Barrel averaged $1.7132, down 0.6 cent.

Cheese inventories are in a normal range that manufacturers are comfortable with, according to USDA’s Dairy Market News. Milk supplies are tightening seasonally in much of the country, USDA says, but there is uncertainty over what impact the prolonged drought will have on feed and hay supplies and hence milk production available for making cheese.

Butter was bid 4 1/4-cents higher, to $1.7925, 29 1/2-cents below a year ago. Nothing sold in the cash market. AMS butter averaged $1.6601, up 2.9 cents.

Cream supplies tighten

Churning across the country is challenged by tightening cream supplies. Many butter producers believe cream supplies will remain snug for the next few weeks as school bottling resumes. As Class II demand eases further, cream supplies should become more available.

USDA says overall volumes of standardized cream may be lighter this year as butterfat levels in milk have been lower for much of the summer. Limited supplies are often causing butter producers to reach into inventories to fulfill demand, which is steady, according to USDA.

Some producers are concerned about upcoming tight milk supplies due to drought, heat and feed costs and supplies that will probably short milk for butter production before the impact is felt by cheese plants.

Cash Grade A nonfat dry milk closed Aug. 17 17 cents higher, at $1.65, and Extra Grade closed at $1.6250, up 18 1/2-cents. AMS powder averaged $1.2467, up 3.2 cents, and dry whey averaged 52.91 cents, up 0.9 cent.

Corn supply shrinks

This year’s corn crop is 13 percent smaller than last year’s, according to USDA’s monthly world agricultural supply and demand estimates. USDA projects farmers will abandon 9 million corn acres and harvest 10.8 billion bushels of corn, the smallest crop in six years.

The drought-reduced crop leaves ending stocks at 650 million bushels, only 5.8 percent of annual demand, the smallest stocks-to-use ratio since 1995-96, according to the Daily Dairy Report, which warned that “end users will have to ration demand.”

The DDR’s Sarina Sharp said in the DDR’s Daily Dairy Discussion on its website that end users will be vying for the available corn supply and “while many are calling for the Environmental Protection Agency to waive the ethanol mandate, this would have little or no effect on ethanol demand. Gasoline futures are just shy of $3 per gallon, and ethanol is trading around $2.60. Unless that relationship changes, refiners will continue to blend ethanol.”

Sharp said ethanol producers are in a better financial position to buy the high priced corn than are livestock producers who have been suffering years of difficult finances, pointing to the large loss of equity among dairy farmers in 2009.

“They can’t borrow their way through poor margins,” Sharp said, and beef producers are in a similar situation so she expects large culling ahead and “continued contraction.”

Herd smallest since 2005

“Poor margins have encouraged strong culling and declining production per cow,” the DDR said. “USDA lowered its milk yield per cow to 21,830 pounds in 2013, down from its 22,060 pound forecast in July. USDA also expects the dairy herd to average 9.11 million head in 2013, 35,000 cows lower than its July forecast, down 115,000 head versus 2012, and the smallest herd since 2005.”

2013 milk production is expected to be 198.9 billion pounds, down 1.4 percent from the July forecast and the DDR reported that, if realized, this would be the first year-over-year decline in milk production since 2009 and the largest annual decline in milk production since 2001.

Meanwhile, June fluid milk sales amounted to 4.1 billion pounds according to USDA estimates, down 0.3 percent from June 2011 and 0.8 percent lower after adjusting for calendar composition. Estimated sales of total conventional fluid milk products decreased 0.5 percent from June 2011 and estimated sales of total organic fluid milk products fell 3.9 percent from a year earlier.

California’s September Class I milk price is $19.34 per hundredweight (cwt.) for the north and $19.61 for the south. Both are up $1.33 from August but $4.23 below September 2011. The 2012 Class I average now stands at $17.99, down from $20.64 at this time a year ago, and compares to $16.46 in 2010. The southern average is $18.26, down from $20.91 a year ago and compares to $16.74 in 2010.

Class 4b milk wrangling

Speaking of California, the Western United Dairymen’s recent petition for an emergency hearing on California’s Class 4b milk pricing formula and a six-month, 50 cent per cwt. increase in the minimum price for all classes of milk has drawn responses from dairy producers and processors. Dairy Profit Weekly reported that on Aug. 6, WUD petitioned the California Department of Food and Agriculture asking for an emergency hearing on two proposals.

The first was emergency price relief due to the current financial pressures on dairy producers, notably due to extremely high feed costs. WUD is requesting a six-month — October 2012 through March 2013 — increase of 50 cents per cwt. on the minimum milk prices for all classes of milk.

In the second they seek changes to the whey value of the 4b pricing formula. WUD is requesting the cap of 75 cents per cwt. to be removed, proposing a scale that mirrors more closely the whey value under the Federal milk marketing order Class III milk pricing formula. Both the Class 4b and Class III milk pricing formulas are used for milk processed into cheese.

In a move to address concerns of small cheese makers, WUD proposed a dry whey exemption on the first 100,000 pounds of milk processed daily and would be only on the whey portion of the Class 4b formula.

You’ll recall that following a May 31-June 1 hearing, a CDFA panel recommended no change in the state’s 4b pricing formula whey factor.

However, CDFA secretary Karen Ross gave dairy producers a small concession, increasing the whey factor cap by 10 cents per cwt., effective Aug. 1. She also announced creation of a California Dairy Future Task Force, charged with developing recommendations for structural changes to California’s dairy pricing formulas and other milk marketing regulations.

In a letter to Ross, Joe Augusto, president of the California Dairy Campaign, urged CDFA to schedule the emergency hearing, saying the previous decision failed to address the immediate needs of dairy producers.

“The decision that resulted from the 4b hearing this spring failed to restore equity to our dairy pricing system,” Augusto wrote. “California dairy producers continue to be paid significantly less than dairy producers in surrounding states. The fact that the 4b formula undervalues milk has led to a loss in revenue of more than $200,000 for the average 1,000-head dairy in our state over the last 12 months.

“To restore equity to our dairy pricing system, our dairy producer members believe California should join the Federal milk marketing order. To address the inequity in our state dairy pricing system, we believe it is imperative that CDFA remove the cap on the whey value in the 4b formula as called for in the petition.

“Already this year, more than 65 dairies have closed their doors due to the fact that dairy producer prices do not cover historically high production costs,” he continued. “In 2009, the worst year many can recall, 100 dairies closed their doors. If closures continue at this rapid pace, 2012 will take an even greater toll on dairy producers if action is not taken by CDFA to restore fairness and equity to our dairy pricing system.

“Dairy producers are unable to pass on record high feed costs that have resulted from the nationwide drought so it is critical that CDFA take emergency action to raise the price of all classes of milk to prevent more dairies from closing.”

Reis Soares, Soares Dairy, Chowchilla, Calif., also wrote in support of the petition, pleading for CDFA to consider WUD’s petition for an emergency hearing stating; “I am a first-generation dairy producer and have been dairying for 28 years. Dairying in 2009 was about as devastating as I could have ever imagined until 2012. I don’t have to tell you what has happened to our grain/feed costs, as you are fully aware of the nation’s worst drought in decades.

“In 2009 I borrowed on our farm in order to be able to feed our cattle. I refinanced our farm for more than what I originally paid for it just to stay in business. I guess you can say I bought our farm twice now. The equity of our farm is gone; the equity in our cattle is gone; so we have nothing left to borrow on.

“I don’t understand how CDFA can allow this much injustice to continue,” Soares added. “The dairy producer pays for the processors’ cost of operating. The dairy producer pays the full cost of producing and hauling the milk to the processor. The processor is able to sell the finished product at a profit, yet they don’t have to share with the dairy producer.

“I believe your conclusion in the most recent hearing decision that the industry should seek structural changes in dairy pricing to establish a more stable foundation for the future was judicious and should be followed through,” he said. “However, in the meantime, how many more dairies will be lost in California and how many more years will dairy producers have to endure instability before CDFA takes responsibility.”

To no surprise, processors disagree. David Ahlem, vice president of dairy procurement and policy, Hilmar Cheese Co., asked CDFA to deny the petition.

“Considering another change to the 4b minimum price only weeks after the announcement of the May 31/June 1, 2012 hearing outcome will further perpetuate regulatory uncertainty in the state,” he wrote. “This constantly changing business climate will do little to encourage investment in this state at a time when capacity is exiting California and growing in other regions.

 “In recent days, market prices appear to be rebounding in response to supply concerns,” Ahlem continued. “We should let markets work. Increasing the minimum price will not increase the real value of milk. These intrusive regulatory adjustments insulate our industry from true market signals and do not create sustainable value. If we are really going to grow the value of milk over time, processors and producers must learn to respond to market signals and develop the skill set necessary to compete in the global marketplace.”

Complete details are posted at .



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