Mielke: California dairies weigh federal order

Lee Mielke


For the Capital Press

California Dairies Inc., the largest member-owned milk marketing and processing cooperative in California, has commissioned a study of the impacts of California adopting federal milk pricing regulations and joining the federal order pricing system.

Dairy Farmers of America Western Area and Land O'Lakes have joined CDI in the study and have contracted with the University of Wisconsin's Mark Stephenson and Penn State's Chuck Nicholson to perform the five-month study and assess what can be expected by replacing the state milk marketing order with a federal counterpart.

Meanwhile, the California Department Food of Agriculture released a joint petition on Nov. 5 from Land O'Lakes, California Dairies, and Dairy Farmers of America Western Council requesting an emergency hearing to review the whey valuation in the Class 4b milk price formula. The request is for a 12-month change to the whey portion of the formula to increase the dry whey scale to "represent the full value of whey as contained in the federal class III pricing formula." CDFA has 15 days to respond to the petition.

Switching focus

Daily Dairy Report editor Mary Ledman reported in her audio Daily Dairy Discussion on her website that lower milk production in California resulted in lower cheese production.

USDA reports that California milk production totaled 3.18 billion pounds in September, down 3.9 percent, or 128 million pounds, versus last year. California cheese production took the brunt of the state's lower milk production. California cheese production at 170.1 million pounds was down 10.9 million pounds from September 2011. In other words, 85 percent of the decrease in California's milk production translated into lower cheese production.

California is the second largest manufacturer of cheese in the U.S. following Wisconsin, which reported an 8.7-million-pound increase in production during September but not enough to offset California's lower output.

California nonfat dry milk production was also lower in September, according to Ledman, but could be due to a shift of milk into skim milk powder production. California NDM output of 40.4 million pounds fell 27.4 percent, or 15.3 million pounds, from prior-year levels. However, SMP production totaled 43.6 million pounds, up 22.6 percent, or 8.1 million pounds.

"While USDA does not report SMP production by state, it is logical to assume some of California's decline in NDM production was due to increased SMP production," Ledman said. In total, combined U.S. production of NDM and SMP was 128 million pounds, down 8.2 percent, or 11.4 million pounds, versus last year's strong production level but still the second highest September production level of the past seven years.

California reported stronger year-over-year butter production in September, which supports the assumption that much of the increase in U.S. SMP production occurred in California, she said. To listen to the Daily Dairy Discussion, which is a free download, go to www.dailydairyreport.com


Hurricane Sandy had little effect on cheese plants in the Northeast, according to USDA's Dairy Market News. Most plants received near normal milk intake volumes with only minor, periodic power outages. Nationwide, recent CME price gyrations, coupled with price levels, were causing some buyers to change ordering plans as well as some plants to modify production schedules.

Cash cheese, like most Republicans, was down the day after the election. The blocks plunged 12 cents on a single offer and lost another 7 cents on Friday to close at $1.92, down 19 cents on the week and 3 cents below that week a year ago. Barrel lost 16 1/2 cents the day after the election and closed Friday at $1.8350, down 24 1/2-cents on the week, 8 1/2 below the blocks, and 14 1/2-cents below a year ago. Eight cars of block traded hands on the week and 16 of barrel. The AMS-surveyed U.S. average block price slipped 0.7 cent, to $2.0648, while the barrels averaged $2.0446, up 1.8 cents.

FC Stone dairy economist Bill Brooks was quoted in the Nov. 5 eDairy Insider Opening Bell saying "seasonal trends point to slowing demand for fluid milk which will enhance supplies of milk going into manufacturing products."

"Shipments of cheese and butter for the Thanksgiving holiday will be getting wrapped up this week if they're not already done," he said. "Rebuilding pipelines after Thanksgiving likely will provide a bounce in demand."

Cheese consumption

On a brighter note, market analyst Jerry Dryer reported in his Nov. 2 Dairy and Food Market Analyst that per capita cheese consumption increased 1.1 percent in 2011, according to USDA estimates. Per capita usage totaled 33.5 pounds last year; 28 pounds as natural cheese and 5.5 pounds in processed.

But the cheese content of processed products has fallen dramatically; from 87 percent as recently as 2009 to just 82 percent in 2011, according to Dryer. While per capita usage of most cheese varieties inched higher last year, cheddar cheese fell more than one-quarter of a pound, from 10.27 pounds in 2010 to 9.98 pounds in 2011.


This week's election leaves the country is in much the same position politically. The Daily Dairy Report pointed out that "Washington, D.C., has been mired in gridlock, but legislators will have to overcome partisanship to address several urgent issues, including the looming fiscal cliff, expiring tax cuts, the spending sequester and federal debt limits."

"These agendas will take precedence, delaying negotiation on the farm bill, which officially expired Oct. 1," according to DDR.

"The farm bill fits into the larger, ongoing debate about the size and role of government," wrote the DDR. "Lawmakers are struggling to agree on how much the United States can afford to spend on subsidies and safety nets like food stamps. Congress is also reflecting on whether programs like crop insurance should be administered through federal agencies or private industry."

The International Dairy Foods Association was quick to point out that the election will affect the House Agriculture Committee and could impact proposed dairy policy reforms. Seven supporters of the Dairy Security Act will not return, yet nearly all who supported the Goodlatte-Scott alternative were reelected, said Jerry Slominski, IDFA senior vice president of legislative affairs.


The Agriculture Department raised its 2012 milk production estimate in its latest World Agricultural Supply and Demand Estimates report issued Friday morning because of higher estimated milk per cow in the third quarter. Production forecasts for the remainder of 2012 and 2013 were unchanged from last month. Look for this year's output to hit 199.7 billion pounds, up 100 million pounds from last month's issue. That compares to 196.2 billion in 2011 and 192.8 billion in 2010. 2013 output remained at 199.7 billion pounds.

Fat basis exports in both years were reduced largely on lower butterfat exports. Skim solids exports were raised largely due to whey protein product sales.

Cheese prices were forecast lower in 2012, but unchanged for 2013. Butter prices for both 2012 and 2013 were lowered as butter stocks were forecast higher than last month. Nonfat dry milk was forecast higher for both years. The whey price forecast was unchanged for 2012 but was raised for 2013.

The 2012 Class III milk price was unchanged from last month's estimate, at $17.55-$17.65 per hundredweight, down from $18.37 in 2011 -- but compares to $14.41 in 2010. The 2013 projection was raised a dime on both ends of the range and is now expected to averaged $17.85-$18.75.

The Class IV price forecast was lower on weaker butter prices. It's projected at $15.95-$16.15, down a nickel from last month's estimate. The 2013 estimate was put at $16.90-$17.90, up 15 cents on both ends from a month ago. Higher whey and nonfat dry milk prices in 2013 push the Class III and Class IV price forecasts higher, according to USDA.


Butter closed Friday at $1.89, up 2 1/2-cents on the week and 15 cents above a year ago. Eleven cars were sold. AMS butter averaged $1.9019, up 0.7 cent.

Churning schedules across the country remain active and in many instances butter producers are not aggressively seeking additional cream, according to USDA. Some extra cream was looking for a home in the Eastern part of the country the last week of October as Hurricane Sandy impacted churns and Class II manufacturing facilities in the storm track.

Butter stocks and projected fresh production are in fairly good balance for the upcoming holiday period. Shutdowns of varying length at dairy processing facilities along the Eastern seaboard were reported. Some transportation problems were also noted but most handlers indicated farm milk eventually found processing within the region, according to DMN.

Cash Grade A nonfat dry milk inched up a half-cent this week, to $1.5750, on two trades. Extra Grade held at $1.56. AMS powder averaged $1.4916, up 0.6 cent and dry whey averaged 63.89 cents, up 0.9 cent on the week.

Production trends

USDA reports that farm milk production is moving seasonally higher in the Southeast. Loads imported into Florida dropped from 117 the week of Oct. 22 to 39 the following week, as evidence of the rising milk production.

Milk production in the Southwest is steady to moving higher, but tempered by dairy rations built to mitigate costs rather than maximize milk production. The Pacific Northwest was experiencing late fall rains and mild temperatures, with little effect on milk output. Central production is mostly unchanged in the northern tier of states, but shifting higher in the southern tier.

Commercial disappearance of dairy products in the first eight months of 2012 totaled 134.9 billion pounds, according to USDA data, up 2.7 percent from 2011. Butter was up 4.4 percent; American cheese, up 2.2 percent; other cheese, up 2.3 percent; nonfat dry milk up 36 percent; but fluid milk was down 1.8 percent.

World news

Checking things globally, the trade-weighted average for all dairy products and contract periods in this week's Global Dairy Trade gained 1.1 percent compared to Oct. 16 prices, reports FC Stone's eDairy Insider Closing Bell.

The average for whole milk powder fell 2.5 percent, but average prices for other products rose. Rennet casein gained 9 percent; butter milk powder, 7.3 percent; anhydrous milk fat, 5.3 percent; skim milk powder, 3.9 percent; cheddar cheese, 2.5 percent; lactose, 1 percent, and milk protein concentrate, 0.5 percent. The GDT cheddar cheese average price rose to $1.3776 per pound, regaining part of the 9.9 percent drop in the previous event but well below U.S. CME prices.

Back to the futures

With the announced Class III plus the remaining two months, the last half 2012 federal order Class III milk price was averaging $19.13 on Sept. 21, $19.15 on Sept. 28, $19.27 on Oct. 5, $19.40 on Oct. 12, $19.27 on Oct. 19, $19.31 on Oct. 26, $19.34 on Nov. 2, and was trading around $19.11 late morning Nov. 9.

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