Mielke: Consumption may slide as cheese stocks build

Lee Mielke

By LEE MIELKE

For the Capital Press

The latest employment data showing no job creation in August and declining consumer confidence doesn't bode well for the dairy industry, according to the University of Wisconsin's Brian Gould. Speaking in Tuesday's DairyLine, Gould said consumers are not willing to purchase food at restaurants. He cited the August consumer confidence index which declined from 59.2 to 44.5. That's about a 20 percent drop, he said.

When asked about cheese prices, Gould pointed to existing stocks relative to production and said "they're pretty high." Case in point is the ratio of American cheese stocks to American cheese production in July, which was the highest since 1987.

"We have a lot of stocks out there relative to production," he said. He warned that he's not optimistic there'll be a rebound in prices in the near future.

Futures prices on cheese are pretty stable, according to Gould, right around $1.70, plus or minutes five cents.

"Right now the indicators are not looking for substantial changes on the up side or even on the downside," he said.

The July consumer price index for all food was 228.3, up 4.2 percent from July 2010, according to USDA. The dairy products index was 214.8, up 7.9 percent. Fresh whole milk was up 10.2 percent, cheese was up 8.1 percent, and butter was up 21 percent from a year ago.

World prices

Prices were mixed in Tuesday's Global Dairy Trade or Fonterra auction, according to the CME's Daily Dairy Report. The weighted average price for skim milk powder was $1.56 per pound, up 0.3 percent from the August 16 trading. The whole milk powder price, at $1.50 per pound, was down 1.6 percent.

Prices were mixed in Tuesday's Global Dairy Trade or Fonterra auction, according to the CME's Daily Dairy Report. The weighted average price for skim milk powder was $1.56 per pound, up 0.3 percent from the August 16 trading. The whole milk powder price, at $1.50 per pound, was down 1.6 percent.

The anhydrous milkfat price was $1.97, up 2 percent, and the cheddar cheese for industrial use price received an average winning bid of $1.84 per pound, down 4.7 percent from the prior auction. The trade-weighted average for all products was down 1.4 percent from the prior event, and down 25.8 percent from the peak levels established in early March, according to the DDR.

Traders and handlers have mixed opinions on what direction price will trend, USDA said. Some feel that weakness will continue, while others indicate the recent weakening trend will cease and prices will possibly firm.

Like butter

eDairy economist Bill Brooks notes that European butter prices are near $2.59 per pound while Oceania prices are just below $1.95.

U.S. butter has plunged to the lowest level since May, closing the second Friday of September at $1.9125 per pound, down 9 1/4-cents on the Labor Day holiday-shortened week, down 18 cents in two weeks, and 31 cents below a year ago. No butter was sold on the week. The lagging NASS-surveyed butter price averaged $2.0596 across the U.S., up 0.9 cent from the previous week.

Grade A nonfat dry milk closed Friday at $1.49, down 2 cents, while Extra Grade held all week at $1.61. NASS powder averaged $1.5424, down 2.4 cents.

Block cheese closed Friday at $1.7850, down a half-cent on the week, but a nickel above a year ago. Barrel closed at $1.72, down 4 cents on the week, and a penny and a half above a year ago. Six carloads of block traded hands on the week and 13 of barrel. The NASS U.S. average block price fell 10.9 cents, to $1.9843, while the barrels averaged $1.8964, down 18.1 cents.

Milk supply side

The full impact and damage assessment of Hurricane Irene and tropical storm Lee is still being assessed. EmpireStateNews.net reports that farmers who were forced to dump milk may be eligible for USDA payments to compensate them. The Agriculture Department reports that milk production in the Southeast and Florida were mostly steady at reduced levels. Milk intakes in the Midwest were fairly steady.

California and New Mexico milk production is steady to lower with Arizona trending lower. Production in the Pacific Northwest is at expected volumes, while Utah and Idaho milk supplies are above year ago levels.

Class I orders are fair to good to fill needs for schools resuming classes. Cream markets are unsettled to weak. Demand ahead of the Labor Day holiday weekend slowed and buying interest was light. Cream volume moving to churns was expected to increase over the holiday period.

Weather throughout most of Europe has been quite mild for much of the current milk production season. Outside of dry conditions earlier this summer, producers and handlers indicate that the season has been quite favorable for milk output.

Stocks of European manufactured dairy products are generally available for both domestic and international buyer interest. Sales activity has remained quite good from both. Traders and handlers were quite surprised at the level of sales activity in recent weeks and traders are indicating that skim milk powder is moving both domestically and internationally, but whole milk powder sales are more limited, probably due to price. Traders feel that now that the summer vacations season is coming to a close and Ramadan is over, more buyers will be returning to the marketplace for upcoming fall and winter needs.

Early spring weather patterns are being reported in the Oceania region. The snow storm in New Zealand a few weeks ago is history and weather patterns are showing more signs of spring versus late winter.

Most producers and handlers indicate the snowfall did little to negatively impact the dairy industry. Milk production trends remain in line with recent projections, with New Zealand 2 to 4 percent higher and Australia in the 1 to 2 percent increase range. A favorable end to the most recent production season in Oceania is causing producers in both countries to consider expansions, according to USDA.

Australian milk producers are indicating that milk production growth during the upcoming year will be restrained by herd growth but anticipate that production will potentially be more noticeable in the 2012-13 year. Having experienced a number of years of negative or minimal growth, it will take a number of years to turn this trend around, especially for Australian producers.

Back on the home front

Looking "back to the futures" combined with the announced Class III prices for July and August, the Federal order Class III contract's average for the last half of 2011 was $19.75 on Aug. 5, $19.42 on Aug. 12, $19.18 on Aug. 19, $19.36 on Aug. 26, $19.63 on Sept. 2, and was running $19.35 at the close of spot trading on Sept. 9.

In dairy politics

The International Dairy Foods Association's Peggy Armstrong addressed falling fluid milk sales in Wednesday's DairyLine, blasting efforts that would result in higher milk prices to consumers. She reiterated how milk provides nine essential nutrients Americans need, including calcium, vitamin D and potassium and that, according to the 2010 Dietary Guidelines, "these nutrients are especially important for growing children."

She warned that milk is "losing ground" in "a competitive beverage environment," reporting that per capita milk consumption has continued a slow and steady decline at a rate of about 1 percent a year for the past 35 years, according to USDA data, but a recent statistic suggests the decline might be escalating.

U.S. fluid milk product sales declined 1.4 percent in 2010, the largest annual decline in more than a decade, she said.

"This trend has continued into 2011, with U.S. fluid milk product sales down 1.6 percent through June," she said. "It's important to note that according to the Bureau of Labor Statistics, the retail price of milk has been higher during most of this period than the same month a year earlier so it appears that in a tight economy and a competitive marketplace, consumers are increasingly looking to beverages other than milk.

"That's is why the last thing the U.S. dairy industry needs is a change to the Federal Milk Market Order system that would result in higher Class I prices," she warned, and pointed to the plan proposed by Representative Collin Peterson of Minnesota which is based National Milk Producers Federation's Foundation for the Future.

Congress has plenty on its plate to deal with, primarily the economy and budget issues, according to NMPF's Chris Galen in his Thursday DairyLine talk. He said the nation awaited President Barack Obama's plan to help the economy and deal with high unemployment. Thursday was also the first meeting of the Congressional super committee, whose mandate is to identify an additional $1.5 trillion in budget savings over the next decade.

"A lot of what's going to drive the process here this fall in Washington is to reconcile those two issues," Galen said. "How to stimulate the economy formally or informally and help put people back to work and at the same time, identify ways to cut government spending."

The committee is supposed to complete its work around Thanksgiving, he said, and present recommendations for Congress to vote on. Many expect farm programs to be targeted for cuts, he concluded, so the groundwork may be in the works for the next farm bill.

The House Agriculture Livestock, Poultry and Dairy Subcommittee also held a dairy policy hearing Thursday. Witnesses included USDA officials from the Farm Service Agency and Agricultural Marketing Service.

After attending the hearing, NMPF President and CEO Jerry Kozak stated in a press release that the general tone of the questions at the hearing from the committee members indicated "a concern that current dairy programs are not up to the task of providing a meaningful farm-level safety net."

"NMPF shares that concern, and that's what has driven the creation of Foundation for the Future," Kozak said. "We believe we have the best answer to the bottom line question of what should come next for dairy policy."

Dairyline

Friday's DairyLine asked the question, "Is supply management a solution for the future or a problem from the past?"

Friday's DairyLine asked the question, "Is supply management a solution for the future or a problem from the past?"

Wisconsin dairy producer, John Pagel, who has established a "Risk Management Not Supply Management" website, said he doesn't believe supply management is the answer for the Midwest or for the U.S. dairy industry. He argued that there are so many foreign countries that need dairy products and the Midwest is "sitting in the driver's seat in being able to supply those products."

Pagel does agree that the dairy industry needs a safety net but not supply management. The free market allows farmers to produce as much as they like, he said.

"The better job that you can do on your farm and the more efficient you can be, creates profit on the bottom line and it's up to the rest of the industry to help us export products and do the best job that we can to make sure our dairy industry stays strong," he said.

He admits there'll be ups and downs like any other business but doesn't believe it's in farmer's best interest to "slow down production and reduce possible opportunities for feeding the rest of the world."

He praised NMPF's efforts to put together a program that would help the dairy industry, but supply management is one part he and others do not agree with. He admitted there are regional differences that present challenges in putting a plan together but, with the Midwest having a large amount of processing capacity, "we don't want someone telling us how much milk we can produce" and therefore favors risk management as opposed to supply management.

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