Mielke: CWT to subsidize exports of whole milk powder

Lee Mielke

By LEE MIELKE

For the Capital Press

The Cooperatives Working Together export assistance program will begin assisting sales of whole milk powder beginning April 16, according to CWT's Jim Tillison in Thursday's DairyLine Radio program.

"The whole milk powder situation in the world market is very important," Tillison said, explaining that "it's my understanding New Zealand, for example, has shifted nearly all its production to whole milk powder because there's such a demand out there."

He reported that CWT did an economic analysis to determine how U.S. prices compared to world prices, and whether assistance was needed.

"We determined assistance was needed, so we decided to add that product to the cheddar cheese, Monterey Jack, Gouda cheese and butter we already are providing assistance for sales," he said.

Like sales of other products receiving CWT export assistance, whole milk powder sales to Mexico and Canada will not be eligible, according to Tillison.

"We have the North American Free Trade Agreement, and products should be able to move there without assistance," he said. Asia and the Middle East will likely be the primary markets, with some also exported to North Africa.

"The beauty of whole milk powder," he said, "is that it utilizes both butterfat and nonfat dry milk powder solids, so we should see a positive impact."

CWT also accepted five requests for export assistance this week from Dairy Farmers of America, Darigold, Foremost Farms, and Maryland and Virginia Milk Producers Cooperative Association to sell a total of 818,000 pounds of cheddar and Monterey Jack cheese and 1.1 million pounds of butter to customers in Asia and the Middle East. The product will be delivered through July 2012.

CWT has assisted member cooperatives in making export sales of cheddar, Monterey Jack and Gouda cheese totaling 37.8 million pounds and butter totaling 33.3 million pounds to 19 countries on four continents so far in 2012. On a butterfat basis, the milk equivalent of these exports is 1.076 billion pounds, according to CWT, the equivalent to the annual milk production of 51,000 cows.

Seal fight

Dairy Profit Weekly reported that the March 29 announcement that NMPF will assume management of the REAL Seal logo and use it to differentiate domestically produced dairy products from imports violates a law imposing fees on imported dairy products, according to the Cheese Importers Association of America.

"It is unfortunate that this action has been taken to circumvent the requirements that were clearly set forth by USDA," said Ken Meyers, CIAA president and a member of the National Dairy Board. "This action demonstrates a clear violation of U.S. trade obligations. If the National Milk Producers Federation plans to use checkoff monies that now include mandatory contributions by importers to promote domestically produced dairy products, importers may need to implement a program to tout the benefits of popular cheeses from countries, such as France, Italy, Denmark, Holland, Argentina, Australia and New Zealand."

NMPF shot back in an April 4 press release, charging that the CIAA's announcement contained incorrect information and factual errors.

"It appears that the CIAA lacks full knowledge of the history, ownership and use of the REAL Seal program and the concerns voiced by that organization are clearly misplaced," NMPF president and CEO Jerry Kozak wrote.

Kozak maintains the United Dairy Industry Association still owns the REAL Seal and is free to license it as the organization deems appropriate. NMPF will now be managing the licensing and marketing.

UDIA and the National Dairy Board remain separate and distinct entities, according to Kozak. The 7.5 cent per hundredweight import assessment paid by importers for promotion purposes is directed to NDB, not paid to the UDIA. Legislation that established the dairy import assessment does not impose limitations on how UDIA manages its assets, he said, including the seal. No funds from the NDB have been or will be used for NMPF's operation of the program, according to Kozak.

Milk-feed ratio

USDA's latest Ag Prices report put the March milk-feed price ratio at 1.48, 0.07 points lower than last month's revised 1.55 and 0.64 points lower than last year's 2.12. Total feed costs in March increased 37 cents, to $11.77 per hundredweight of milk, which triggered a Milk Income Loss Contract payment for the first time since April 2010 of 38.95 cents for February.

Preliminary calculations point to a March payment of around 89 cents, according to FC Stone dairy economist Bill Brooks. The University of Wisconsin's Brian Gould predicts 88.9 cents for March; 88.9 cents for May; 91.1 cents for June; 78.6 cents for July; 37.6 cents for August; and nothing for the rest of the year.

Those payments will be needed. Dairy Profit Weekly editor Dave Natzke warned in Friday's DairyLine that initial reaction in grain markets to the 2012 planting intentions and current grains stocks data indicate the combined reports could be "the worst of two worlds for dairy farmers who buy feed, with both corn and soybean prices jumping substantially in the days following the reports."

"On the one hand," Natzke said, "USDA indicated U.S. corn producers will plant a record 95.9 million acres in 2012, up 4 percent from last year and the highest total since 1937. On the other hand, USDA said current inventories of corn are down 8 percent from a year ago, the reason corn futures were driven higher."

He added that the situation with soybeans, which provide much of the protein in a dairy cow's diet, is almost exactly opposite. While current soybean inventories were estimated to be up 10 percent from a year ago, soybean growers will plant an estimated 73.9 million acres in 2012, down 1 percent from 2011. Those expectations also pushed soybean and soy meal futures prices higher.

Two other major crops will impact dairy farmer feed prices in the year ahead. USDA said the nation's growers will boost acres harvested for hay by about 3 percent from a year ago, but it's still the second smallest hay harvest on record. Also, cotton acreage, which yields cottonseed used in dairy rations, will be reduced 11 percent from last year, according to Natzke.

USDA's March milk-feed price ratio, an index comparing the relationship between milk prices and feed costs, fell to its lowest level since June of 2009, according to Natzke, and "these crop reports indicate dairy farmers won't see any drastic improvement in that index soon."

Cash markets

The cash dairy markets were pretty quiet in the holiday-shortened Easter-Passover week. The 40-pound cheese blocks closed Thursday at $1.4875 per pound, down a quarter-cent on the week, and 10 1/4-cents below that week a year ago. The 500-pound barrels closed at $1.46, unchanged on the week, and 8 cents below a year ago. Two cars of block traded hands on the week and one of barrel.

Price surveys

The USDA Agricultural Marketing Service has begun the dairy product price surveys, formerly provided by the USDA National Agricultural Statistics Service. It reported that the AMS-surveyed U.S. average block cheese price gained 2.5 cents, hitting $1.5387 per pound. The barrel price was up 3.6 cents, to $1.5909.

Cash butter closed Thursday at $1.43, down 3 1/4-cents on the week and 54 1/4-cents below a year ago. Only one car was sold on the week. AMS butter averaged $1.5001, up 4.8 cents. AMS nonfat dry milk averaged $1.2965, down 3.9 cents, and dry whey averaged 55.56 cents, down 5.7 cents.

Back to the futures

The average Class III milk price for the first six months of 2012 stood at $16.35 per hundredweight on Feb. 3, (after factoring in the announced January and February Class III milk prices) $16.19 on Feb. 10, $16.08 on Feb. 17, $15.69 on Feb. 24, $15.65 on March 2, $15.77 on March 9, $15.99 on March 16, $15.83 on March 23, $16.01 on March, and was hovering around $15.83 late morning April 5.

Checking the churn

February butter production hit 170 million pounds, down 5.8 percent from January but 13.9 percent above February 2011, according to USDA's latest Dairy Products report. Keep in mind the data includes an extra leap day of production. Nonfat dry milk output, at 170.7 million pounds, was up 10.8 percent from January and a whopping 54.7 percent above a year ago.

American-type cheese hit 348 million pounds, down 6.3 percent from January but 5.7 percent above a year ago. Italian type totaled 367 million, down 7.8 percent from January and 4.5 percent above a year ago. Total cheese production amounted to 857.8 million pounds, down 5.8 percent from January but 6.2 percent above February 2011.

California's March 4b cheese milk price was announced April 2 at $13.67 per hundredweight, up 25 cents from February, $3.09 below March 2011, $2.05 below the comparable federal order Class III price, and equates to about $1.18 per gallon. That put the 2012 4b average at $13.77, down from $15.39 at this time a year ago, and compares to $12.27 in 2010.

The 4a butter-powder price is $15.33, down 18 cents from February and $3.09 below a year ago. The 4a average stands at $15.67, down from $17.81 a year ago and $13.14 in 2010.

Political pondering

How would things look if the Dairy Security Act fashioned by the National Milk Producers Federation was law? Would it have been triggered right now? Yes, says Rob Vandenheuvel, of California's Milk Producers Council. He answers those questions in his March 30 newsletter. You can read it at www.milkproducers.org.

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