Mielke: Milk, milk everywhere -- and way too much to drink

Lee Mielke

By LEE MIELKE

For the Capital Press

The Agriculture Department reported in its latest Dairy Market News that the market is "awash with milk as increased production is noted across the U.S. Typical spring flush for the southern tier of states continues, while mild winter/spring weather in the northern areas has increased milk supplies."

The good news is that cream demand has increased due to higher ice cream demand combined with better cream-based production for Easter and Passover features. But several processors in the West are preparing to implement financial assessments on producers for milk marketed above established volumes. Discounts for milk above basis are reported to be "severe."

March ended with the block cheese price trading at $1.49 per pound at the Chicago Mercantile Exchange, down a half-cent on the week and 10 1/2-cents below that week a year ago. Barrel closed at $1.46, unchanged on the week but 11 1/4-cents below a year ago. Five carloads of block traded hands on the week and three of barrel. The NASS-reported U.S. average block price climbed to $1.5135, up 1.8 cents, while the barrels averaged $1.5549, up 4.9 cents.

Higher than expected milk supplies are driving increased cheese manufacturing. Plants across the U.S. have access to all the milk they need -- and then some. Surplus production is leaning towards cheddar production, but the higher production has led to increased retail featuring of cheese, USDA reports.

Jerry Dryer, editor of the Dairy and Food Market Analyst, warned in his March 23 edition that cheese could fall as low as $1.45 per pound and possibly lower. He says the milk supply is overwhelming dairy product demand and exports appear to have "taken a hiatus." He believes product prices will be lower for the next several months, based on the latest Global Dairy trade auction.

Consumption patterns

Warmer temperatures are encouraging ice cream consumption, according to USDA, but for the most part ice cream production remains seasonally limited. Retail butter demand has eased now that most orders for the holiday have been shipped. Suppliers indicate that orders are still occurring for fill-in needs. Retail features across the country are occurring and food service orders have been stronger in anticipation of the holidays, according to USDA.

The CME's Daily Dairy Report says commercial disappearance of American cheese and other-than-American cheese was up in January versus the prior year, based on USDA's Economic Research Service data. At 371.6 million pounds, American cheese was up 17.6 million. Other-than-American cheese totaled 574.4 million, up 26 million pounds from January 2011.

Butter and nonfat dry milk commercial disappearance was off, according to the Daily Dairy Report. Butter, at 117.7 million pounds, was down 12.2 million pounds from a year ago, and nonfat dry milk, at 159.5 million, was off 4.4 million pounds.

USDA also reports that basketball-themed party ads were featuring cheese and sour cream. Advertising plans centered on the St. Patrick's Day holiday however did not include many tie-ins with dairy products. The number of butter ads was lower this period with pricing slightly higher at $2.71 for a 1-pound pack. The number of cheese ads was lower for most sizes, with the exception of 2-pound block packs.

Ice cream features are most common for a single item and many stores are featuring both a national and store brand. This period's pricing level is $3.25, down 6 cents from two weeks ago. Yogurt features and prices are lower this reporting period with pricing for 4-to-6-ounce Greek yogurt and yogurt down slightly.

Fluid milk

I've said it before, the dairy industry's problem is not so much one of overproduction as it is underconsumption, and part of that issue continues to be fluid milk. Tom Gallagher, CEO of Dairy Management Inc., addressed that at the recent Dairy Farmers of America annual meeting.

Dairy Profit Weekly editor Dave Natzke reported in Friday's DairyLine that, for the week ending Jan. 22, fluid milk sales were down 3.9 percent over the previous 12-month period, according to Gallagher, but the retail price averaged $3.90 per gallon, up 11 percent from a year earlier. Commercial disappearance of overall fluid milk was down 1.7 percent, with an increase in consumption of milk in coffee drinks possibly offsetting some of the fluid milk sales decline.

Gallagher said studies for four decades have revealed the "elasticity" in the relationship of the retail milk price and retail sales. Each 1 percent change in the price impacts sales by 0.35 percent in either direction. If the price goes up 1 percent, sales go down 0.35 percent. If the price goes down 1 percent, sales increase 0.35 percent.

The trouble, said Gallagher, is that gallon jugs of milk are traditionally thought of as a commodity. Thus, it's always marketed on price.

"When we treat it as a commodity at retail, so do the consumers, and they buy milk on price," he explained. "Margins shrink, leaving little room for innovation."

"Some of the strongest 'brands' in the world market something that comes out of your tap: water," he said, adding that cereal, soda, toothpaste and laundry detergent are all largely the same, but are not treated as commodities. "They have strong marketing programs by brand."

In dairy politics

The International Dairy Foods Association reports that 25 of their member dairy manufacturers, including some of the largest food companies in the U.S., have called on House and Senate Agriculture Committee members to oppose supply management proposals and adopt a compromise producer safety net in the new farm bill. The manufacturers would be directly regulated under the pending Dairy Security Act, House Resolution 3062, which was proposed by the National Milk Producers Federation and introduced by Rep. Collin Peterson, D-Minn.

IDFA charged that "other commodities have moved to insurance and other risk management tools instead of government price intervention. Not only will dairy exports decline if Congress imposes supply management, but dairy imports will be encouraged, causing problems for future trade negotiations."

"Some groups want to completely eliminate government support for agriculture commodities while others are arguing that government needs to step in and control milk supply to assure high milk prices," said Jerry Slominski, IDFA senior vice president of legislative affairs and economic policy. "We think there is a middle ground where government can help dairy farmers successfully manage their own businesses."

Three taxpayer organizations, Citizens Against Government Waste, Americans for Tax Reform and the National Taxpayer's Union, have also called on lawmakers to oppose the legislation, calling it "an egregious mistake."

In other legislative news, DPW reports that U.S. Rep. Tom Rooney, R-Fla., chair of the House Ag Subcommittee on Livestock, Dairy and Poultry, co-sponsored the bipartisan Preserving America's Family Farm Act, House Resolution 4157, which would prevent the Department of Labor from enacting controversial new restrictions on youth working on family farms.

HR4157 would prevent the DOL from implementing its proposed rules to restrict family farm operations. The new mandates would prohibit youth under 18 from being near certain animals without adult supervision, participating in common livestock practices like vaccinating, handling most animals more than 6 months old, operating farm machinery over 20 PTO horsepower, completing tasks at elevations over six feet high, and working at stockyards, grain and feed facilities.

By the numbers

The March federal order benchmark milk price dropped another 34 cents, to $15.72 per hundredweight, the fourth month in a row of decline, $3.68 below March 2011, and equates to about $1.35 per gallon. The 2012 average now stands at $16.28, down from $16.63 at this time a year ago, and compares to $13.85 in 2010 and $10.18 in 2009.

Looking ahead, Class III futures were trading late Friday morning as follows: April, $15.83; May, $15.53; and June, $15.82; with a peak of $16.75 in October.

The Class IV price is $15.35, down 57 cents from February and $4.06 below a year ago. California's comparable prices were scheduled to be announced April 2.

The four-week, NASS-surveyed cheese price averaged $1.5248 per pound, down 1.6 cents from February. Butter averaged $1.4347, down 3.7 cents. Nonfat dry milk averaged $1.3310, down 4.8 cents, and dry whey averaged 61.07 cents, down 2.9 cents.

Global trade

Cooperatives Working Together accepted 13 requests for export assistance this week to sell a total of 2.84 million pounds of cheddar cheese and 1.884 million pounds of butter to customers in Asia, Central America, the Middle East and Africa. The product will be delivered through September and raised CWT's 2012 cheese exports to 37 million pounds and butter exports to 32.2 million, to 19 countries on four continents.

On a butterfat basis, CWT says the milk equivalent of these exports is 1.044 billion pounds, the equivalent of nearly 60 percent of the 1.780 billion pounds of increased milk production through February 2012.

Butter and cream

Butter closed March at $1.4625, down 6 cents on the week and 52 3/4-cents below a year ago when it fell below $2 for the first time in 2011, though it was a short-lived two weeks before climbing back above $2. No butter was sold the last week of March. The NASS butter average hit $1.4519, up 0.9 cent. NASS powder averaged $1.3043, down 2.2 cents, and dry whey averaged 61.13 cents, up a half-cent.

Dairy Market News says many butter producers and handlers believed the cash price would ease once the Easter and Passover holidays passed. Churning remains seasonally active although some producers indicate that cream supplies are a little less available due to enhanced Class II demand for cream cheese, sour cream, whipping cream and other cream-based products.

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