The butter market is doing what it should be doing (at this time of year), coming down, according to Downes-O’Neill dairy broker Dave Kurzawsi. Speaking in our Wednesday broadcast, Kurzawski said cheese is “a perplexing market.” 

Last week the Class III market held a very substantial discount to the cash market as it rose on unfilled bids, he said, but “This week that skepticism has been erased and people are saying, this is where the price is at right now.”

Kurzawski looks for block cheese to top out at around $1.80 per pound but, “When the selling does come back in, is it going to be enough to push this market down below $1.70” He says it could, considering world cheese prices. Deals are being made at $1.60- $1.65, according to Kurzawski, “So why is Chicago at $1.77? It seems over priced to me right now.”

When asked if exports would return to buoy nonfat dry milk and dry whey prices, Kurzawski said it’s hard to pinpoint when that will happen but it will.  He said that, “If you were a trade analyst in China right now, sitting in a dark room looking at China’s trade data, you would have a hard time believing corn is at $3.50.”

He said there’s still going to be big buyers of commodity products and that will include powder. “Right now that is not the case and things have slowed down on the world stage, Kurzawski explained, “But there will be a demand response to price movement.”

He believes there’s more room to the downside on price according to Kurzawski, and, “As we work through that, maybe three to six months from now we’ll see that demand start to pick back up.”

Regarding 2009 dairy producer hedging strategy, Kurzawski said, with the 2009 Class III average at around $15. “It’s difficult to sell when you feel there’s a hole right here,” he said, but he recommends producers “remain extremely nimble and, if you do sell milk, you might want to have that opportunity to cover that with call options or exit that strategy should the market give you reason to do so.”

“$15 milk is what’s on the board right now,” he concluded, “And in some cases that not such a bad price, given the fact that corn has fallen so much.”

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Cash cheese prices continued to inch higher from unfilled bids Monday while butter continued to head south. The increases in cheese are a contrast to the cheese price that fed Friday’s announced December Federal order Class I base milk price, according to the University of Wisconsin’s Dr. Brian Gould.  

Speaking in Tuesday’s DairyLine broadcast, Gould pointed out that the NASS-surveyed cheese price that was used in determining the Class I base was down 22 cents from a year ago. The Class I base of $15.43 per hundredweight is down $1.90 from November and $4.61 below a year ago.

It’s reflecting what’s going on, not only in the cheese market, according to Gould, but the protein market as well. The NASS nonfat dry milk price which was used for the December 2007 Class I base milk price was $1.91 per pound. This year it was 86 cents, and the dry whey price decreased from 44 cents, to a little less than 19 cents per pound.

These are very significant drops, according to Gould, and the Class IV advanced price was $12.24, a drop from $20.00 for December 2007 and shows the magnitude of those price drops.

The new make allowances didn’t help matters any. Gould reported that, because the Class III was the mover for the Class I value in December, the dry whey price added a negative value to that Class III, based on the federal order formula.

The protein markets appear to be hitting bottom, Gould said. Dry whey seems to be stable at 19 cents and nonfat dry milk’s low is the 80 cent government support price and product is moving to government warehouses. The NASS surveyed nonfat dry milk price is almost there, he concluded.

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U.S. dairy trade has been a bright spot in an otherwise gloomy national economy and Dairy Profit Weekly editor, Dave Natzke, reported in Friday’s broadcast that dairy saw a record-setting fiscal year for trade.

The value of U.S. dairy exports for fiscal year (FY) 2008, which ran from October 2007-September 2008, set a new record high, topping $4 billion. That’s up 63 percent from fiscal year 2007, when U.S. dairy exports totaled about $2.5 billion.

FY 2008 dairy product imports were valued at $3 billion, up just 13 percent from the $2.7 billion imported in fiscal year 2007.

Dairy enjoyed a $995 million trade surplus in FY 2008, according to Natzke. That compares to dairy trade deficits totaling nearly $2 billion over  the previous three fiscal years ($221 million in fiscal year 2007, $895 million in fiscal year 2006, and $866 million in fiscal year 2005).

Through the first nine months of 2008, U.S. suppliers exported 51 percent of all U.S. nonfat dry milk/skim milk powder, 49 percent of the whey proteins, 55 percent of the lactose, 3 percent of the cheese and 14 percent of U.S. butter.

The bad news, he said, is the downturn in the global economy resulting in weaker markets and lower prices and that is starting to have an impact.

September U.S. dairy exports, while valued at $299 million, were down 14 percent from August and the lowest monthly total for the fiscal year. It also makes it less likely that U.S. exports would hit $4 billion for the calendar year.

While cheese exports held fairly steady, September exports of nonfat dry milk, skim milk powder, and butterfat saw the lowest monthly totals for the year. If the trend continues, 2008 will go down as a historical year for dairy trade, he said, “But perhaps one we can’t match for some time.”

The Agriculture Department announces its December Federal order Class I base milk price Friday morning. Downes-O’Neill dairy economist, Bill Brooks, predicts it will come in at $15.51 per hundredweight.

That would be a drop of $1.82 from November and would be $4.53 below a year ago.

We will post the official price here on our website as soon as possible along with the latest Livestock Slaughter data which is also issued this morning.

The October Cold Storage report is released this afternoon. Again, check here for complete details.

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The Agriculture Department announces its December Federal order Class I base milk price Friday morning. Downes-O’Neill dairy economist, Bill Brooks, predicts it will come in at $15.51 per hundredweight.

That would be a drop of $1.82 from November and would be $4.53 below a year ago.

We will post the official price here on our website as soon as possible along with the latest Livestock Slaughter data which is also issued this morning.

The October Cold Storage report is released this afternoon. Again, check here for complete details.

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There is a lot of interest in the Cooperatives Working Together (CWT) program’s latest herd removal effort. CWT Chief Operating Officer, Jim Tillison, reported in Thursday’s DairyLine that “Things are pretty rough out there and, even though feed costs are down, it looks like milk prices are beating them down so there’s a lot of interest in the herd retirement program.”

He’s often asked how many cows will be removed this time and his reply is, “As many cows as people give us good bids for.” He pointed out that the farmer’s CWT money is spent as frugally as possible as “We don’t want to pay people too much for the cows they’re retiring but we want to get as much bang for the buck as possible.”

The deadline for submitting bids is Monday, November 24. Bids must be postmarked by that day and Tillison quickly added that, “Just because you put them in your mailbox outside your dairy, doesn’t mean that the post office is going to get them postmarked on that day so send the bids in as soon as possible,” and he again emphasized that the CWT hopes to remove a good number of cows but it all depends on the quality of the bids.

The CWT committee announced 17 export assistance bids this week.  Tillison said the export business, especially on butterfat, is very strong right now. He reported that, so far the CWT has assisted in the exported over 84 million pounds of dairy products, the equivalent of almost 2 billion pounds of milk, “So it’s a very important factor in the CWT program and, going forward, could become even more important.”

The CWT Committee approved $60 million for export assistance next year because they realize the value of growing the market. Dairy farmers would rather produce milk than retire cows, he concluded, and “That’s what the export assistance is all about, building markets overseas for U.S. dairy products.”

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There’s been a lot of doom and gloom reported regarding the overall economy and what it might mean for dairy demand and dairy prices. Jerry Dryer, editor of the Dairy & Food Market Analyst and chief market analyst for Rice Dairy, acknowledged the struggling economy but said, “It’s not the end of the world.”

There have been some positive factors as well, according to Dryer, such as sharply lower energy prices in the U.S. and dramatically lower feed prices. But he quickly adds that the lower energy prices means less revenue in the Middle East, Mexico, Indonesia, and other oil producing countries so demand for exports of dairy is backing off some.

Domestic dairy demand seems to be “fairly strong,” Dryer reported, though he hears both positive and negative input. Retail sales now are pretty much unchanged from a year ago, he said, whereas they had been below year ago levels through most of 2008. Cheese is selling in “the Wal-Marts of the world,” he said, “and doing pretty well in traditional supermarkets.”

The cheese-friendly menus in food service specifically McDonalds and fast food restaurants are enjoying “very strong sales,” according to Dryer, “So domestic demand is actually in pretty good shape.”

Dryer expects cheese prices to climb some more, maybe just in the next few days, the next few weeks, or possibly the next couple of months, depending how holiday sales fare. Retailers may have to restock for Super Bowl, he said.

On the other hand, Dryer looks for cheese to fall to the $1.40s by the end of First Quarter 2009 and maybe even a tad lower by the end of Second Quarter.

The 1.5 percent gain in October milk production was more than Dryer expected. “Milk producers once again, proved me wrong,” he concluded. “They figure out how to manage their way around higher feed costs and kept production per cow from dropping below a year ago and continue to milk more cows.”

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The cash cheese market inched higher Monday. Downes-O’Neill dairy broker, Bill Brooks, said in Tuesday’s DairyLine that we’ve been running a pattern of establishing lower highs throughout the year and he expects that to be the case. $1.89 was the most recent high in mid October, he said, but it’s likely the current market will reach $1.80 but it’s not out of the question as we are in the holiday period and there’s a lot of uncertainty where we will be.

The market is moving higher, sales are decent, and no one is in any hurry to try and stop the upward movement and as long as the market is being pushed higher, no one is in a tight situation as far as needing to move product so the price will continue to work its way higher but it’s unlikely it will reach $1.80.

Brooks made his comments prior to the release of the October Milk Production report. He expected gains similar to those in September. Weather has been good, he reasoned, and October’s weekly slaughter data slowed quite a bit so it’s possible that cow numbers have also grown relative to September as well and that could put pressure on the market.

When asked about the steady butter price, Brooks said “We’re not selling enough product to push the price higher but we’re not seeing enough being made to push the market down. Brooks reported that he hadn’t seen much retail featuring of butter of late but have actually seen features on margarine but he’s now seeing some sales on butter so hopefully that will move some product.

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We are finally coming to the end of a long, 10-year process on concentrated animal feeding operations regulations (CAFO). Northeast DairyBusiness magazine Managing Editor, Susan Harlow, reported in Friday’s broadcast that the EPA recently issued its final rule that regulates CAFOs. 

Because of a lawsuit there were the two major changes that EPA had to make, Harlow reported. First, only CAFOs that discharge manure into waterways must get water quality permits and second, nutrient management plans, which are required for a dairy to get a permit, are open to public review and comment.

The agency had issued the original rule five years ago but it was delayed because of the court challenge. The original rule expanded the number of CAFOs that have to get water quality permits and added some new requirements for applying manure. The new rule goes into effect next February and there are several webcasts this month to explain the rule.

Harlow also reported that Scott Brown, of the University of Missouri, gave his preview for dairy of the coming year, and “it’s not pretty.” He said 2009 will bring hard times for dairy, speaking during a webinar this week.

Brown said the first six to nine months of 2009 could be some of the toughest of the decade for producers. Milk production has grown too much over the last few years, according to Brown, and “Now with the domestic and world economies in a tailspin and consumption falling off, we’ll be facing lower milk prices and probably higher production costs.”

Brown advises producers to watch the general economy, oil prices, and corn plantings next spring. If farmers plant less corn feed prices will rise again, milk production will shrink in response and keep milk prices from falling too far.

If milk prices fall hard in the first half, to around $15.50 per cwt., Brown says that could mean a faster turnaround in the second half of the year. But if prices level out at $17 per cwt., “The pain will go on a lot longer.”

He forecast an average $17.10 All-Milk price for 2009. And he said he thinks we’ll see an MILC payment in the next few months.

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National Milk President and CEO, Jerry Kozak, wants to go into the upholstery business. Speaking in the Federation’s weekly DairyLine update, Kozak discussed his call at last week’s annual meeting for the dairy industry to chart a new course for the future in five specific areas.  

Number one is immigration reform, something Kozak called an “absolute essential” for the dairy industry.

Second is Federal order reform. “We know that it’s broken,” Kozak said. “Let’s rip the fabric from the chair but let’s keep the framework.”

Third is the Milk Income Loss Contract Payment program and the Dairy Price Support program. Kozak said “They’re not really helping at a time of high input costs. It’s time we reconsider what are really the best safety nets for the future for our dairy farmers.”

Fourth on his list is an aggressive attention to animal health care and environmental initiatives, helping dairy farmers to be well-positioned to take advantage of the growing carbon credit market that will develop.

The fifth area is to expand the CWT program, Kozak said, “Understanding that the financial burden the government is facing is going to give us less and less dollars in the next farm bill and it’s critical we have a self help program.”

It’s a change in paradigm as to how the dairy industry views things and it’s not going to be an easy job but Kozak said “That’s part of leadership.” He said that National Milk “has been in the forefront of maintaining most of these programs and have been the protector of these programs and I think that it’s equally our responsibility to see what’s working and what’s not working and get ourselves organized for the future in the proper way.”

When asked if he had specific proposals to, for example, replace the Price Support program with, Kozak answered, “No I don’t,” but he suggested that there are programs like margin insurance that currently exist for other types of commodities that dairy may want to look at but his goal is to “Get people thinking about how to address the new paradigm and how do we prepare ourselves.”

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The National Beef Board (NBB) has heard the concerns of its dairy producer members and is considering some changes, according to vice chairperson, Lucinda Williams, a Hatfield, Massachusetts producer herself.

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