The National Milk Producers Federation has again called for government help for dairy farmers plagued by falling prices. The Federation called on Congress and President Obama to focus immediately on the dairy crisis, according to Chris Galen, in Thursday’s broadcast, stating that they are very concerned about where prices are and where they’re going.  

You’ll recall two weeks ago that Galen reported on a letter sent to outgoing Agriculture Secretary, Ed Shafer, calling for more aggressive help to deal with the collapse in dairy product prices. The letter contained a list of recommendations by National Milk.

One of the most important acts, Galen said, is to improve the ability of manufacturers to sell cheese to the Commodity Credit Corporation (CCC) under the price support program. The reason cheese prices have fallen below the government support price, he said, is that companies are choosing to sell to the commercial market at a lower price rather than going through the hassle of selling it to the USDA.

National Milk has called on USDA to alter its grading and packaging standards so it’s easier for companies to sell product to the CCC at a higher price. The Federation also called for increased purchases of dairy products for government domestic and international feeding programs and to resurrect the Dairy Export Incentive Program, which hasn’t been used for five years.

I asked him about the rumor that was circulating in Washington last week that the so-called stimulus package being crafted in Congress would include a government-sponsored dairy herd buyout program. Galen said that, whenever you have a bill of such magnitude (over $800 billion) to spend, you have just about as many opinions as to where that money should be used.

NMPF is not seeking that, Galen said, but remains focused on utilizing its own six-year old, CWT program and is not looking for a government run program.

The Federation also initiated legal action last month to stop USDA from selling nonfat dry milk through a third party that could have resulted in prices lower than those specified in the price support program. As reported last week, the Department has announced that it will not proceed with this plan.

The new Agriculture Secretary, Tom Vilsack, has only been on the job for a week, Galen said, and is just putting together his team, “so we need to cut him a little slack, on the other hand, a lot of these decisions could be done by people who are not political appointees at USDA and we really think that they need to get moving on these things because it’s apparent that we’re in for a period of low prices, prices are below the price support level right now for cheese and something needs to be done to turn the situation around.” Click Here for more Dairy News

The block and barrel cheese price spread narrowed Monday, with blocks inching up a penny and a half, to $1.09, while the barrels held at $1.10. Barrel is at the government support level but the blocks are still 4 cents below.

Dr. Brian Gould, of the University of Wisconsin at Madison, said in Tuesday’s DairyLine that there’s still a lot of uncertainty in the market and, while there have been up ticks in the block price the past week or so, the price has come back down as well. He said he’s waiting for some consecutive upticks and is not sure when that will take place.

Turning our attention to the plunge in the February Federal order Class I base milk price, Gould stated that the fall will trigger a Milk Income Loss Contract Payment (MILC) to producers of at least $1.34 per hundredweight, not factoring the feed cost adjustor.

He said the University uses Friday’s futures markets to update projected upcoming MILC payments and calls for an MILC payment of $1.43 for February, $1.69 for March, $1.71 for April, and $1.56 for May. As of January 23, their projections show six consecutive months where the MILC payment will be at least $1, he said, and show a payment for every month except December. Producers are invited to log on to the “Understanding Dairy Markets” website at http://future.aae.wisc.edu/ for complete, updated details.

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Dairy Management Incorporated’s, Joe Bavido, detailed what is called the “Life Cycle Assessment Survey” (LCAS) in Monday’s “DMI Update.” He reported that the dairy industry is working collectively on a major initiative to measure greenhouse gas emissions involved in the production of milk, from the farm to the consumer’s table.

Bavido called the effort “critical” to the industry’s ability to respond to changes in the consumer and retail marketplace, as well as to “protect our industry from undue regulation.”

Dairy processors have already completed an extensive survey detailing their greenhouse gas emissions at the plant level, according to Bavido, and now a detailed survey of dairy operations across the U.S. will be conducted to “accurately measure the current carbon footprint involved in producing milk.”

About 1,000 returned surveys are needed, he said, for a statistically valid analysis and DMI and National Milk are working with participating cooperatives to “make this happen.” The surveys will be mailed out by the co-ops in late January.

The survey is being conducted by a University of Arkansas research team that specializes in LCASs of agricultural production, will be coded, and will not show the name of the individual farm. All information will be confidential, Bavido said, and will become part of a national pool of information that will help determine energy use from the farm to the table.

The survey will ask basic information such as herd size, crop production, manure management, on-farm energy use, and other practices affecting greenhouse gas emissions and a technical support line will be made available for producers to call to get answers to any questions about the survey.

Bavido urged listeners to complete the survey as soon as possible, if they receive one, because “It is critical to sustaining our industry.” Want More Dairy News? Click Here!

The Agriculture Department announced the Class I base price this morning at $10.72 per hundredweight, down $5.02 from January and a whopping $8.96 below February 2008. Let’s see if the major media reports this plunge to consumers as aggressively as it does when prices go up.

The Class III advanced pricing factor remained “the higher of” in driving the Class I value and there was no word on any MILC payment. Obviously the $10.72 base is well below the $13.69 trigger but the new additions to the program, such as the feed cost adjuster, makes it difficult to know what the MILC payment to producers will be until USDA announces it and it remains to be seen when that will happen.

The two-week NASS-surveyed butter price averaged $1.0914 per pound, down 23.5 cents from January. Nonfat dry milk averaged 83.33 cents, down 1.3 cents. Cheese averaged $1.2895, down 50.9 cents, and dry whey averaged 17.01 cents, down from 17.16 cents. Click Here for more dairy news

While it’s hard to imagine 2008 as “the good ’old days,” that may have been what it was as dairy farmer gross income and U.S. dairy trade were strong, according to Dairy Profit Weekly editor, Dave Natzke, in Friday’s broadcast.

One of the measures of dairy income is the pounds of milk produced by each cow, multiplied by the milk price. The good news, according to Natzke, is that cows earned their wages for most of 2008.

Based on his preliminary calculations, the average U.S. cow produced about 20,460 pounds of milk last year, and the average all-milk price will be about $18.35 per hundred pounds. So, each of the 9 million- plus cows in the United States earned $3,750 in 2008, down slightly from 2007.

Keep in mind, this is gross income, Natzke said, and the extremely high energy and feed costs have to be factored in, so 2008 net income will be sharply lower.

Looking 2009; Natzke said we can expect milk production per cow to remain  fairly steady, but USDA’s all-milk price forecast is somewhere around  $12.20 per hundred pounds. That means average gross income will be less than $2,500 per cow. A $1,250 decline per cow from 2008 means  U.S. dairy farmers’ 2009 gross income could be down about $11 billion from 2008.

On the international scene, 2008 U.S. dairy exports will set a new record and likely top $3.8 billion. Dairy will enjoy a healthy annual trade surplus, but that was shrinking as the year ended. November trade resulted in the second consecutive monthly dairy trade deficit, and most experts predict a weak global economy will stunt exports for much of 2009. Want more Dairy News? Click Here

Some proposed new standards of identity for yogurt could be problematic to dairy producers, according to National Milk’s Rob Byrne. Speaking in Thursday’s DairyLine, Byrne said that the National Yogurt Association petitioned the Food and Drug Administration in 2000 to change the standards.

Bryne admitted that some of the changes were needed, to modernize and allow for technical advances but there were a number of issues in the ingredients standards that, he said, need to be kept so “appropriate dairy ingredients” will maintain a quality and identity of the product as consumers know it.

Some ingredient allowances in the proposal would mean usage based on availability, he said, but National Milk didn’t want to see too many changes to that such as allowing the use of milk protein concentrates that might be imported or allowing too much whey to get into the product.

Maintaining basic quality is the Federation’s primary concern, according to Byrne, who said that the standards are there to protect the product and to protect consumers from getting “a cheap product” in the market place.

The use of other ingredients above and beyond the basic ingredients is included, Byrne said, but the basic minimums on milk, skim milk, cream, etc. need to be kept. Manufacturers can use other ingredients based on functionality or technical reasons, he said, but have to be above and beyond what the minimums provide.

This is just a proposed rule, Byrne said, so there are 75 days to comment, and at the end of March, FDA will review the comments and publish the final rule at some point in the future so there won’t be any immediate changes. Want more Dairy News? Click Here

DairyLine listeners got a broader look at the U.S. economy in Wednesday’s broadcast from Bruce Scherr, Chairman of the Board and Chief Executive Officer of Memphis-based Informa Economics, Incorporated. Scherr was the key note speaker at last week’s Dairy Forum in Orlando.

Scherr cautioned that it’s very easy to “be caught in the moment and feel like the economy is never going to turn especially given the press accounts.” He admits that the U.S. is in the midst of a very serious recession, probably the longest, but not likely to be the deepest, since the depression of the 1930s.

He believes we are about half way through and, by the end of summer, we’ll have run the course of a 22 to 23 month recession. The key thing for the dairy industry, agriculture, and the economy in general, he said, is that most economists are looking at a maximum of 8.3-8.5 percent unemployment.

“The trick,” he said, “Is to put people back to work and as they do, the economy will slowly improve but most importantly for the food sector is that, when people are working and have a more positive view of the future, they’re going to spend more and we will see a resumption in the economic growth.”

He doesn’t see dramatic growth and said it will be slow, but there is an enormous amount of policy initiatives underway, both through the stimulus package making its way through Congress in the next one to two weeks and as the new administration takes hold. The second stage is global infrastructure expansion.

We’ve seen that growth the last decade or two in China, India, and Brazil, he said, and they will continue to grow but so will the U.S., Europe, and other industrialized countries around the world.

“That will be quite a dramatic boost, along with improved banking situations,” Scherr said, which he also feels is on the brink of experiencing. There may be bumps in the road, he warned, but there have been lots of policy initiatives.

“There’s a lot of liquidity available,” he concluded. “There’s going to be a surge of policy to grow the economy, and that’s good to bring people back to work and, once people are back to work, it’s positive news for the food sector and the economy in general.”

Some proposed new yogurt standards could have been problematic for dairy farmers, according to National Milk’s, which lobbied the Food and Drug Administration on the issue. Rob Byrne has details on DairyLine’s “Capitol Hill Update,” tomorrow and Select Sires has its weekly “Reproductive Moment” in our second half.

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Market analyst Mary Ledman, Principal of Keough Ledman and Associates in Libertyville, Illinois, said in Tuesday’s DairyLine that she was surprised that Friday’s Milk Production report showed more cows were added in December but explained that the all-milk price in November was strong so that carried into December, but she pointed out that 20,000 cows have been added to the nation’s dairy herd since October and “That doesn’t give those in the corporate buying seat any worry that we’re going to run out of milk any time soon.”

She added that “The signal is out there to producers who are watching the market place,” but based on conversations she has had with producers, culling is now being stepped up and that should be reflected in the January and February Milk Production reports but even more so in April and May, “Because those producers who are not watching the markets are probably going to be stunned in March with all milk prices less than $12.00 per hundredweight.”

Ledman admitted that cheese prices ended last week on an up note, but then the Milk Production report was issued that afternoon and “those increases might be difficult to maintain.” She said she’d like to see prices move above support but “that’s going to be a struggle as long as we keep adding cows.”

When asked if she thought cheese would start moving to the government, she said the economic signals are present to do that because, “If you take a CME price of $1.10 per pound and subtract 5 1/2-cents from that, you have the West Coast price for cheese.”

“When you start looking at those types of differences, you would think there would be some cheese moving to the government,” Ledman said. “It’s always been a struggle to get cheese to the government but the longer that we stay here at this price level, it’s going to cause cheese to move to the government.”

The butter situation is much the same, according to Ledman. With a CME price of $1.1050, you have a West Coast price of $1.05, “So whenever the market is less than $1.1050, you can see why West Coast butter will move to the government.” She adds that “We haven’t had the same rejection level of moving butter to the government as what we have with cheese in the past.” Click Here for more dairy news.

Members of the nation’s largest dairy processor organization, the International Dairy Foods Association (IDFA), gathered in Florida this week for their annual Dairy Forum. Dairy Profit Weekly editor, Dave Natzke, was there and reported Friday that the overriding theme was echoed by IDFA CEO Connie Tipton, who compared the current state of the dairy industry to the recent presidential election; “Voters wanted change and consumers are telling the food and dairy industry they want change, too.”   

Tipton told the record crowd that consumers want to know how and where food is produced, they want healthier foods with limited added ingredients, they link “processed” foods with obesity, and they want food companies to help solve society’s issues such as global warming and sustainability.

Tipton said current economic conditions are trapping dairy processors in an environment of extreme price volatility, Natzke said, and repeated IDFA’s long-held opinion that the federal milk marketing order system must be overhauled.

She warned that a proposal to expand the Country-Of-Origin Labeling (COOL) law to dairy products would create hardships for processors who use multiple ingredients from multiple sources and produce products in multiple batches.

Tipton and other Dairy Forum speakers said improving the nation’s economy will likely dominate the Obama administration and congressional action for much of 2009, leaving little time to address federal dairy issues.

On a positive note, Tipton said yogurt held tremendous growth potential for the U.S. dairy industry; the proliferation of U.S. restaurants worldwide, a reversal of the current downturn in the global economy, and new trade agreements would benefit the U.S dairy foods industry, according to Natzke.

Other dairy Forum topics covered food safety and traceability, labeling, new innovations, and a dairy industry initiative to identify dairy’s carbon footprint from the farm to the grocery store.  

“Given the state of the economy, the tone of this year’s forum was much more open to technology applications in the dairy industry as a way to address dairy food availability and affordability,” Natzke concluded, and said he would address some of those topics in future reports. Click Here For More Dairy News

While good news for dairy farm profitability is hard to come by these days there was some on the feed front, based on Monday’s Crop Production report, according to Downes-O’Neill broker Dave Kurzawski in Wednesday’s broadcast.

He said the report was “very bearish,” as ending stocks were raised to 1.79 billion bushels, up from December’s estimate of 1.474 billion, and the production estimate was raised from 12.02 billion to 12.1 billion so “We are in a demand bear market.”

The USDA also reduced projected ethanol demand by 100 million bushels and 50 million bushels from feed and export demand and Kurzawski said “The market has been overdone on South American weather concerns.”

He added that grain farmers are likely thinking, “If I get a shot at $4 again on the front month contract or a shot at $4.50 on the new corn contract, I’m going to sell some corn so I think we’ve put a ceiling on the market, at least for the time being prices should fall on the grain side.”

Is it enough to offset falling milk prices? Kurzawski says “Not yet but it’s a hopeful situation.” He warned that we will have “somewhat inflated corn prices,” as he doesn’t see prices falling below $3.00 a bushel, “So we will need to see the Class III milk price come up to put these guys back in a situation where they can be profitable but we’re still a far cry from that.”

Kurzawski’s risk management advice is to look at some options strategy for the second half of 2009, otherwise, “Just sit tight if you haven’t sold anything and not be a seller into this market at this point in time,” Kurzawski concluded. “It’s ready for a correction to the upside, it’s just going to take some time to work through some of the cheese inventory that we have.” Read more Dairy News Here