Archive for January, 2009

Bargain Prices for Cheese Buyers

Cash block cheese saw more strength Monday, up a penny and a quarter, while barrel was unchanged. Alan Levitt, editor of the CME’s Daily Dairy Report, said in Tuesday’s DairyLine that buyers are just picking up bargain cheese as it’s a good opportunity, relative to where prices have been but no one sees this as the start of a new bull market or a big rally.


Prices remain at six year lows, according to Levitt, and even though Uncle Sam has a standing purchase price of $1.13 on block and $1.10 on barrel, it doesn’t mean manufacturers automatically sell to the government because of the additional costs involved in packaging, grading, and other conditions that take more time and costs. USDA also changed the rules, Levitt said, and no longer buy processed cheese so that’s one less variety we can take off the market.


The last time the government purchased cheese under the price support program was in 2002 and 2003 and in the summer of 2002, cheese prices fell below support in the middle of June and it wasn’t until five weeks later that the first loads of barrel cheese moved to the government and it wasn’t until two weeks after that, that blocks started moving.


And even though there was a 10 month period where blocks averaged $1.13, it was below support much of the time, according to Levitt, and only 14 1/2 million pounds of block and barrel was actually sold to the government. “For whatever reason, manufacturers don’t see the government as a viable option,” he said, “And don’t tend to move a lot of cheese to the government.”


Levitt also reported that the Agriculture Department, in its latest World Agricultural Supply and Demand Estimates report issued this morning, projected that it will purchase 320 million pounds of nonfat dry milk, 20 million pounds of cheese, and 5 million of butter so that will hang over the market for much of 2009.

Slumping economy changing dairy buying habits

The slumping U.S. economy is changing dairy and food buying  habits of retailers seeking to reduce procurement costs and consumers seeking to reduce overall food spending, according to Dairy Profit Weekly Editor, Dave Natzke.

Reporting in his Friday DairyLine broadcast, Natzke said that, even though food price increases have slowed recently, the latest Consumer Price Index from the Bureau of Labor Statistics indicates 2008 food price inflation will be the highest in decades. Combined with concerns over personal income and wealth, those factors are changing the way consumers spend money on food, Natzke said.

Economists speaking on a recent Rabobank agricultural outlook webinar noted that, beginning in about 2003, U.S. consumers were willing to spend more on premium food items, both at home and when eating out in restaurants. However, beginning with the economic downturn in 2008, that’s changed 180 degrees.

The economists said spending on food eaten away from home, as a percentage of the total food budget, is at its lowest level since 1991.

“Consumers are turning away from mid to premium-priced restaurants and toward lower-priced restaurants, and lower-priced menu items,” Natzke said. The trend is similar for food eaten at home, as consumers are shopping at discounters, such as Wal-Mart, Kroger and Costco, and away from the traditional grocers. And, they’re seeking cheaper food items, such as lower quality cuts of beef and store-label products, in order to maximize food value for their money.  

The impact is going further, according to Dennis Erpelding, Elanco manager of government relations, public affairs and communications. Grocery store food buyers are looking for ways to reduce procurement costs, according to Erpelding.

“We’ve all heard of the move toward sustainability, when production and buying decisions are based on the three-legged stool of economics, environmental and social issues,” says Erpelding. “Food buyers are again putting more emphasis on cost and affordability to meet changing consumer demand.”

MILC Payments Begin in February

Dairy producers will see some help from the government in the form of payments from the Milk Income Loss Contract Program (MILC) beginning in February.

National Milk dairy economist, Roger Cryan, predicts some pretty significant payments ahead and he reported in Thursday’s broadcast that the Agriculture Department issued its rule on the program on December 4. Signups began on December 22 at Farm Service Agency offices across the country.

We have outlined some of the changes in the MILC program in previous broadcasts and columns. One of them is a feed cost adjuster and the calculation of the payments was changed resulting in an increased payment by about a third.

The cap on eligible milk was raised from 2.4 million pounds to almost 3 million per fiscal year, according to Cryan. Producers with over a half million dollars in non-farm adjusted gross income will not be eligible for MILC payments, he said, but there are no limits on on-farm income, which USDA now defines more broadly to include on-farm processing and farm related services.

Because of the timing of the crash in dairy prices and growing milk output, larger producers have the potential to cap out after just a few months so they will want to choose which months they want to receive payments very carefully.

Based on high feed prices and falling milk prices, Cryan said he could almost guarantee there will be a payment in February, the first one since February 2007.

As of January 5, Cryan projects that MILC payments will average about $1.10 per hundredweight for the last eight months of this fiscal year and that figure is about 25 percent more than if there were no feed cost adjuster, a provision he said National Milk lobbied for in the Farm Bill.

Farmers who sign up by the end of February can choose to receive payments beginning in February but, if you think you might produce more than the 2.9 million pound limit in the eight months February through September, he advises you to consider carefully which start month will give you the biggest pay out.

Cryan’s MILC projections are posted here  and he says they will try to update them weekly. The highest payment will be in March, according to Cryan, but he cautions that they are only projections and are subject to the fast changing markets. Click Here for more Dairy News

Changing of the Guard in Washington

DairyLine listeners got a preview of the changing of the guard in Washington in Wednesday’s broadcast from Jerry Slominski, Senior Vice President of Legislative Affairs for the International Dairy Foods Association. He said that many in the dairy sector are asking what the new Obama Administration will mean for the industry.


“Barack Obama was elected on a promise of change,” Slominski said, “And judging by his cabinet selection, he is serious about delivering on this promise with the economy, health care reform and energy policy,” but he added the caution; “It may be too early to tell what , if any, significant changes we can expect in dairy policy.” 


Slominski pointed out that outgoing Secretary of Agriculture Ed Schafer, who replaced a former governor of a Midwestern state, is the former governor of a Midwestern state, and incoming Secretary, Tom Vilsack, is the former governor of a Midwestern state.”With their shared roots, we may not see a major style or policy difference in the leadership at USDA,” Slominski warned.


“Governor Vilsack enjoys a well-deserved reputation as a political moderate who balanced Iowa’s state budget,” Slominski said, “But he will face few greater challenges than guiding a dairy industry that has been rapidly changing and that will likely continue to change regardless of who is in the Oval Office. 


President-elect Obama has tapped former Dallas Mayor Ron Kirk to replace Susan Schwab as the U.S. Trade Representative. Much like his predecessor, Mayor Kirk has been a consistent advocate for free trade, according to Slominski, but “As shown by the recent decline in dairy prices, it is clear that our industry will not be immune from the worldwide economic downturn.”


Because the Pacific Rim is a target region for the U.S. dairy exports, Slominski said they are encouraged that Mayor Kirk has supported normalized trade relations with China and hope that Kirk’s nomination is a signal that the Obama administration is placing a high priority there as well. 


“So far, President-elect Obama’s Cabinet selections in agriculture and trade indicate a pragmatic, moderate, approach to governing, Slominski concluded. “Speaking for the members of the International Dairy Foods Association, we hope that these new leaders will change what needs to be changed but also that they stay the course when that is the best direction to take.”

Dairy producers are signing up at their local farm service agency offices for the milk income loss contract program. National Milk is forecasting some significant milc payments starting this spring; which means that larger producers that may cap out after just a few months, and will want to carefully decide which months to choose to receive payments. CLICK HERE FOR MORE DAIRY NEWS

Cash Cheese Falls Below Government Support Level

Cash cheese prices fell below the government support level Monday, something that happens because it does cost manufacturers to sell product to the Commodity Credit Corporation (CCC).


The cheese has to meet grade, explained Downes-O’Neill dairy economist, Bill Brooks in Tuesday’s DairyLine. There’s a delay in getting paid for the product, he said, and the manufacturing process itself may be an issue as they have not been specifically making product for sale to the government under the price support program so the product that is being made is not eligible to be sold to Uncle Sam at this point so the price keeps going down under it can find a home.


It’s hard to say how low it will go. Brooks pointed out there’s been such a quick turnaround, having come into December at over $1.80 per pound and left December and begin the new year below support. There isn’t much downside price risk, he said, but blocks have fallen below $1.00 a pound and “hopefully that doesn’t happen but that is a potential.”


Cash Grade A nonfat dry milk dropped 2 cents Monday, to 83 cents per pound and two sales occurred, something Brooks called “surprising,” considering powder has been moving to the government at 80 cents per pound. This is the first sale since early October, he said, and “Not surprising that the price would go down but a little surprising that there would be some sales occur in that market that will continue to work its way down to that 80 cent level.” CLICK HERE FOR MORE DAIRY NEWS


A Look Back at 2008

DairyLine’s first program of 2009 featured National Milk’s Chris Galen with a look back on 2008. He said that 2008 will go down in the books as a year dominated by politics and economics and predicted 2009 would be more of the same.


Last year was a good year overall for dairy farm prices, he said, although 2008 ends on a down note for dairy product prices and 2009 will begin with prices being very low.


The silver lining, according to Galen, is the steep drop in input costs, especially on feed and oil prices being reflected at the gas pump. Hopefully, they’ll be reflected in lower fertilizer and farm chemical costs in 2009, he said.


“The big story in 2008 was the economy, both domestically and internationally,” Galen said, and as 2009 starts, we’re going to have a new administration in town and a new Congress and their first order of business is to develop a massive stimulus package designed to get the U.S. economy going.”


National Milk wants to work to make sure that agriculture’s interests are addressed as part of that stimulus package because what’s good for the economy overall will certainly be good for dairy farmers down the road.


Galen predicted that the economy will be the big story in 2009 and a lot of it will be played out in terms of politics of winners and losers and who gets the best deal in the coming stimulus package and we want to make sure that dairy is at that table as well.


Economics will play a big role worldwide and will impact the export markets, Galen said, which has had a huge influence on dairy’s bottom line the last couple years and that has turned around but anything we can do to stimulate not just the U.S. economy but the world economy will be good for our export capabilities and will be good ultimately for dairy farmer’s prices. Click Here For More Dairy News