In this week’s Pfizer Animal Health Vet Visit, Dr. Mark Kirkpatrick continues his discussion on how dairy producers can be more effective with their mastitis treatment.

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Members of the nation’s largest dairy cooperative gathered in Kansas City this week for Dairy Farmers of America’s 11th annual meeting. Dairy Profit Weekly editor, Dave Natzke, reported in Friday’s broadcast that, with the sharp decline in 2009 milk prices, it was difficult for delegates and leaders of the co-op to celebrate. However, 2008 was a strong financial year for DFA, which markets milk for more than 10,000 U.S. dairy farms.

DFA reported revenues of $11.7 billion and record-high net income of $61 million in 2008, according to Natzke. DFA marketed about 61 billion lbs. of milk last year, and paid farmers an average $18.60 per hundredweight, down from $19.38 the year before.

Addressing the sharp downturn in 2009 milk prices, DFA board chair Tom Camerlo said the co-op had implemented additional producer services to help farmers stressed by high production costs. In addition, DFA president and CEO Rick Smith said the co-op will issue member patronage checks early this year to help farmers with cash-flow issues.

DFA suffered through some legal issues in 2008, having been fined by the Commodity Futures Trading Commission (CFTC) for 2004 cheese and milk futures market manipulation, and the revelation that unauthorized payments had been made to former leaders earlier this decade.

Smith said the co-op has gone through a period of “retrenching”, by addressing those issues. He believes all investigations by the Department of Justice, Internal Revenue Service and CFTC have been concluded, and DFA will fight civil lawsuits related to the dairy market manipulation charges, Natzke said, and, by restructuring or dissolving unprofitable joint ventures and writing down debt, Smith said the co-op was well positioned for the years to come.

On a hopeful note, Smith said the US. milk supply/demand imbalance was coming back into alignment and, as the domestic and world economies improve, better financial days are ahead for DFA’s producer members.  Related link

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IDFA and National Milk have filed a citizen’s petition with the Food and Drug Administration (FDA) requesting a modification of the standards for milk and other dairy products to allow the use of non-nutritive sweeteners.

The bottom line, according to National Milk’s Chris Galen in Thursday’s broadcast, is that schools are increasingly trying to use food and beverages that have reduced calorie content due to concern over the obesity rate among kids.

“In order for us to continue providing flavored milk to kids in schools, we have to allow for what are called non nutritive sweeteners,” Galen explained; things that are not sugar or high fructose corn syrup.

They can be used to sweeten flavored milk and still be called milk, he said, but if you use “caloric substitutes” like aspertine or suculose, things that many people use to sweeten coffee or tea, you can’t put them in milk and still call it milk. It doesn’t meet current standards of identity.

NMPF and IDFA is asking the FDA to update its standards of identity for milk to allow these sugar substitutes to be used because many schools have a requirement that what they purchase must fall under the legal definition of milk.

If you’re using these caloric substitutes, you can’t call it milk any more under present guidelines, Galen explained, even though the substitutes are safe and effective in making low calorie milk beverages available to kids in schools.

I asked Galen if we might open the door to something we don’t intend by changing these standards and he answered that “It’s difficult to speculate on what could happen 10 or 20 years down the road but, what we know right now is, that schools are really trying to reduce the caloric intake of the students served by the school lunch program and one of the areas they’re looking at is fluid milk.”

Flavored milk makes up about 70 percent of the milk served in schools, according to Galen, and if it was removed, it would be “a huge blow to that very important market for the dairy industry.”

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Downes-O’Neill dairy broker, Dave Kurzawski, said the Cold Storage data was bearish to the markets in Wednesday’s DairyLine, pointing to the largest increase in stocks of American type cheese in February on record, up 12.5 percent.

He said that indicates that the buying in February was from those finding value in the market but they were putting that cheese into storage not to meet fresh demand. There’s plenty of cheese available, he said, and that’s bearish however “the futures market has not really seen a tremendous decline on that news,” which he said is “somewhat surprising.”

Kurzawski is advising his dairy producers clients to use put options in the second half of the year to provide a floor price under the market, should inflation take hold or demand pick up, it gives them room to the upside although there are some nice prices available in the second half of the year, equating to $1.70 per pound on cheese, as of our recording.

There is the chance that the markets will move up as culling increases and milk production slips but Kurzawski doesn’t see that kind of rally in the next month or two. He said he doesn’t see sustained price strength until cheese eclipses the $1.40 mark.

“We saw a nice uptick in the price. Now we’re going to take it out for a little while, until we start to see that either demand for cheese goes up or the supply of cheese goes down, or both.

IDFA and the National Milk Producers Federation last week filed a citizen’s petition with the Food and Drug Administration requesting a modification of the standards for milk and other dairy products to allow the use of non-nutritive sweeteners. Chris Galen talks about it on tomorrow’s DairyLine broadcast and Select Sires has its weekly “Reproductive Moment” in our second half.

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Many believe Friday’s Cold Storage numbers were bearish for the dairy markets, although Downes-O’Neill dairy economist Bill Brooks, reminded us in Tuesday’s broadcast that cheese prices fell Friday morning before the Cold Storage data was out. The report doesn’t help any, he admitted, because it showed a “pretty healthy gain” in cheese stocks versus a year ago and the five year average.

Total cheese stocks are 100 million pounds above the five year average, according to Brooks, but “The anticipation was that, with prices getting to the $1.30s, we were reaching that tipping point where folks on the buying side would back away because of the value that was there in the pre teen and $1.20s.”

Demand is strong for American style cheese, Brooks reported, as consumers “trade down in their restaurant choices” and consume more processed cheese, which is where the barrels go to. Demand was less for the other than American style, which saw a jump in stocks, he said, but added that demand for cheese has been slow through much of 2008. January numbers will be out later this week, he said, but those probably aren’t going to look any better either.

Brooks attributed the block barrel price inversion to the demand for processed cheese, “something we’ve seen off and on the past couple of years because we don’t have as much barrel producing capacity as we used to have and then you get the demand for processed cheese.” It’s not surprising to have this inversion, he concluded. “It is starting to narrow itself but it’s not back to a positive ratio as there probably still is a demand imbalance between blocks and barrels.”

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This week’s Vet Visit features Dr. Mark Kirkpatrick, dairy specialist with Pfizer Animal Health. “How does an effective sub clinical mastitis protocol lead to higher economic returns for the dairy producer?”

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The April Federal order Class I milk price saw a 93 cent recovery Friday morning as the Agriculture Department announced the base price at $10.36 per hundredweight, but that’s still $8.25 below April 2008. The Class I average so far in 2009 is just $11.56, down from $18.99 at this time a year ago. 

The Class III advanced pricing factor was the higher of in driving the Class I value, and Alan Levitt predicts the MILC producer payment will be around $1.46, not including the feed cost adjustor. 

The NASS-surveyed butter price averaged $1.1211 per pound, up 4.8 cents from March. Nonfat dry milk averaged 81.52 cents, virtually unchanged from March. Cheese averaged $1.2545, up 11.3 cents, and dry whey averaged 16.32 cents, up almost a penny.

U.S. dairy exports have slowed and the fiscal year 2009 dairy trade deficit continues to grow, according to Dairy Profit Weekly editor Dave Natzke, who said it’s a story of bad news and good news. 

January U.S. dairy trade turned in its fourth consecutive monthly deficit, with exports valued at $176 million. With the slowdown in the global economy, exports were down percent from December and, through the first four months of fiscal year (FY) 2009 exports were valued at $883 million, down 33 percent from the same period in FY 2008.

So far in fiscal year 2009, imports are valued at $1.129 billion, up 1 percent, resulting in an estimated FY ’09 trade deficit of about $246 million. However, January 2009 dairy product imports were valued at $231 million, down 28 percent from December. 

The good news, according to Natzke, is that retail dairy product prices are coming down from their record highs. Consumer Price Index data released by the Bureau of Labor Statistics, shows February 2009 retail dairy prices were down 2.4 percent compared to January, and 1.7 percent less than February 2008. February 2009 retail fluid milk prices were down 5.7 percent from January; cheese prices were down 1.9 percent, butter was down 6 percent, and ice cream was down about one-half percent. 

“Based on the milk price farmers receive, there’s still room for retail prices to come down,” Natzke said. Compared to February 2008, fluid milk prices were down 10 percent but cheese, butter and ice cream prices were still higher.

Dairy product prices have been dropping faster than other foods in the grocery store, he concluded, and “combined with retail promotions, consumers can find some dairy product bargains in locations.”

The eyes of the industry are on the dairy markets and on National Milk as to when the next CWT herd removal will take place. Last week we reported that it reached its membership goal of 67 percent of the U.S. milk supply.
 
CWT Chief Operating Officer, Jim Tillison, reported in Thursday’s DairyLine that they needed “adequate participation” to secure the financial resources to “carry out significant herd retirements in the coming months.”  

The 67 percent figure is a minimum figure, according to Tillison, and membership applications continue to come in from individual producers and several dairy cooperatives are considering participating.
 
“The more participation we get, the more CWT can do to turn this situation around that dairy farmers across the country are suffering from,” Tillison said. “Milk prices have fallen through no fault of their own,” he said, “But they, like many others, are victims of what’s happened, not only in the U.S. economy but the world economy as well.”  

When asked when the next herd removal will take place, Tillison said, “Now that we’ve achieved the minimum participation, we’re moving forward with finalizing arrangements for the line of credit that we’re seeking and are taking a hard look at what needs to be done to get something going as quickly as possible.”  

He added that, “If we can get a significant herd retirement underway, relatively soon, we can shorten the time period that dairy farmers are suffering,” and, when you’re losing $3-$4 per hundredweight and you’re talking about six months worth of milk production, that’s a significant impact for producers so we’re moving forward as fast as we can and we’ll be making an announcement in the relative near future.”