Cash cheese prices started the 4^th of July week mixed. The blocks lost a half-cent while the barrels gained a half, but both remain below the government support price. That doesn’t bode well for Class III milk prices but the University of Wisconsin’s, Dr. Brian Gould, said in Tuesday’s DairyLine broadcast that there is at least one positive trend in dairy commodities, specifically dairy protein.

Dry whey prices, as reported weekly by the National Agricultural statistics Service (NASS), have seen a steady rebound since the middle of February, he said, climbing from a February 7 low of 15 cents per pound, to a June 20 high for the year of 27 cents, an 80 percent increase. He added that the 27 cent price level compares very favorably to the international price which is about 28 cents per pound, FOB Europe.

Furthermore, dry whey exports, in contrast to other dairy commodities, saw their second best quarter ever in pounds removed in first quarter 2009, so “It’s been a very very positive part of the dairy side.”

Concurrent with that and, one of the reasons for those higher prices, is that manufacturer stocks of dry whey are significantly below a year ago, according to Gould. Looking at April, for example, dry whey stocks amounted to 48.8 million pounds, he said, down 15 percent from April 2008 and, since December 2008, we had a steady decline in end of month stocks, to the tune of 25 percent since December.

“I know cheese prices aren’t the best,” he concluded, “But the whey is starting to recover and the futures market looks very positive for whey and that helps the Class III price.”

Dr. Doug Braun, Pfizer Animal Health, continues his discussion on vaccines. This week, Dr. Braun discusses USDA’s role.

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Dairy Profit Weekly editor, Dave Natzke, explained in Friday’s DairyLine broadcast that the Dairy Export Incentive Program (DEIP) pays cash bonuses to exporting companies, subsidizing the sale of U.S. dairy products to foreign buyers at prices less than cost, and enables U.S. companies to compete in global markets where other countries may be subsidizing their own dairy product sales.

Dairy producers are also beef producers, according to Lucinda Williams, Hatfield, Massachusetts dairy producer and chair person of the Beef Board in Wednesday’s broadcast. Listen Here:

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She said dairy producers need to know what the beef checkoff does for them. Currently 13 dairy producers serve on the Beef Board, she said, and 20 percent of the total beef supply comes from dairy breeds.

Beef may make up only 6-8 percent of a dairy’s annual income, but dairy does play an important role in the beef industry, Williams said, because dairy cull cows and bull calves eventually go into the beef supply chain and dairy producers need to be aware of all the great things their beef checkoff dollars are accomplishing.

Dairy beef is more than just ground beef, Williams said, and research shows that 44 percent of the muscle from dairy animals is used for steaks, roasts, filets and strips. Since 1998, more than 2,500 new products have been created, according to Williams, such as the Flat Iron Steak which quite often uses dairy beef.

Checkoff-funded foreign marketing efforts also help build beef demand overseas, according to Williams, where 94 percent of the population lives. “Producers can’t be everywhere,” Williams concluded, “But your beef checkoff can.”

John Ellsworth, Success Strategies Inc, asks the question – who are you?

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Cash dairy product prices were unchanged in the first day of trading in the fourth week of June Dairy Month and, if cheese prices stay very long below the government support level, particularly the barrels, we could begin to see product move to Uncle Sam under the price support program, according to the University of Wisconsin Emeritus Professor, Dr. Robert Cropp. Speaking in Tuesday’s broadcast, Cropp said the cost to sell to the government makes some plants reluctant to sell to the government, but it could happen. 

The recording was made prior to the release of the May Cold Storage report but Cropp said milk production will have to fall below year ago levels before cheese prices will start to climb, due to the lower demand of the domestic and world market. The May production data showed that output is holding, he said, and there’s plenty of cheese in storage and enough to meet current demand so buyers have to be convinced that things will get tighter as we move into the summer and fall demand period. 

That will happen, Cropp predicted, and he expects milk production will fall below year ago levels in the next report as cow numbers fall due to CWT and that should trigger an increase in prices. 

Reports continue to surface that dairy farmers will dump milk in protest of the low prices but Cropp questions the success of doing so because it’s usually done by a very few farmers for a short period of time. It would have to be national to have much impact, he said but he admitted that it does “demonstrate the depressed prices and the financial conditions that some farmers are facing.”

This week’s Pfizer Vet, Dr Doug Braun, Pfizer Animal Health, continues his topic of vaccine labels.

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Dairy Profit Weekly’s, Dave Natzke, attended the sixth annual FC Stone/Downes-ONeill Dairy Outlook Conference held this week in Chicago and he reported in Friday’s DairyLine broadcast that, as in the past, the conference covered a wide range of topics affecting agriculture and dairy farming, either directly or indirectly.

Dennis Gartman, editor of the Gartman Letter, who provides economic and stock market analysis on cable television, had good news regarding the general economy, saying we should see improvement in the fourth quarter of this year, with housing starts and automobile sales improving next year. He said that a better general economy should boost domestic dairy sales.
 
Climatologist Drew Lerner forecast a cooler and wetter-than-normal growing season this summer, with things drying up this fall, improving harvest conditions and helping ensure strong crop yields, which is good news for dairy farmers buying feed, according to Natzke.
 
Bill Brooks provided an update on the domestic dairy market and predicted the U.S. will average about 9.2 million milk cows in 2009, down from 2008 but well above the 8.9 million needed to meet current milk production demands. Based on current milk and feed prices, Brooks warned that dairy producer margins, which are very poor this year, won’t return to more favorable levels until July or August of 2010.

Dairy product inventories will continue to hold down dairy prices, Brooks said. Based on current inventories and consumption estimates, inventories of U.S. total cheese stand at about 32 days of use, with butter inventories at 45 days, and nonfat dry milk supplies at 100 days.
 
Ken Bailey, former Penn State dairy economist who has joined FC Stone-Downes-O’Neill on a full-time basis, offered a look at the global market, saying that milk production in major exporting countries is stagnant, and that both the European Union and United States will export less this year. Stockpiles of butter and skim milk powder will depress world prices, according to Bailey, who looks for a rebound in trade and prices in 2010 and 2011.

The July Federal order Class I base milk price was announced this morning by USDA at $10.26 per hundredweight (cwt.), up 18 cents from June, but a whopping $10.52, less than half of what it was in July 2008. The 2009 Class I average now stands at $11.08, down from $18.79 at this time a year ago.

The MILC payment should be about $1.54 per cwt., according to market analyst, Alan Levitt, plus a feed cost adjustor of 25 cents per cwt.

The Class IV advanced pricing factor remained “the higher of” in driving the Class I value.

The NASS surveyed butter price averaged $1.2187 per pound, up 1.4 cents from June. Nonfat dry milk averaged 84.43 cents, up 1.3 cents. Cheese averaged $1.1459, down a penny, and dry whey averaged 26.49 cents, up 3.3 cents.

Some blame dairy imports, particularly milk protein concentrate (MPC) for the low dairy prices but National Milk’s, Jim Tillison, argued in Thursday’s broadcast that’s not a legitimate claim. He reported that, through April 2009, USDA data shows MPC and caseine imports are down about 27 million pounds from a year ago and total dairy imports are down by about 47 million pounds.

The real issue is exports, according to Tillison. U.S. dairy exports in the first four months of 2009 were down 267 million pounds from a year ago. Butter exports were down 57 million pounds, nonfat dry milk was down over 170 million, and cheese exports were off 6 million pounds.

“The export market has gone away for all intense and purposes,” Tillison concluded. “When you have 267 million fewer pounds of U.S. dairy products being exported; that’s a significant number for just four months of the year.” He said it’s a combination of a bad U.S. economy and a bad world economy.