Gary Sipiorski, Dairy Development Manager for Vita Plus in Madison, Wisconsin, continues his series in PDPW’s “Your Bottomline” Podcast.
Archive for December, 2010
The hemorrhaging continues in the cash cheese market where the blocks dropped to $1.3350 on Tuesday and yet the CME’s Daily Dairy Report says U.S. cheese exports are topping imports this year for the first time in USDA records dating back to 1970.
Downes-O’Neill dairy broker Dave Kurzawski is bullish on cheese and admitted in Wednesday’s broadcast that cheese is under a lot of pressure but the Oceania Cheddar price is at $1.90 and that “gapping hole” plus the weak dollar is attracting U.S. cheese and it may be cheaper to produce some of the cheese that is normally imported here in this country.
The market will work it out in 2011, according to Kurzawski, and ultimately the U.S. price of cheese will be headed back up but the calendar will probably roll into the New Year before that happens.
Reports and concerns over drought in part of New Zealand is also a factor but that’s probably not been priced in yet, according to Kurzawski, and the possible passage of a free agreement with South Korea is another factor.
Kurzawski said the cheese coming to the Exchange in Chicago right now is more inventory management as the end of 2010 approaches. He believes the cheese price is within pennies of the bottom and that buyers will respond at this level.
Cash block cheese took a 3-cent hit in the first day of trading this week, falling to $1.36 per pound, while the barrels inched up a quarter-cent. Market analyst Alan Levitt reported in Tuesday’s DairyLine that cheese prices are at the lowest level since mid June, holiday pipelines appear close to being filled, First Quarter 2011 milk futures are hitting new lows, cheese production is still heavy, and inventories continue to weigh on the market
It’s sounding dire, he admits, but there is reason to be encouraged. Prices of the other commodities seem to be well supported, according to Levitt, and the world market remains firm as international prices are mostly steady with the exception of a small softening on butterfat.
Oceania milk production is past its peak, Levitt reported, and weather issues are keeping milk output from reaching the levels hoped for so buyers are a little nervous about getting what they need in 2011so they’re buying a little more aggressively and that’s showing up in other commodities.
Butterfat remains tight globally and the spot butter market keeps getting bid higher as it moved up a penny on Monday, to $1.63, and cash Grade A nonfat dry milk jumped 3 1/2-cents, to $1.27, on two sales.
The global powder market seems pretty firm, Levitt concluded, both nonfat dry milk and whey seem to be well supported, supplies are not excessive even though powder production is increasing seasonally, “there’s just this sort of sense that the bottom is at hand or close and that, in 2011, things may be a bit tighter.”
U.S. victories at the World Cheese Awards are transforming the way the world views the U.S. dairy industry. Amy Foor, of the U.S. Dairy Export Council, talked about this year’s exciting results in Monday’s “DMI Update.”
“Once again, U.S. manufacturers made a splash at the World Cheese Awards,” Foor said. Judging took place in Birmingham, England and 29 U.S. cheese artisans came home with 79 medals, including two in the new “Super Gold Medal” category and 12 other Golds, Foor reported.
The annual judging is among the largest of its kind, attracting top cheese judges and authorities from around the world. A total of 2,629 cheeses competed this year, coming from more than 29 countries.
American participation and impact has grown steadily in the last 10 years, Foor said, and there were more U.S. cheeses entered this year than ever before. Contest organizers said that U.S. entires in this global competition has “completely transformed the way people view the U.S. cheese industry.”
“Every time we have this kind of success in international competitions it helps to dispel the myth that the United States only produces cheese designed for cheeseburgers and pizza,” Foor said. “The credibility that is being earned as American specialty cheese makers continue to grow and develop our cheese craft has a halo effect on all U.S. dairy products wherever they are sold overseas.”
This year the contest added a new “Super Gold” medal, awarded to just 47 cheeses. The U.S. won two of those. Winners were Spring Brook Farm Tarentaise from Spring Brook Farm in Vermont, and Bella Vita, from Firefly Farms in Maryland. Spring Brook Tarentaise won the annual U.S. Dairy Export Council award as the top U.S. Cow’s Milk Cheese,” Foor concluded.
California’s January 2011 Class 1 milk price was announced this morning by the California Department of Food and Agriculture at $16.45 per hundredweight for the north and $16.72 for the south. Both are down $1.83 from December and are $1.77 below January 2010. The Federal order Class I base price will be announced by the USDA on Thursday, December 23.
Forecast milk production was little changed from last month in the Agriculture Department’s latest World Agricultural Supply and Demand Estimates report issued this morning. The 2010 estimate remained at 192.8 billion pounds and compares to 189.3 billion in 2009 and 190 billion in 2008. The 2011 estimate was put at 195.5 billion, down 100 million pounds from last month’s estimate.
Fat-basis imports for 2010 were lowered primarily due to lower imports of cheese but skim-solids imports were unchanged due to higher imports of expected imports of other products.
Fat basis exports for 2010 were raised as sales of cheese and fluid milk and cream are strong and skim-solids exports are boosted by strong sales of cheese and nonfat dry milk (NDM). Exports for 2011 are forecast higher due to expected growth in butter and nonfat dry milk sales. Ending stocks for 2010 are raised to reflect higher-than expected stocks of cheese.
For 2010, cheese and whey prices were unchanged from last month. NDM prices are forecast higher but the butter price forecast was reduced reflecting recent sharp declines in butter prices. With no change in either the cheese or whey price, the Class III price forecast is unchanged. The predicted 2010 average remained at $14.35-$14.45 per hundredweight and compares to $11.36 in 2009 and $17.44 in 2008. The 2011 average was projected at $14.45-$15.25.
However, the Class IV price forecast was reduced, due to a lower butter price forecast which more than offsets a higher expected NDM price. For 2011, the range of the cheese price forecast narrowed but whey was forecast higher. The butter price was reduced as current price weakness spills into early 2011. NDM prices are forecast higher.
Look for the 2010 Class IV price to average $15.00-$15.20, down a nickel from last month’s estimate, and compares to $10.89 in 2009 and $14.65 in 2008. The 2011 average is projected at $14.50-$15.40.The all milk price was forecast to average $16.25-$16.35 for 2010 and $15.90-$16.70 for 2011.
Dairy Profit Weekly editor Dave Natzke reported on Congressional action affecting dairy farmers and said “There’s nothing like deadlines to get Congress moving, and that seems to be the case this December.”
One contentious issue, with a December 31st deadline, includes current tax credits and import tariffs for corn-based ethanol. First implemented to help finance a domestic renewable fuels industry and reduce reliance on foreign oil, the program pays the ethanol industry to blend the bio-fuel with gasoline, Natzke explained.
Opponents, including dairy farmers, however, charge the subsidies are a drain on taxpayers, and say the use of corn for fuel, by some estimates up to one-third of the U.S. corn crop, also raises food and feed costs.
A quick sidelight, the Renewable Fuels Association reports that the U.S. ethanol industry produces about 36 million gallons of ethanol per day and uses about 13 million bushels of corn. The process yields about 90,000 metric tons of distillers grains, which can be used for livestock feed.
Earlier this month, a compromise bill was introduced, extending the ethanol tax credit, but cutting it by about 25 percent, to 36 cents per gallon, and extending the import tariff at its current rate of 54 cents per gallon. As of this week, it appears the ethanol debate may be rolled into the larger tax proposal being debated in Congress, according to Natzke.
See related: Dairy Farmers Urging Congress to Stop Subsidizing the Burning of Our Food
In the area of trade, Natzke reported that it appears ratification of a free trade agreement with South Korea will have to wait until early 2011. Trade negotiations, which were hung up over cars and beef, were resolved last week, he said, and agricultural groups, including dairy, have urged quick congressional approval. According to National Milk, that agreement could increase U.S. dairy exports by about $380 million annually.
Also related to trade, the International Dairy Foods Association reported that a dairy promotion checkoff paid by U.S. dairy farmers since the early 1980s, may finally be applied to dairy imports. Congress authorized the assessment in 2002, but program changes to make it compliant with world trade obligations were not approved until the 2008 Farm Bill. Natzke reported that the IDFA opposes the import checkoff, which would fund dairy promotion and research in the U.S., while dairy producer groups approve it.
Check here for this morning’s World Agricultural Supply and Demand Estimates report from USDA. We will post it as soon as possible.
The lame duck session of Congress has been busy. The House passed the Child Nutrition Act last week, the Senate passed the Food Safety Bill, and agreement was reached this week regarding the Bush tax cuts.
National Milk’s Chris Galen reported in Thursday’s DairyLine that the Food Safety Bill was quite controversial because it exempts a lot of smaller food producers from its regulation, something National Milk is concerned about, but it also contains user fees which are in essence taxes, and that presents a Constitutional snafu that may prevent it from becoming law because taxing authority is only given to the House.
National Milk praised the passage of the Child Nutrition Act, Galen said, because it still mandates that milk and dairy products have a prominent role in school feeding programs.
The final issue is the tax question, specifically estate taxes, which we talked about last week. President Obama and Congressional Republicans reached a compromise. You’ll recall that last week that we pointed out that, if Congress failed to act before December 31, the estate tax comes back with a vengeance, having only a $1 million exemption and a maximum tax rate of 55 percent.
Under the deal announced Monday, the estate tax exemption would go to $5 million and the maximum tax rate would only be 35 percent, something National Milk supports, according to Galen, however Congressional Democrats are not happy with the compromise so we’ll have to see what finally gets negotiated before Congress recesses for the Christmas and New Year holidays.
The target date for ending the session was December 17, according to Galen’s ear to the rail, however the controversial issues being dealt with may mean the session drags out until just before Christmas, he said.
As we all know, dairy producers are caught in the middle with dairy prices going down and feed prices heading up.
Gary Sipiorski, Dairy Development Manager for Vita Plus in Madison, Wisconsin, says this isn’t a time to panic. He talks with DairyLine’s Lee Mielke in this PDPW “Your Bottomline” Podcast.
Sometimes farmers are a little skeptical of check off programs, especially in tight financial times but most realize the importance of advertising and promoting their products just as the McDonalds and the Wal-Mart’s of the world do.
Such was the case in Idaho where the state’s dairy producers voted to increase their beef checkoff assessment to $1.50 per head. Idaho beef Council executive director Traci O’Donnell reported in Wednesday’s DairyLine that part of the extra 50 cents stays in Idaho and the rest goes to the national organization for national and international marketing programs.
She added that about 70 cents of the $1.50 stays in Idaho and the rest goes outside the state to “drive beef consumption outside our state and outside our borders.”
When asked about the major accomplishments of the beef check off, O’Donnell said the increased assessment enabled them to dive deeper into some of their key market areas to build consumer awareness and consumption of beef.
It enabled cooperation with partners and a pilot test with 28 retailers across Idaho was done last Christmas. Pop up timers, those commonly placed in turkeys, were inserted in prime rib roasts, she said, and the check off provided training in the stores as well as merchandising materials in store meat cases to bring that to consumer’s attention and tackle poultry sales at Christmas. She said the test was very successful and retailers reported sales increases of 20 to 60 percent. This year the promotion will be expanded to 60 stores across the state.
The increased funding aided their consumer outreach program, according to O’Donnell, and in 2009 they partnered with the World Triathlon Corporation to be the official protein of the Boise Iron man Triathlon.