We continue our discussion with Dr. Nigel Cook, Clinical Associate Professor in Food Animal Production-Medicine at the University of Wisconsin at Madison, who discusses ‘The Dairyland Initiative’ in this podcast.
Archive for January, 2011
Monday’s cheese traders appeared to ignore the December Cold Storage numbers. Cash block jumped 61/4-cents, to $1.5875 per pound, on a single trade and an unfilled bid. Barrel gained 5 1/4 and hit $1.5625, on a bid, while butter traders fell back to sleep, with the price holding at $2.10.
Market analyst Mary Ledman, also Principal of Keough Ledman and Associates Inc. in Libertyville, Illinois, told DairyLine in Tuesday’s broadcast that “The market seems to be having its own identity at this point.” She said the butter/powder complex is “driving the pricing bus,” and “there seems to be a slot here that cheese must follow,” but she fears it may be based upon “pretty shallow information rather than supply demand fundamentals.”
Butter stocks are up from November, she said, but still about 50 million pounds less than a year ago so clearly there’s a supply demand fundamental that’s supporting a strong butterfat market, both in the U.S. and globally.
Demand for skim milk powder globally is also strong, she said, but cheese is in a different situation. She pointed out that only about 20 percent of U.S. cheese exports are Cheddar and that’s what’s traded at the Chicago Mercantile Exchange. Ledman warned that this market could “over heat itself and then we have a correction which could be painful.”
When asked if the fact that total cheese stocks being over a billion pounds is a concern, Ledman replied that she doesn’t really look at total cheese stocks because they include cheese in aging programs like Parmesan that’s only three months of age rather than the full term.
She watches American cheese stocks which are more similar to what’s sold at the CME. Those stocks are significantly higher than a year ago, she said, and will likely exceed prior year levels through May. “They are discounting the stocks and looking just at the current milk situation,” she concluded, “And you have the cheese market chasing the butter/powder market.”
Dairy Management Incorporated’s Joe Bavido kicked off a series on Monday’s “DMI Update,” detailing some of the dairy promotion dairy check off highlights of 2010. He said that 2010 saw unprecedented resources from more than 180 processors, manufacturers, and other businesses working together to develop and implement actions that will lead to long term, sustained category sales.
The work was done mostly through the Innovation Center and the five committees that work through it and encompass health and wellness, consumer confidence, globalization, sustainability, and research and insights.
More than a billion pounds of additional milk was sold in 2010 through partnerships, according to Bavido, and McDonalds was one of the largest and, thanks to support from the dairy checkoff, dairy is probably more prominent than ever in the world’s number 1 restaurant chain.
New offers there included frappes, smoothies, specialty coffees, Angus burgers, and Angus snack wraps, which include a good amount of cheese.
Domino’s Pizza continues to work with the checkoff on revitalizing the pizza category, Bavido reported, and Domino’s realize that the most critical ingredient for taste and quality. Their latest introduction is the American Legends Wisconsin 6 Cheese Pizza that uses 82 percent more cheese than a regular one-topping pizza. Bavido will be reporting more highlights in future DairyLine programs.
This week’s Feed Facts Podcast, Dr. Mike Hutjens, Extension Dairy Specialist at the Univesity of Illiniois, discusses the varieties of corn silage.
The Agriculture Department announced the February Federal order Class I base milk price this morning at $15.89 per hundredweight, up 69 cents from January, and $1.05 above February 2010.
That equates to about $1.37 per gallon. Compare that to what consumers are paying at retail.
The two-week NASS-surveyed butter price averaged $1.7407 per pound, up 10.8 cents from January. Nonfat dry milk averaged $1.2423, up 2.75 cents. Cheese averaged $1.3757, down 10.8 cents, and dry whey averaged 39.15 cents, up 1.3 cents.
The Class IV advanced pricing factor was the “higher of” in driving the Class I value and National Milk’s Roger Cryan predicts there will be an MILC payment to producers of about 55 cents per hundredweight.
A proposed settlement in an antitrust class action lawsuit between northeast dairy farmers and Dean Foods has run into legal objections. Dairy Profit Weekly editor Dave Natzke reported in Friday’s broadcast that the lawsuit announced last December involved dairy farmers against major dairy co-ops and processors in the Northeast and called for Dean Foods, the nation’s largest fluid milk processor, to pay $30 million into a fund for dairy farmers.
It also required Dean’s to buy milk from sources other than the co-defendants in the suit, Dairy Farmers of America (DFA) and Dairy Marketing Services (DMS), a milk marketing joint venture between three northeast dairy co-ops (DFA, Dairylea, and St. Alban’s).
Two objections to the proposed settlement were filed in the U.S. District Court of Vermont this week. One was filed by a group of about two dozen individual dairy farmers, and the second was filed by DFA and DMS, who charge the proposed settlement pits dairy farmer members of their organizations against other dairy farmers, imposes damages on their members, and could work to lower milk prices paid to all Northeast dairy farmers.
While the settlement has been portrayed as a win for Northeast dairy farmers, DFA/DMS contend that $10 million of the $30 million settlement will go to attorneys, sharply reducing payments for farmers, Natzke reported.
Of greater concern is the potential impact on future milk prices, according to the co-ops. Under terms of the settlement, Dean’s must purchase up to 1.8 billion pounds of milk over a 30-month period from sources other than DFA/DMS.
The co-ops contend they are better able to negotiate higher milk prices for farmers, and are able to save milk transportation and handling costs, returning more money to farmers through over-order premiums. The co-ops allege Dean’s could negotiate lower prices for milk it buys from less efficient milk suppliers, and then use those lower prices to leverage even lower prices for DFA/DMS milk.
According to DFA/DMS estimates, under terms of the settlement, the average payment to dairy farmers would be about $1,500. They contend a nickel decline in the milk price as a result of the settlement would reduce income for a farmer with 300 cows by about $3,400.)
Any final approval to the settlement is likely months away, according to Natzke. In the meantime, DFA and DMS remain defendants in the antitrust lawsuit, and they say they will continue fighting it in court, he said.
USDA announces the February Federal order Class I base milk price this morning. Market analyst Alan Levitt predicts it will jump to $15.79 per cwt. That would be a gain of 59 cents from January and 95 cents above February 2010.
He sees the Class IVadvanced pricing factor as the “higher of” in driving the Class I value but is unsure whether there will be a MILC payment to producers.
The Agriculture Department has drafted regulations to update requirements for school feeding programs and they could impact dairy products used. National Milk’s Chris Galen said in Thursday’s broadcast that “this is why the process of developing dietary guidelines is so important because they do have consequences in the real world,” and the school lunch line is a prime example.
One of the stipulations is that schools only offer low fat or fat free milk and the real kicker, according to Galen, is that if they serve flavored milk, which is primarily chocolate milk but can be others like strawberry, it can only be fat free.
The Federation has some concern that USDA may kick out flavored milk, something that has already happened in some local school districts.
That is not being proposed right now, he admitted, but USDA is saying that, flavored milk must be fat free and no milk can be higher than 1 percent fat.
National Milk is closely monitoring this issue Galen said, because “we don’t want to throw the proverbial baby out with the bath water and have kids not consume needed milk products because they don’t like the fat content.
The guidelines also attempt to reduce overall fat and sodium levels and that could impact the amount of cheese and pizza served to kids. Pizza is a very popular food for kids and Galen said we have to watch what the impact of this might be on cheese consumption.
Milk production in the 23 major States during December totaled 15 billion pounds, up 2.8 percent from December 2009. November revised production at 14.4 billion pounds, was up 3.1 percent from November 2009.
Production per cow in the 23 major States averaged 1,794 pounds for December, 33 pounds above December 2009.
The number of milk cows on farms in the 23 major States was 8.39 million head, 74,000 head more than December 2009, and 15,000 head more than November 2010.
Milk production in the U.S. during the October-December quarter totaled 47.5 billion pounds, up 2.8 percent from the October-December quarter last year. The average number of milk cows in the U.S. during the quarter was 9.13 million head, 36,000 head more than the same period last year.
December milk production in the 23 major States totaled 15 billion pounds, up 2.8 percent from December 2009. Revisions added another 8 million pounds to the November estimate, raising it to 14.4 billion pounds, up 3.1 percent from November 2009. December output in the 50 states totaled 16.2 billion pounds, up 2.5 percent.
The preliminary 2010 total for the 50 states amounts to 192.7 billion pounds, up 3.4 billion pounds, or 1.8 percent from 2009. Cow numbers totaled 9.1 million head, down from 9.2 million from a year ago. Output per cow averaged 21,148 pounds, up from 20,576 a year ago.California production was up 2.7 percent from a year ago, with 14,000 fewer cows. However, output per cow gained 65 pounds. Wisconsin was up 0.7 percent, thanks to 6,000 more cows, and output per cow was up 5 pounds.
New York was up 4.6 percent, with output per cow up 75 pounds. Idaho was up 4.9 percent, on 24,000 more cows and a 10 pound increase per cow. Pennsylvania was up 1.8 percent. Cow numbers were up 3,000 and output per cow was up 20 pounds. Minnesota was unchanged.
The biggest increase was in Colorado, up 10.9 percent. Arizona and Oregon shared the second biggest increase, up 8.1 percent.
The biggest decline was in Missouri, down 7.9 percent, due to 8,000 fewer cows. Iowa was next, down 2.4 percent with 8,000 fewer cows, but output per cow was up 25 pounds. Illinois had the third lowest, down 0.6 percent.
Higher feed prices will pressure producer margins in 2011, limiting any increase in milk production, according to the Agriculture Department’s latest Livestock, Dairy, and Poultry Outlook issued this morning.
Both imports and exports are projected below last year’s totals, especially for fats. Exports of powder and whey continue to be strong, but higher global output will likely limit exports.
Cheese supplies appear adequate to meet expected demand, and butter prices should ease over the course of the year as stocks rebuild. Class IV prices will likely average above Class III prices and the all milk price will remain near the 2010 price, according to USDA.
The latest USDA forecasts indicate rising feed prices for the 2010/11 crop year.
The corn price is forecast to average $4.90 to $5.70 per bushel, and the soybean meal price is forecast to average $320 to $360 per ton. These latest price forecasts represent an increase from last month’s forecasts.
Positive processor margins for ethanol and strong exports will contribute to the higher price. Supplies of corn are expected to be lower as yield per harvested acre is expected to be lower than in 2009/10, despite higher planted acreage. Supplies of soybeans and soybean meal are also forecast to be slightly lower than in 2009/10.
Meanwhile, the most recent Milk Production report indicated that estimated U.S. milk production rose 2.7 percent in November on a year-over-year basis. Cow numbers also continue to rise on a year-over-year basis. However, herd size was unchanged in November from October. This situation suggests producers may be responding to lackluster feed-price ratios that persisted in 2010 and are likely to worsen in 2011 due to higher expected feed prices.
USDA’s Cattle report, which will be released January 28, will provide an early indication of producer intentions regarding dairy heifer retention. The current forecast calls for cow numbers to average 9.1 million head in 2011, the first annual increase since 2008. High cow slaughter and heifer prices that are about unchanged from last year suggest little incentive for herd expansion.
The availability of heifer replacements at modest prices could provide an opportunity to some producers for herd freshening, which could be a cost-reducing strategy with higher feed prices in the offing.
Milk per cow is projected to rise 1.3 percent this year over last to 21,425 pounds. Total milk production in 2011 is expected to reach 195.5 billion pounds, compared with 192.8 billion pounds for 2010.
Milk equivalent exports for 2011 are forecast at 6.4 billion pounds on a fats basis and 30.7 billion pounds on a skim-solids basis. Although representing a retreat from 2010 exports, these forecasts have been raised from last month largely on improved skim-solids basis exports.
U.S. dairy product prices are below international prices and a weak dollar relative to foreign currencies makes U.S. dairy products attractively priced. Global demand should be higher in 2011, especially in Asia and South America, because economic recovery in those regions has been stronger than in Europe and the United States. What remains to be seen is the scope of recovery in milk production in Oceania.
U.S. imports of dairy products will trail last year’s totals and have been adjusted downward. Imports for 2011 are forecast at 3.9 billion pounds on a fats basis and 4.7 billion pounds on a skim-solids basis. The same fundamentals that make U.S. exports attractive on the world markets weaken the U.S. import market.
Butter stocks remain very tight, and consequently, butter prices are expected to remain high relative to recent years but to average below 2010 levels. Butter prices are expected to decline in the second half of 2011 as foreign production eases global tightness and more milk to move to Class IV uses due to adequate domestic supplies of cheese and strong export demand for nonfat dry milk (NDM). Butter prices are forecast to average $1.545 to $1.655 per pound in 2011.
The powder and dry whey markets are tight and that’s been the case for a few months, according to Downes-O’Neill dairy broker Dave Kurzawski in Wednesday’s DairyLine. Things really got tight relative to demand in the past few weeks as demand picked up in the opening weeks of 2011.
“We knew about the tight stocks but now we have fresh demand coming in trying to pick those stocks away,” Kurzawski said. Prices are firm as dry whey is in the mid 40-cent range and “this is really the leader of the dairy complex right now.”
Butter had a run up to $2.10 a couple weeks ago, he said, however it’s relatively quiet right now, but skim milk powder and whole milk power on the world market is seeing sizable demand and that’s impacting the markets in Chicago.
This has created quite a price disparity between the Class III and Class IV and is one of the reasons Class III futures have been up so solidly the last few weeks, Kurzawski said, “in part due to sympathy with the Class IV market which is trading in the high $17s to over $18.”
“As to the Class IIIs, as much we may want to stay in a mid $14 cheese equivalent price, given where cheese settled today, the futures definitely have to comply a little bit with what they see as a firming Class IV situation, and what has been a firming Class IV situation,” Kurzawski said. That, he said, has “pulled the Class III futures into this bull market that we’re currently in right now.”
When asked for dairy producer hedging advice, Kurzawski said he believes the markets are “a little over cooked” right now on both Class IV and Class III although the spot market is starting to respond.
“You have to look at profit margins,” he said, “and if you have some profit margin right now, go ahead and lock some of that up, otherwise you look at put options as a worst case scenario floor price insurance program.” For more information, call Dave at 1800-231-3089.