DairyBusiness Update for Feb. 14, 2013
NMPF: Senate Ag Committee hearing testimony highlights need for dairy safety net
Testimony presented by USDA chief economist Joe Glauber to a Senate Ag Committee hearing on the impact of the drought highlights the harm high feed costs are causing for the nation’s dairy farmers, according to Jerry Kozak, president and CEO of the National Milk Producers Federation (NMPF). He said the testimony provided stark evidence Congress needed to pass a farm bill providing a workable new safety net for dairy producers.
“Glauber noted that feed costs make up 51% of expenses for dairy – the highest feed costs of any livestock commodity,” Kozak said. Glauber also noted that because of high feed costs, milk-feed ratios have remained near the low levels experienced during 2009.
“USDA’s analysis indicated that dairy will face continued tight margins in 2013, with net cash income expected to be lower in 2013 than last year for dairy farmers,” Kozak said. “Glauber also made this worrisome admission: ‘another year of below-trend yields and high (feed) prices would likely result in further liquidation’ of herds.”
“These factors make it all the more urgent for the Senate and the House Agriculture committees, along with the full Senate and House, to pass a five-year farm bill that provides our dairy producers the security and stability they need,” Kozak said. “We need the Dairy Security Act – with its margin insurance and market stabilization program – to help buffer against the income-sapping effects of the drought, and other factors affecting feed prices.”
The Congressional Budget Office (CBO) recently released their January budget baseline. Andrew Novakovic, from Cornell University, has been looking at the numbers and thinking about what it means for the farm bill discussions in the months ahead. Mark Stephenson, Director of Dairy Policy Analysis at the University of Wisconsin-Madison, connected with Novakovic via Skype to discuss the CBO baseline and the implication of sequestration for dairy programs. You can access this short video from the Dairy Markets and Policy website.
California producers discuss federal order move
While dairy producers across the country are waiting to see what they may get out of a new farm bill, many California dairy producers are pushing for a federal milk marketing order system in hopes it would provide a lift to their milk prices. About 200 people attended a panel discussion at World Ag Expo in Tulare to learn more about the possibilities.
The panel consisted of Tom Wegner from Land O’Lakes, Elvin Hollon, Dairy Farmers of America, and Eric Erba, California Dairies, Inc. Many producers voiced their displeasure over the California Department of Food and Agriculture (CDFA) and look forward to taking the next step in what is expected to be a 15-month time frame.
Several objectives would have to take place for this large body of milk to join the federal order pooling system. The operation and administration of the federal order pool would be a USDA function, while CDFA would be expected to administer the quota and also continue with collecting data.
Mark Stephenson, director of dairy policy analysis at the University of Wisconsin-Madison, told DairyBusiness Radio’s Bill Baker attempts to join the federal order system will take due diligence, and face challenges.
California producers will also have to think about pooling issues, as all plants that are pooled under California’s system today are not optional. A federal order system is optional, so plants would have to be convinced that it is in their best interest to be in that federal order pool.
There's also the possibility California cheese milk prices equal with federal order prices make it more difficult for manufacturers to push cheese from the west coast to the east coast, due to input costs.
“I think with the price volatility and the troughs that we had that it’s been difficult to view the California dairy industry’s status quo as being long-term sustainable. I think they have to do something different,” he concluded.
Dean Foods Company announced strong fourth-quarter and full year 2012 results, reflecting both the initial public offering of The WhiteWave Foods Company in October 2012, and the sale of the company's Morningstar business in January 2013.
Fourth quarter Fresh Dairy Direct operating income was $106 million, compared to $107 million in the fourth quarter of 2011. Fourth-quarter 2012 Fresh Dairy Direct fluid milk volumes declined 0.8% compared to the same quarter a year earlier. Based on USDA estimates, the industry average was down 0.9%.
The pass-through of higher year-over-year commodity costs resulted in Fresh Dairy Direct net sales of $2.42 billion, a 1.5% increase from $2.39 billion in net sales for the fourth quarter of 2011. The fourth quarter 2012 average Class I Mover, a measure of raw milk costs, was $20.32/cwt., an increase of 8% from the fourth quarter of 2011, and 23% above the third quarter 2012 level.
Canada’s Farmers Dairy, Agropur propose merger
Farmers Co-operative Dairy Limited and Agropur, the largest dairy co-op in Canada, will merge effective early April 2013, pending approval during separate membership meetings, March 12.
Farmers Dairy is owned by 116 member dairy producers, posting annual sales of $176 million. Visit www.farmersdairy.ca.
Agropur has 3,288 dairy producer owners and processes more than 3.2 billion litres of milk per year in its 25 plants across Canada and United States. It has annual sales of $3.6 billion. Visit www.agropur.com.
Year-over-year average farmland values in the Federal Reserve Bank of Chicago (covering all or portions of Illinois, Indiana, Iowa, Michigan and Wisconsin) were up 16% in 2012, according to David Oppedahl, business economist, writing in the bank’s quarterly AgLetter. After adjusting for inflation, the annual increase was the third largest in 35 years.
The fourth quarter rise in the value of “good” farmland was 7%, based on a survey of 212 agricultural bankers. Respondents anticipated farmland values to rise further during the first quarter of 2013.
The district’s agricultural credit conditions showed improvement in the fourth quarter of 2012, although Wisconsin and its dairy-based economy was the only state to encounter lower rates of loan repayment.
Farm loan interest rates dropped to new lows in the fourth quarter of 2012. As of Jan. 1, 2013, the average
interest rates were 5.03% for farm operating loans and 4.70% for agricultural real estate loans.
MARKETS: Butter, barrels up, but Class III futures slightly lower
Today's market closing prices:
Butter: up 1.5¢, to $1.6025/lb.
Cheddar blocks: unchanged at $1.6750/lb.
Cheddar barrels: up 1.0¢, to $1.64/lb.
Grade A nonfat dry milk: down 0.75¢, to $1.5050/lb.
Extra Grade nonfat dry milk: unchanged at $1.56/lb.
Class III milk: steady to -17¢ through December 2013. Based on current CME closing prices, the 2012 average is $17.44/cwt.; the 2013 average is $18.05/cwt.; and the 2014 average is $16.42/cwt.
Corn, soybean and meal futures lower
Corn: steady to -1¢ per bushel through December 2013. The 2013 average is $6.43/bu.
Soybeans: -5¢ to -8¢ per bushel through November 2013. The 2013 average is $13.59/bu.
Soybean meal: -$0.90 to -$4.10/ton through December 2013. The 2013 average is $380.36/ton.
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