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DairyBusiness Update: February 21, 2014

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Cold Storage Cupboard Down From a Year Ago
   The Agriculture Department’s preliminary January Cold Storage report, issued this afternoon, pegs January 31, 2014 butter stocks at 138.1 million lbs., up 25.6 million lbs. or 23% from December 2013, but 69 million lbs. or 33% below a year ago.
   American-type cheese totaled 630.7 million lbs., up 12.4 million lbs. or 2% from December but 12.5 million lbs. or 2% below a year ago.
   Total cheese in storage on January 31 amounted to 1.016 billion lbs., up 6.5 million lbs. or 1% from December, but 16.3 million lbs. or 2% below that on January 31, 2013.

Annual Milk Production Report Data Looks Back on 2013
   Yesterday’s January Milk Production report included end of the year numbers for 2013. As I reported yesterday, revisions reduced the original December estimate by 19 million pounds, to 15.7 billion pounds, down 0.3 percent from December 2012. That put 2013 annual production in the U.S. at 201 billion pounds, up 0.3 percent from 2012. Revisions to 2012 output increased the total 213 million pounds and revised 2013 output was up 32 million pounds from last month’s report.
   Cow numbers in the U.S. during 2013 averaged 9.22 million head, down 0.1 percent from 2012. The average was revised down 5,000 head from last month.
   Output per cow in the U.S. averaged 21,822 pounds, up102 pounds from 2012. USDA points out that annual average has increased 15.1 percent from 2004.

January Milk Output “Neutral to Slightly Bearish”
   The analysts, bean counters, and traders are analyzing yesterday’s Milk Production report. FC Stone dairy broker, Dave Kurzawski, said the report is “neutral to slightly bearish versus pre-report expectations.” But, he adds the caveat, “The 1 percent increase is not enough to meet up with the kind of demand we've had. Spring flush could have a bigger impact on market sentiment later this spring, but not now.”
   High Ground Dairy’s Eric Meyer agrees that the 1 percent growth outperformed expectations after a poor showing in November and December, but added; “While beating industry forecasts, major revisions in USDA’s data going back to 2012 along with regional differences in production temper any bearishness the report shows on its surface. Major revisions in USDA’s milk production data going back to 2012 were a key highlight of this report. 2012 volumes were revised 213 million pounds higher while 2013 increased by 32 million. Based on the new data, USDA is publishing year-over-year growth of only 0.3 percent but when calculating on a daily average basis it pencils out to +0.61 percent. No matter how the number is sliced, 2013 marks the slowest annual growth in milk production since 2009.”

CWT Keeping U.S. Dairy Exports Strong
   “2014 is shaping up to be another busy in the export activities of Cooperatives Working Together (CWT), according to National Milk’s Chris Galen in Thursday’s DairyLine broadcast. Last year, cheese exports topped 127 million pounds, and butter about 90 million pounds, according to Galen, and to put that in perspective, through the first 10 months of 2013, CWT assisted products that accounted for 82 percent of all U.S. American type cheese exports and 57 percent of all U.S. butter exports.
   “That’s a significant chunk of all the dairy exports that we’ve been selling overseas,” Galen said. He reminds us that 15.5 percent of our total milk production was exported.
   So far this year, CWT has assisted in selling about 21 million pounds of cheese, 6 million pounds of butter and about 1 million pounds of whole milk powder to 18 countries on four continents, according to Galen, an equivalent to 330 million pounds of milk, just through the first month-and-a-half of this year.
   “A lot of the increase we are expecting to see in milk production this year is destined for foreign markets,” Galen said, “But those sales would not be happening without the activities of Cooperatives Working Together.”
   He says the CWT program has “really ramped up in the last few years with about 70 percent of all the milk marketed in the U.S. paying the four cent per hundredweight assessment. Most of the membership is through cooperatives, but some individual farmers are also paid members.”  
   “One of the things about CWT is we really do try to target our efforts,” Galen said. “For example we really want to help market American type cheeses because they most directly impact dairy farmers’ milk prices.” He says they also want to help Co-Ops make these sales and earn repeat business to “establish a foot-hold with buyers in foreign countries so there is not just a one off relationship but rather something that is an ongoing effort to build a home for American made dairy products overseas.”

Ready for the Next Downturn?
   “It’s been so long since dairy producers have seen decent prices but 2014 is shaping up to be a profitable year for the industry, thanks in large part to exports, said Success Strategies’ John Ellsworth in Tuesday’s DairyLine. “But what if that changes? How can dairy producers prepare for the next downturn?” He asked.
   Ellsworth warned that farmers should be thinking about paying down their debt and reducing their payables for when the next down cycle comes.
   “I’m no expert on exports,” he said, “But the dollar is strengthening and that may hurt us a little bit. Just the dynamic of the strength or weakness of the dollar will be an impact.”
   Ellsworth consults mainly with dairymen in California and he says people are worried right now because of the drought and lack of water resources. “We need five more storms just to get back to normal,” he learned. “It’s almost unfathomable that it would be that extreme but it’s reality.”
   The last few years have been a major sorting out of who is going to stay or leave the dairy business in California, according to Ellsworth. The trends of fewer and bigger herds have been amplified in the last five years. California producers are also trying to fix their milk pricing system and would like to join a Federal Order. Ellsworth agrees something needs to be done and believes it would be an improvement.
   “We see people in Wisconsin making $1.50 per hundredweight more for their milk and they’re paying less for their feed.” he said.
   What else can producers do right now to prepare for an uncertain future? Ellsworth recommends selling any excess animals, saying now is a perfect opportunity to reduce debt levels and get in position for the next downturn. The bank will be more likely to work with a producer who has a plan for debt reduction.
   For the producer who has some cash on hand, Ellsworth recommends leaving it in the bank and planning for expansion when the next downturn comes. He says the counter-cyclical approach works very well.
   “I like to buy low and sell high as everybody does. Animals get cheaper, buildings get a little less expensive and maybe a producer will want to push the button when the downturn comes.”
   Producers are also looking at hedging opportunities for the second half of the year; mainly driven by the fear of how long can we sustain these high prices. “In the last decade the cycles have been more extreme and seem to go up and down rather quickly,” he said. “It’s not a matter of four months anymore for prices to start dropping, in two weeks they can drop dramatically, or they can go up dramatically. Let’s continue to hope for the latter,” he concluded.

Cheese Importers Rewarding Retailers
   The Cheese Importers of America says it will try to “build on the momentum of their very successful Retailer program” and once again host Retailers at the SIAL Show in Paris, France, October 19-23, 2014. The organization is holding a lottery for qualified retailers to win an all-expense paid educational trip to the SIAL tradeshow. To qualify, retailers should purchase at least 500,000 lbs of cheese per year or have 20 retail stores. To learn more about the trip and to apply, individuals are encouraged to visit the CIAA website.
   Food retailers selling specialty cheese are invited to apply for this all-expense paid trip to SIAL, the world’s largest food trade show. The SIAL Show is held every two years in Paris, and this exceptional trade show features several exhibition halls of cheese and gourmet foods.  The retailer guests are selected via a random lottery drawing, which will be held in August 2014.

Preliminary Ag Census: Fewer Farms/No Surprise There
   The Agriculture Department issued its preliminary 2012 Census of Agriculture yesterday. The report shows that in 2012, the United States had 2.1 million farms, down 4.3 percent from the last agricultural Census in 2007. This continues a long-term trend of fewer farms.
• Between 2007 and 2012, the amount of land in farms in the United States declined from 922 million acres to 915 million acres. This decline of less than one percent was the third smallest decline between Censuses since 1950.
• In 2012, the average farm size was 434 acres. This was a 3.8 percent increase over 2007, when the average farm was 418 acres.
• Middle-sized farms declined in number between 2007 and 2012. The number of large (1,000 plus acres) and very small (1-9 acres) did not change significantly in that time.
• In 2012, the market values of crops, livestock, and total agricultural products were each record highs.
• U.S. farms sold nearly $395 billion in agricultural products in 2012. This was 33 percent, $97.4 billion, more than agricultural sales in 2007.
• Crop sales were $68.7 billion more in 2012 than 2007 (a 48 percent increase) and livestock sales were up $28.6 billion (a 19 percent increase).
• In 2012, crop sales exceeded livestock sales for only the second time in Census history; the other time was in 1974.
• Per farm agricultural sales averaged $187,000 in 2012. This was an increase of more than $52,000(or 39 percent) over 2007.
• From 2007 to 2012, the percent of farms with sales and government payments of $1 million or more increased, but most farms in the United States are small, 75 percent had sales of less than $50,000 in 2012.
• The amount of land in farms decreased in 31 states but increased in 19 states.
• In 25 states, both the number of farms and the amount of land in farms went down. In 10 states, both went up.
• The states ranked “top 10” were generally the same in 2012 as in 2007, although states changed position within the  rankings. Ohio and Colorado are new to the lists.
   Agriculture Secretary Tom Vilsack said "The preliminary data released today provide a snapshot of a strong rural America that has remained stable during difficult economic times. We have slowed significantly the loss of farmland, which has totaled 72 million acres since 1982. New tools provided in the 2014 Farm Bill will help to further slow and reverse this trend.” For more details, log on to http://www.agcensus.usda.gov/Publications/2012/Preliminary_Report/highlights.pdf.

FarmFirst Dairy Cooperative Holds 2nd Annual Meeting 
   Madison-based FarmFirst Dairy Cooperative celebrated its first year as a recently-merged cooperative by hosting its second annual meeting on Feb. 14-15 in Appleton, Wis. Over 200 dairy producers and industry members attended, gaining insight on industry exports and better practices in addition to sharing perspective on the year ahead.
   “Our second annual meeting provided members with the opportunity to reflect on the past year, to suggest new initiatives and consider other improvements to be made throughout our cooperative divisions,” says David Cooper, general manager for FarmFirst Dairy Cooperative. “Our members’ ideas and perspective are vital in laying the foundation for our cooperative, ensuring that it continues to provide the greatest value to its members.”
   The two-day event kicked off with its Producer Discovery Workshops on Friday afternoon, featuring three industry experts presenting on ways members can enhance their profitability and value on their farm.
   Marin Bozic, an assistant professor within dairy economics at the University of Minnesota, concluded the afternoon with his detailed explanation of the new Farm Bill and federal dairy policy.
   FarmFirst Dairy Cooperative President Peter Kleiman reported that “This past year has proven to be a very exciting one for the cooperative and its board of directors, as we navigated through this year’s transition,” says Kleiman. “There is still work ahead of us and industry issues to be represented. With our members’ as our priority, we as directors will be ready to discuss and deliberate until we find the right solution.”
   Complete details are posted at www.FarmFirstDairyCooperative.com.

2014 Environmental Stewardship Classes Offered in Tulare, Fresno
  
The California Dairy Quality Assurance Program is offering free classes on environmental stewardship. The two-part series of water quality classes (three hours each), known as the Environmental Stewardship Short Course, will be held in Tulare and taught by Dr. Deanne Meyer, a livestock waste management specialist from the University of California, Davis.
    A separate session on air quality will also be offered in Fresno. Producers can attend all or part of the Short Course to meet the education requirements. The classes cover environmental issues, regulatory requirements and management practices for dairy producers.  These classes offer "one-stop shopping" with a comprehensive overview of water-quality related environmental regulatory requirements for California dairy producers.
   The schedule is as follows: Water Quality Classes - Thursday, March 27 - Class 1: 9 a.m. to 12 noon - Class 2: 1 to 4 pm - Southern California Edison - Energy Education Center (formerly Edison AGTAC) 4175 South Laspina Street, Tulare.
   Air Quality Class - Thursday, April 3 9:30 a.m. to 12:30 p.m. - Fresno County Farm Bureau - 1274 W. Hedges Avenue, Fresno, CA. You must attend both classes to complete the water quality education requirement, unless you have previously received credit for attending CDQAP water quality courses. Producers with additional questions can call CDQAP at (530) 574-0524.

Mielke Market Daily/Week’s End Review
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   Data from yesterday’s January Milk Production and Livestock Slaughter reports are being absorbed by cash dairy traders who were anticipating this afternoon’s January Cold Storage data. Cheese prices moved higher the 2nd day in a row this morning, pulling Class III futures up in double digits, March thru the remaining 10 months of 2014.   
   The blocks were up 3.25¢ on 2 unfilled bids, following yesterday’s 2.25¢ jump and, added to Tuesday’s 0.25¢, to close the day and the week at $2.1625/lb. The barrels jumped 4.75¢ this morning, adding to yesterday’s 4.25¢ and 0.5¢ on Tuesday, and close the week at $2.1575/lb. Two carloads traded hands this morning at $2.1450/lb. but an unfilled bid took it to its close of $2.1575/lb.
   This week’s cash cheese prices reversed two weeks of losses. The blocks closed the President’s Day Holiday-shortened week up 5.75¢ on the week and 53.5¢ above a year ago. The barrels are up 9.5¢ on the week and 52.75¢ above a year ago. Only 2 cars of block traded hands on the week and 8 of barrel.
   After 14 sales of cash butter yesterday, things were a little quieter today but 3 trades inched the price up to $1.7850/lb., up 0.5¢ on the day, following yesterday’s 1¢ rise. An offer at $1.7875/lb. was left on the board. Spot butter is up 1.5¢ on the week and 19.5¢ above a year ago. 17 carloads were sold on the week.
   FC Stone dairy broker Dave Kurzawski  says “Butter is still tight in the country, some business is likely being done for Easter, and product is available to come to the exchange. In the short term, he expects CME spot butter to stay in its recent range of $1.75-$1.80/lb.”
   Cash Grade A nonfat dry milk was unchanged this morning, holding at $2.0450, following yesterday’s gain of 0.25¢, 1.25¢ on Wednesday, and 1¢ on Tuesday. Two bids at $2.04/lb. went unfilled. The spot powder is up 2.5¢ on the week.

Today’s Market Closing Prices:
Butter: Up 0.5¢, to $1.7850/lb.
Cheddar blocks: Up 3.25¢, to $2.1625/lb.
Cheddar barrels: Up 4.75¢, to $2.1575/lb.
Grade A nonfat dry milk: Unchanged, at $2.0450/lb.
Class III milk: Feb. $23.19, +4¢; Mar. $21.79, +30¢ (+75¢ on the wk.); Apr. $20.90, +25¢ (+$1.03 on wk.); May $20.01, +22¢ (+78¢ on wk.), & Jun. $19.72, +26¢. Based on today’s CME settlements, the Second Quarter 2014 average now stands at $20.21, +24¢ from Thursday. The 2nd half average is $18.72, +16¢ from Thursday.
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Looking ahead:
   Only two USDA reports that regularly monitor are on tap for next week. USDA’s Economic Research Service issues its monthly Dairy Situation and Outlook report on Wednesday, containing the latest dairy product commercial disappearance data. The monthly Ag Prices report is out Friday, which will include the latest milk feed price ratio.
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Monday on DairyLine:
   DairyBusiness Update's Joel Hastings reports from the recently completed 2014
    Southwest Nutrition and Management Conference in Tempe, AZ.
   Dairy team facilitator Kristy Pagel shares the importance of having a calendar of
    events.

http://dairyline.com/monday.mp3

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