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DairyBusiness Update: February 6, 2014


Dairy Title is “Historic Reform” says IDFA
   U.S. dairy processors, via the International Dairy Foods Association (IDFA), have praised the new Farm Bill’s Dairy Title, stating on their website that "The compromise dairy title in the Farm Bill represents historic reform of our nation’s dairy policies,” said Jerry Slominski, IDFA senior vice president of legislative affairs and economic policy. “This is a major step toward moving our dairy industry away from the failed agriculture policies of the past and toward policies of the future that will enable our entire industry to grow and capture new markets."

California 4b Closer to Federal Order Class III Milk Price
The January Federal order Class III milk price, announced yesterday at $21.15 per hundredweight (cwt.) is just 84 cents above California’s Class 4b cheese milk price. While, that is the smallest gap in nine months, it’s not likely to give much comfort to California producers who saw that gap average $1.57 per cwt. in 2013, varying from 67 cents in April to as much as $2.30 in January 2013.

Super Bowl Cheese Demand Over for Another Year   
    Cheese production is down, with some cheese makers in the northeast reducing volumes significantly, at selected plants, according to Dairy Market News (DMN). Some inventories are reported as fairly adequate, as manufacturers look to rebuild stocks and fulfill contractual commitments. The week following Super Bowl weekend is witnessing a decline in domestic demand, according to DMN, with retail sales responding accordingly. Cheese export interest remains active and the market tone is steady to firm.   
   Midwest cheese manufacturers have voiced mixed reports about cheese orders. Even reports of increased orders are generally very marginal increases. The consensus has been that orders mostly remain hand to mouth as buyers continue to wait out high cheese prices, expecting them to decline. While the reality is that retail Super Bowl related cheese orders peaked some weeks ago considering transit time to stores, talk of Bowl orders lingered into last week but can now be left behind.  As one manufacturer commented, "with the Super Bowl over and Valentine's Day next, there are no big demand cheese events ahead for some time."

High Price Cheese Means High Price Pizza?   
   Bloomberg Businessweek reports that “There’s a reason that Pizza Hut (YUM) charges extra for stuffed crust. Cheese is generally the costliest ingredient for pizza restaurants, it’s 35 percent to 40 percent of Papa John’s (PZZA) food costs, for instance, and it’s getting more expensive. The price of mozzarella cheese is up about 16 percent since the beginning of December, and the price of cheddar cheese has jumped about 25 percent,” according to data from Bloomberg.   
   It cites bad weather in Europe and New Zealand and high feed costs hurting global milk production in 2013, especially in the first half of the year, reported agriculture news site Capitalpress.com (pdf). As a result, American dairies sent more cheese overseas: In the first 10 months of 2013, cheese exports were up 17 percent over 2012, leaving less for cheese-loving Americans, according to USDA and domestic consumption is expected to increase about 2 percent this year, and by the end of 2014, inventory is projected to be its lowest in a decade.   
   However, pizza chains should not be affected much, according to the column. Other costs, such as meat and wheat, have dropped, though the winter weather and the spread of a pig virus aren’t helping. Domino’s (DPZ) chief financial officer, Michael Lawton, said at an investor event in January, “In the last couple of days, I’ve had a lot of questions about cheese because it spiked up, and cheese is the biggest commodity. Even taking that into account when you look at the whole basket, and you look at the projections on cheese for the year, we are still projecting that we would be down in the range of 0 percent to 2 percent.”

Wisconsin December Cheese Output Down
Wisconsin Ag Connection reports that Wisconsin's total cheese output in December was lower compared to the same time a year earlier. The state's dairy plants produced 240.9 million pounds of cheese during the month,  according to Monday’s Dairy Products report, which was 1.5 percent less than December 2012, but 3.1 percent more compared to this past November (partly due to the fact that November has less days on the calendar). This makes the third consecutive month that total production dropped in America's Dairyland.
   Nationally, 973 million pounds of cheese was produced, about 2.3 percent more than December 2012, and 8.1 percent above the previous month's production totals.
   Wisconsin's production of American cheese decreased as the state produced 67.4 million pounds, about 8.1 percent less than last year, but six percent above last month's production. Cheddar output fell by 13.9 percent compared to 2012 to total 44.8 million pounds, but was 8.9 percent greater than the month earlier. Italian production was at 124 million pounds, down 1.3 percent below last year, but 4.2 percent more for the month. And Mozzarella cheese in Wisconsin totaled 83.5 million pounds--about 3.5 percent less than December 2012, but 5.2 percent more compared to November 2013.

California Cheese Output Up
Little chance that California will overtake Wisconsin as the nation’s number 1 cheese producer any time soon but number 2, California, saw total December output hit 202.1 million pounds, up 4 percent from November and 3.7 percent above December 2012.    
   California’s American type cheese output, at 52.8 million pounds, was up 12.7 percent from November and 1.7 percent above a year ago. Cheddar output, at 32.3 million pounds, was up 16.6 percent from November and just 1 percent above a year ago. Italian cheese output hit 129,614 pounds, up 3.5 percent from November and 6.3 percent above a year ago, and Mozzarella output came to 119,345 pounds, up 1.4 percent from November and 3 percent above December 2012.

California Dairy Producers Calling it Quits
It’s a likely scenario around the country but The Press Enterprise reports what’s happening in southern California. “There was a time when one couldn’t drive into San Jacinto, Eastvale or Chino without being overcome by the telltale odor of dairies,” writes reporter Craig Shultz. “To the motorist, it was annoying. To dairy farmers, it was the smell of money.” But, he adds that “A lot of that smell, and that money, are disappearing. Riverside and San Bernardino counties were home to almost 300 dairy farms at the turn of the century, but just 36 remain in Riverside County, and most of those are in San Jacinto, according to Robert Vandenheuvel, general manager of California’s Milk Producers Council. There are 75 dairies in San Bernardino County, most centered around Chino.”
   “Beginning in the late 20th and early 21st century, area dairy farmers began migrating to other parts of California and other states to escape urban sprawl and stricter regulations. “The land rush by developers had a huge impact until about 2006,” Vandenheuvel said. “What’s driven it in the past several years is horrible economics for dairy farmers.” When the housing boom hit the region after the turn of the century, land became valuable to developers, who bought out many longtime dairy families.”
   Farmers who remained found an unfriendly business climate, said Steve Pastor, executive director of the Riverside County Farm Bureau. “It’s primarily overregulation of the dairy industry and manipulation of prices by the federal government,” he said. “They’re regulating our guys out of the state.” Read the complete column at

NDPSR Butter Average Up 12.3¢
   The latest Agricultural Marketing Service’s National Dairy Products Sales Report (NDPSR), released yesterday shows the U.S. average block Cheddar cheese price at $2.2271/lb., up 9.1¢ from the week before, while the barrels averaged $2.2348, up 8.5¢. Butter jumped 12.3¢, to $1.7916/lb. Nonfat dry milk averaged $2.0638/lb., up 2¢, and dry whey averaged 61.36¢/lb., up 0.5¢. These prices are used in determining Federal order Class milk prices.

Russia Blocks Yogurt Shipment
   The New York Times reports that the Russian government is blocking a shipment of Chobani yogurt from reaching the United States Olympic team at the Winter Olympics in Sochi. The blockade has prompted alarm from the yogurt industry’s political allies, who are outraged that American athletes could be deprived of their beloved Greek yogurt.
   The U.S. Dairy Export Council (USDEC) and the National Milk Producers Federation (NMPF) used the occasion to call on Russian authorities to end its country’s three-year embargo of U.S. dairy products.
   “This is yet another example of how Russia’s blockade of U.S. dairy products is harming U.S. companies,” says Tom Suber, USDEC president.
   Media reports have indicated that a large shipment of yogurt from Chobani was refused entry into Russia, even though the company is a major sponsor of the U.S. Olympic team. “Russia has turned a cold shoulder to many U.S. businesses trying to ship dairy products to Russia, despite our ample efforts during the past three years to prove their safety and quality. Reopening this market on a permanent basis would be a great benefit for U.S. companies and Russian consumers,” says Suber. 
   Jim Mulhern, NMPF president & CEO, concurs: “With Russia’s membership in the World Trade Organization (WTO), it’s incumbent on them to live up to WTO trading obligations on fundamental food safety requirements. There is no rational reason why safe, wholesome dairy products consumed by millions of Americans on a regular basis would not be equally healthful for Russians. It’s a shame they want cultural exchanges like the Olympics, but fear cultured dairy products. They’ll welcome our Olympians but not their food.”
   Russia closed its market to U.S. dairy products in September 2010 due to changes in what it demanded on a health certificate, the official U.S. government-issued statements that have long accompanied product shipments in international trade and provide assurances regarding product safety. Russia and its Customs Union partners, Kazakhstan and Belarus, have not sufficiently engaged with the United States in laying out a reasonable path that would lead to a long-term solution.

Dairy Council of California Supports Community Health Efforts
Darrin Monteiro of California Dairies Inc. and producer Pat Van Dam of Two B Dairy have been appointed to the Dairy Council of California Board of Directors by Karen Ross, secretary of the California Department of Food and Agriculture.
   As director of member relations for California Dairies Inc., Hanford resident Monteiro works directly with the more than 400 dairy producer members of the second largest dairy processing cooperative in the United States. He also represents California Dairies Inc. at industry meetings and events.
   “Darrin’s insight into his organization’s member base and his well-rounded knowledge of the dairy industry will prove to be an asset for our organization and our charge to serve as the dairy industry’s contribution to community health,” said Tammy Anderson-Wise, Dairy Council of California CEO.
   Prior to joining California Dairies Inc., Monteiro worked at the Farm Service Agency, a branch of the U.S. Department of Food and Agriculture, where he completed the FSA’s managerial program certifying him to run any FSA office in the country. Before that, he worked on his family’s Fresno County-area farm. Monteiro graduated from Fresno State University with a degree in Agriculture Business.
   Producer Van Dam has been involved in the dairy business her entire life and currently owns Two B Dairy in Ontario, Calif., which she and her husband Bert have run since 1989. Along with Van Dam’s appointment to the Dairy Council of California board, she serves on the California Milk Advisory Board and the boards of California Beef and FSA. She is also the current president of the San Bernardino County Farm Bureau.

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   A lot of eyes were on this morning’s cash cheese market, following yesterday’s 3.5¢ drop on the blocks. A sale took them back up 0.5¢ this morning, to $2.33/lb., but a bid at $2.30 went unfilled. The barrels, after holding steady with no activity yesterday, rolled 2¢ lower this morning, to $2.30/lb., on an offer.
   FC Stone dairy broker Dave Kurzawski wrote in this morning’s Insider Opening Bell: "After the 3.5-cent drop in blocks, the question is, in the next few days, will there be some material difference in demand for fresh cheese.” He says the uncertainty is “primarily on the domestic side” as “the international side still seems pretty firm."      
   Cash butter dropped to $1.84/lb. on 2 sales today. The following 2 sales brought it back to $1.85/lb., following 11 sales yesterday. The price is now at $1.85/lb., down 3¢ on the day, following yesterday’s 1¢ decline. An offer at $1.85/lb. went uncovered.  
      The Cash Grade A nonfat dry milk roller coaster headed up today after pausing yesterday and dropping 4¢ on Tuesday. Three cars exchanged hands, the first at $2.00/lb., and the last at $2.0175/lb, up 1.75¢. A bid at $2.0150/lb. was left on the board.
Today’s market closing prices:
Butter: Down 3¢, to $1.85/lb.
Cheddar blocks: Up 0.5¢, to $2.33/lb.
Cheddar barrels: Down 2¢, to $2.30/lb.
Grade A nonfat dry milk: Up 1.75¢, to $2.0175/lb.
Class III milk: Feb. $23.21, +13¢; Mar. $21.05, +22¢; Apr. $19.69, +7¢, May $18.96, +1¢, & Jun. $18.85, +5¢. Based on today’s CME settlements, the Second Quarter 2014 average now stands at $19.17, +5¢ from Wednesday. The 2nd half average is $18.36, +4¢ from Wednesday.
Looking ahead:
 The Agriculture Department releases its monthly World Agricultural Supply and Demand Estimates report on Monday. It will include the latest 2014 milk production estimate and milk price projections. The California Department of Food and Agriculture announces their March Class I milk prices on Monday and USDA issues its monthly Livestock, Dairy, and Poultry Outlook Friday afternoon.
Friday on DairyLine:
   Jerry Dryer, editor of the Dairy and Food Market Analyst, reports his dairy product commercial disappearance data and the record high cheese prices.
   What’s new in feed efficiency? Dr. Mike Hutjens tells us in his weekly “Feed Facts” segment


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