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DairyBusiness Update: January 27, 2014


Dairy Processors Meet This Week
   The International Dairy Foods Association (IDFA) is holding its annual Dairy Forum this week in Palm Desert, California. IDFA’s website lists the following as highlights for the three day event:

  • Hear an insider’s view of what it takes for the U.S. to compete in the global marketplace when we welcome Ambassador Ron Kirk, former U.S. Trade Representative, to the Chairman’s Lecture.
  • Examine how macroeconomics, demographic shifts and global events will affect commodity values in the years ahead.
  • Listen to “Supermarket Guru” Phil Lempert explain what consumers want and how the latest food trends are shaping the marketplace.
  • Discuss the 2014 political environment with pundit Charlie Cook, and find out which issues will have the most impact on the mid-term elections.
  • Connect with the leaders who are shaping the future of our industry.

   More details are posted at the website: www.idfa.org.

Ag Sec Says Farm Bill Should Happen This Week
   In an exclusive DairyLine interview to be aired Wednesday, Agriculture Secretary Tom Vilsack said frustration in the countryside has lawmakers on notice to get a Farm Bill passed. As to the dairy title, Vilsack said there were two issues to address and conferees needed to find middle ground. He said there needed to be an improvement in the safety net so that it “helps dairy producers get through volatile price spikes that occur far too often in the dairy industry” and to send the appropriate signals so we don’t continue overproduce. He also stressed the need for the package to be “fiscally responsible” and said he hopes Congress has found a “sweet spot there.”

November Fluid Sales Down 2.1%
Challenges remain on the fluid milk side of consumption. USDA reports that November 2013 packaged fluid milk sales totaled 4.39 billion lbs., down 2.1% from November 2012. (Sales were not adjusted for calendar considerations).
   November sales of conventional products, at 4.19 billion lbs., were down 2.2%; organic products, at 193 million lbs., were up 0.7%. Organic represented about 4.6% of total sales for the month.
   January-November 2013 total packaged fluid milk sales, at 47.15 billion lbs., were down 2.4% from the same period a year earlier. Year-to-date sales of conventional products, at 45.09 billion lbs., were down 2.7%; organic products, at 2.07 million lbs., were up 4.3%. Organic represented about 4.6% of total sales.

Source: Dairy Market News

Vat…or Churn and Dryer?
   Dairy processors face a dilemma. USDA’s Dairy Market News (DMN) reports that cheese production is mixed across the country as the record high cheese prices have buyers and sellers “trying to develop new strategies.” Milk supplies are increasing seasonally but the increases are not moving solely to the cheese vat. Class IV interest continues to pull milk away from cheese plants, according to DMN, as the higher prices have reduced some domestic cheese demand. Very good export sales, often made last year and being delivered in the first quarter of 2014, are keeping supplies of cheese tight. NASS reports that U.S. stocks of cheese (total natural) at the end of December were at 1.009 billion pounds, 1percent less than a year earlier. The concern also arises, do I put $2.31 per pound cheese into inventory, only to have prices drop, as we surmise they will, and lose big bucks literally overnight!

California Drought Man Caused?
   That’s according to an article in Friday’s Milk Producers Council newsletter. MPC’s Rob Vandenheuvel points out that California dairy farms produce about 20 percent of the nation’s milk and that nearly half of U.S.-grown fruits, nuts and vegetables come from California.
   “The availability of water in the Central Valley has a huge impact on U.S. availability of food (not to mention the global consumers of our products as well),” says Vandenheuvel, but while much of the media attention has been on the lack of rain – which is certainly a valid observation – we as a local agricultural industry know that this drought was largely set in motion by human actions.
   He points to Federal policies which have “resulted in a higher priority being set on the well-being of a 3-inch fish over the wellbeing of millions of California residents.”
   He reports that 12 months ago, California authorities released 700,000 acre-feet of useable fresh water out of the Sacramento-San Joaquin River Delta, and into the Pacific Ocean, something not seen that in the media stories but is verified in California’s Natural Resources Agency’s website: http://goo.gl/3j7vUy.
   He says it was not due to a lack of storage capabilities but a fear that if the water were pumped from the Sacramento-San Joaquin River Delta into available storage facilities, it might have killed some of the “Delta Smelt,” a 3-inch fish that happens to be on the U.S. “endangered species list.”
   Finally, he charges that 700,000 acre-feet of water is more than 260,000,000,000 gallons and, by the Natural Resources Agency’s own admission, “enough to irrigate more than 200,000 acres of farmland or supply 1.4 million households for a year.” Read complete details and what to do about it at the MPC website: www.milkproducers.org.       
   For a related story how California ranchers are selling cattle because of the drought, log on to http://goo.gl/XGU5l7

Who Would a Thought?
   I recall days that the world market was a way to “dispose of our surplus,” even employing government subsidies to do so, (anyone remember the DEIP program) but, in those days, world dairy product prices prevented the U.S. from being a serious participant. That has changed.
   Speaking in a University of Wisconsin podcast on line, Dr. Mark Stephenson, Department of Agricultural and Applied Economics, talked about the evolution of the export market. He pointed out that, a decade ago, exports accounted for about the same volume of dairy products as imports did, but in 2005, 6, 7, “We really started to have some circumstances that let exports grow.”
   The dollar became weaker, he explained, “So it makes our products look cheaper to other countries that would want to buy them. We had some problems in other exporting countries like the European Union and Oceana, and low and behold the US found itself exporting dairy products. Today, we’re the third largest exporting country in the world.”     
   “What happened is that the world prices came up to meet ours,” he said, “And so all of a sudden it became attractive to us. And now it’s a major destination.”
    But, he also pointed out the challenges, namely that, “in this country, we would consider a forty-pound block of cheddar cheese, yellow in color, to be the product that we think of as the standard. The world doesn’t. They would think of Gouda as being the cheese that they were expecting, they would not expect to have additional coloring added to it, so it’s a different product that we need to make.”
   He also warned that “We’d be in real trouble if we didn’t have it,” (the export market), as “We’re currently exporting more than fifteen percent of our milk production in dairy products overseas. So if that stopped tomorrow, we would have a flood of dairy products in our domestic market, which isn’t happening. We’re becoming a very consistent and much more knowledgeable world exporter.”

Dairy Cows May Delay “Retirement”
   As reported last week, USDA’s Livestock Slaughter report estimated 256,700 culled dairy cows were slaughtered under federal inspection in December, up 7,600 from November 2013, but 2,100 less than December 2012. The 2013 total was estimated at 3.125 million head, 23,400 more than 2012.
      The Daily Dairy Report points out that this is the lowest December slaughter since 2009, but “Given the strong milk prices at the end of 2013 and into 2014, the pace of slaughter will likely moderate as dairy producers look to boost milk production and reap the benefits of high prices.”
   Meanwhile; USDA’s Dairy Market News reports that livestock auctions in the West “show strengthening prices for dairy heifers since the beginning of January.” “In most regions, operating margins have improved through Q4 of 2013 and into January 2014 as milk price trends remain strong and near term feed input costs decline.”

Is a Havarti by Any Other Name is Still a Havarti?
   The Consortium for Common Food Names (CCFN) said today it is greatly alarmed by the European Union's (EU) decision last week to allow Denmark to move forward with an application for a geographical indication (GI) that would grant it exclusive use of the name 'havarti' in the EU.
   CCFN says the decision is noteworthy because the term not only is used widely around the world, but also because there is an international product standard for havarti. This is particularly significant, given the role that international standards typically play in preventing barriers to trade, according to CCFN.
   In the U.S. alone, havarti is produced by over 40 companies in a dozen states. Significant international production of havarti played a key role in the objective evaluation process that resulted in the finalization of a Codex Alimentarius standard for the cheese in 2007. Consequently, CCFN believes the European Union's GI application directly undermines the Codex standard for havarti, and calls into question the EU's commitment to the international standard setting process.
   "The EU's implied permission to let one single nation own the common name havarti flies in the face of international commerce, and – by disregarding the Codex standard – raises the question of whether any generic food term is safe from being confiscated  by the European Commission," said Jaime Castaneda, CCFN executive director. "We will fervently contest this application."

Cheese Importers to Meet in Paris
   The Cheese Importers of America will again host cheese retailers at the SIAL show in Paris, France, October 19-23, according to today’s press release and “build on the momentum of their very successful Retailer program.” 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 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.

National Dairy Shrine Award Applications Due March 15
   The National Dairy Shrine is again seeking nominations for its Guest of Honor, Pioneer, Distinguished Dairy Cattle Breeder, Progressive Dairy Manager, and Graduate Production Awards.
   The Guest of Honor is given to a contemporary dairy leader for outstanding accomplishments and contributions to the dairy industry. The Distinguished Dairy Cattle Breeder is an award which recognizes active, progressive dairy producers who, through their expertise in managing a dairy breeding herd based upon sound genetics and business principles, serve as a model of success for fellow breeders throughout the country.
   All award winners’ accomplishments are on permanent display in the Dairy Hall of Fame at the National Dairy Shrine Museum in Fort Atkinson, Wis.
   One of National Dairy Shrine’s newer awards, the Progressive Dairy Manager Grant, is given to producers ages 21 to 50 who have introduced and applied effective management and business practices that help achieve more profitable dairy businesses, as well as contributing leadership to dairy organizations.
   Two $2,000 grants for education and travel are given annually, one for herd sizes with 300 milk cows or less and a second for herds with over 300 milk cows.
   The Graduate Dairy Production Award recognizes and assists qualified two-year and four-year agricultural college graduates efforts to pursue a career in commercial dairy farming and to gain ownership of dairy cattle with the intent of growing their dairy herd. The applicant must be employed in a herd management role on a commercial dairy when completing the award application. The winner will receive a $2,500 award from National Dairy Shrine, with sponsorship aid from Elanco.
   Nominations or applications must be submitted on official forms by March 15. Log on to www.dairyshrine.org for complete details and click on “Adult Awards” to view a complete listing of each award form.
   The annual National Dairy Shrine awards banquet will be held on October 2 in Madison, Wisconsin. For more information about the banquet please contact Dr. David Selner, Executive Director, at info@dairyshrine.org. National Dairy Shrine membership information is also available online at www.dairyshrine.org.

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke) Cash cheese was unchanged for the first time in 7 sessions today. The Cheddar blocks remain at their record high $2.31/lb., with 2 bids at that price going unfilled. The barrels held at a record $2.2750/lb., with nothing happening.    
  It will be interesting to see how long cheese will remain at $2 levels before product starts showing up at the CME.
   Cash butter was up 1¢ today on a trade, following 2 sessions of loss last week totaling 5¢, and is now at $1.90/lb. An offer at that price was left on the board.
   "Stocks of butter are low and the Easter demand period is not too far off," says FC Stone risk management specialist Joe Kobel in this morning’s eDairy Insider Opening Bell. "Butter stocks need to be rebuilt to meet that demand,” he said, “although there is some concern that demand could falter given current price levels."
   Cash Grade A nonfat dry milk was unchanged this morning, holding at $2.05/lb., following 3 days of loss last week, amounting to 5.25¢. One offer was left uncovered. Extra Grade is no longer trading at the CME.

Today’s market closing prices:
Butter: up 1¢, to $1.90/lb.
Cheddar blocks: Unchanged, at $2.31/lb.
Cheddar barrels: Unchanged, at $2.2750/lb.
Grade A nonfat dry milk: Unchanged, at $2.05/lb.
Class III milk: Jan.$21.05, unchanged; Feb. $22.78, +33¢; Mar. $20.76, +29¢; Apr. $19.57, -13¢, May $19.08, +2¢, & Jun. $18.83, +8¢. Based on today’s CME settlements, the first half 2014 average now stands at $20.35, +15¢ from Friday, and the 2nd half average is $18.14, +4¢ from Friday.
Looking ahead:
   Again, this week’s USDA report schedule doesn’t offer much for the markets to feed off of, with the monthly Ag Prices report being the only report we regularly monitor. That report is issued Friday afternoon and will include the latest Milk Feed Price ratio.
Tuesday on DairyLine:
   California prepares for a federal order system. Rob Vandenheuvel, Milk Producers
   Council comments.
   Denise Behnke provides her weekly SmartDairy update.