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DairyBusiness Update: January 31, 2014


Milk Prices Up/Feed Costs Down- Ag Prices Report
The Agriculture Department’s Ag Prices report issued this afternoon shows the January index, at 115, up 5.5% from December 2013 and 16% above January 2013. The January all milk price of a record $23.20 per cwt. is up $1.20 from last month and $3.30 above January 2013.
   January 2014 corn averaged $4.37/bushel, down 4¢ from December and $2.59 below January 2013. January soybeans averaged $13/bushel, unchanged from December but $1.30 below a year ago. Alfalfa hay, at $185/ton, was down $2 from December and $32 below a year ago.

Dairy Title Leaves Much Discretion to Ag Sec
   Dr. Brian Gould, doesn’t agree with the Wall Street Journal’s assessment that dairy farmers are “losers” in the new Farm Bill. Speaking in Friday’s DairyLinet, Gould said the Margin Insurance Program was one of the things dairy producers, via the National Milk Producers Federation, wanted.
   “That’s not a loss,” he said. “It’s going to be more market driven and there’ll be more producer decision making involved.” “The strength is individual decision making in terms of participating in that margin insurance program and there’s no requirement.”
   One of his issues with the dairy title is that, if producers participate in the USDA Margin Program they’re not allowed to participate in the Livestock Gross Margin (LGM) program. He’s not sure why but says, perhaps it’s because they are both subsidized.
   The LGM is a revenue insurance program for dairy producers that has been around since August 2008, according to Gould, and is used to set minimum margin floors. It’s very similar to the USDA Margin Program but is more flexible, he said, can be entered into multiples times per year and the costs are comparable at least at the upper coverage levels to what the USDA premiums are.
   As to the Margin Insurance Program, Gould said national average prices are used, no local bases. The premiums are differentiated by farm size, in terms of history, with 4 million pounds or less considered a smaller operation and anything over 4 million considered larger and will have a different premium schedule.
   Gould’s understanding is that the premiums for the $4 margin are 100% subsidized but anything else in 2014 and 2015 there will be a 25% reduction in the premiums for smaller operations.
   The dairy title is fairly short, he concluded. A lot of rules in terms of development are left up to the Secretary of Agriculture. As an example, Gould said it’s not clear whether a farmer has to enter once for five years or once a year and “that has some significant implications in terms of risk management activities.”

Oceania Milk Production Mixed
   Dairy Market News (DMN) reports that Australian milk production is facing weather related challenges that are accelerating seasonal declines.  Another heat event is covering a majority of Victoria and New South Wales and comes at a time when milk production was experiencing a rebound from a previous heat event. The intense heat has caused milk production reductions of 10% or better in some areas along with isolated instances of cattle fatalities due to heat exhaustion.    
   New Zealand output in November was reported at 2.96 million tons, up 4.0% from November 2012 and 11.9% higher than two years ago. Current milk production levels are holding up as weather has not been a factor, says DMN.

China Demand Keeps Prices Firm
Prices for all dairy products are firm, according to DMN, with most supplies for Q1 and Q2 committed. “China has remained active in the dairy markets, which is a bit unusual with the Chinese New Year beginning at the end of the week on January 31” Global demand continues to be very strong for nearly all dairy products, reports DMN but “The higher dairy product prices have worked their way to consumers with some buyers resisting higher prices, due to growing unwillingness of customers to purchase at current price levels with some buyers beginning to consider alternative products.”

U.S. Pricing its Way Out of World Market
   That appears to be the case, according to FC Stone dairy economist Bill Brooks. Brooks points out in this morning’s eDairy Insider Opening Bell that, "With Class III prices closer to Class IV, cheese manufacturers are finally better able to compete for milk” and the same thing is happening in New Zealand. Brooks and dairy broker Dave Kurzawski point out that U.S. cheese prices have now eclipsed prices in Oceania, on the GlobalDairyTrade auction, and in parts of Europe and warn that "The danger here is we are going to price ourselves out of the world cheese market, if we haven't already." Brooks says that current cheese prices are “probably not justified and that increases are now psychologically driven.”
   The drought in California could also be playing a role in markets, according to Kurzawski, “but at this point it's likely a minor one. Milk production is strong and the state's flush will likely occur early because rain has not adversely affected milk production." “Longer-term, though, if drought persists output could suffer in the Golden State if feed supplies become scarce and costly.”

Fonterra Action “Dairy Good” News
High Ground Dairy’s Eric Meyer reports this morning that New Zealand-based cooperative, Fonterra, bumped up their 12 month Global Dairy Trade (GDT) volume forecast this week on nearly every commodity to 1.773 billion pounds, their largest in six months.
   “And at 3.7% growth versus two weeks ago, it was the sharpest percentage uptick since early October, according to Meyer. “We hypothesize that high prices are beginning to cure the supply issue that was one of the reasons prices are high in the first place; and New Zealand milk production growth is accelerating. Mother Nature can also be thanked but we believe Kiwi dairy farmers have and will find ways to create as much milk as possible in this high margin environment.”
   Meyer adds the caveat “Global demand, particularly out of China, remains extremely robust and 2014 annual growth projections for dairy imports there have been projected as high as 25%! (USDA-GAIN) If China imports anything close to that number, prepare for very high dairy commodity costs to remain throughout much of 2014.”
   Meyer says “It will be interesting to see if the incremental GDT volume this week slows the enthusiasm of the buying community or if they become invigorated to be one of many competing for actual physical product. Fonterra’s expected supply over the next few months should continue to grow versus last year’s drought-impacted totals. But the NZX futures market has not yet suggested any real weakness on the horizon. We look forward to what the auction results tell us.” For more details on Meyer’s perspective, visit his website at www.highgroundtrading.com.

European Milk Output Rising
Eurostat reports November milk production in the EU-28 up 4.4%, compared to the same period last year, reports DMN. Ireland was up 19.7%; Netherlands, +5.9%; Germany, +3.6%; and France +3.7%. Current milk production in Western Europe is increasing along the seasonal trend with some countries 3-5% above week to week comparisons from a year ago. Weather this winter has been comprised of mostly mild and wet conditions, and generally supportive of milk production, according to DMN, and dairy producers appear to be doing all they can to increase milk production to assist in filling the global demand.
   Eastern European output in November was up 2.6%, compared to last year. The Poland and Baltic countries are showing better milk production results than the southern countries of Eastern Europe. Poland was up 4.6%; Slovenia, -1.9%; Hungary, +2.0% and the Baltic countries +5.6%. The winter in Eastern Europe has turned cold and may affect milk production if it persists. Eastern European butter and cheese manufacturers continue to receive good export interest from Russia, according to DMN.

Dairy Product Terminology Becoming “Politically Correct”   
   The Consortium for Common Food Names (CCFN) has denounced a United Kingdom (UK) appeal court’s ruling issued this week that declared that only yogurt made in Greece could be labeled as “Greek Yogurt.” The ruling was issued in response to a court case brought against a U.S.-based company.   
   The European Union (EU) maintains a list of geographical indications (GIs), according to the CCFN, and this list is intended to provide some level of clarity as to which regional terms are restricted for usage by only certain countries. However, "Greek Yogurt" does not appear on that list of GIs, nor is it currently even under consideration by the EU authorities for registration as a GI. Despite that, the court still found that the U.S. company was not permitted to sell “Greek Yogurt” in the UK market.   
   “This ruling seeks to further broaden the already far-too-expansive scope of what European courts and officials are declaring to be off-limits for all but a select group of producers in one region of the world,” declared Jaime Castaneda, CCFN Executive Director. “This restriction, on a term that is not even a registered GI, indicates the continual creep of limitations on common food names and the upheaval this can cause in international trade.”   
   Castaneda went on to say that, “This is why CCFN is focused on calling for common sense to prevail as it relates to the use of common food names. Following the logic employed by this European court, CCFN wonders if the Europeans will next be crusading to limit the use of a host of other products that use a country’s name such as ‘French fries,’ ‘English breakfast tea,’ ‘Italian dressing,’ ‘Belgian waffles’ or ‘Danishes’ if the products are not produced in their name-sake countries.”   
   Castaneda made clear the stakes that findings like this could hold for a variety of companies. “This is not just about one company and its use of ‘Greek Yogurt’ as a term that describes yogurt made using a straining process. This is about drawing reasonable lines around the use of words that have come to describe a type of product rather than to identify the item as having been made in one particular region of the world,” he said.   
   This action comes on the heels of steps taken just last week by the European Commission to allow the advancement of a GI application that would grant to Denmark the exclusive use of “Havarti,” a cheese with an active international product standard and global production. The impact of that application would similarly restrict the use of a common name used by multiple countries to describe a type of product and award it solely to producers in just one nation.    Further information about the global attack on the use of common food names can be found at www.commonfoodnames.com. More details on these UK court proceedings are available here.

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   The cheese climb isn’t over…yet, but may be slowing as the high prices finally attracted some product to the CME. Cash block inched up 0.5¢ this morning, setting another record high of $2.36/lb., following 3 previous sessions of gain this week. Four cars were sold today, all at $2.36/lb., with a bid at that price going unfilled. Cheddar barrel was unchanged, holding at $2.32/lb., with a bid at that price left on the board. The blocks are up 5¢ on the week, 71.5¢ above a year ago, and up 36¢ since January 1. The barrels are up 4.5¢ on the week and 77.75¢ above a year ago and up 47¢ since the 1st. A 1¢ movement on cheese equates to about 10¢ on the Class III milk price. Four cars of block traded hands this week and three of barrel.
   Cash butter dropped 1.25¢ this morning, following small losses the previous two sessions, and closed the day and the week at $1.88/lb. Five carloads found new homes today. The first sale was at $1.8650/lb., 1 was at $1.8750/lb., and the final sale was at $1.88/lb. A bid at $1.8750/lb. was unfilled. The spot price is down 1¢ on the week but is 32.5¢ above a year ago. Ten cars were sold this week.
   The roller coasting Cash Grade A nonfat dry milk price headed down today, losing 1.5¢, and closed at $2.04/lb. It was up 0.25¢ yesterday, down 2.25¢ Wednesday, and up 2.5¢ on Tuesday. Eight carloads were sold this morning. The 1st sale was at $2.05/lb., the 2nd at $2.0525/lb., but slipped from there to the final sale at $2.04/lb. A bid at $2.04/lb. was unfilled and an offer at $2.0550/lb. was left on the board. The price is down 1¢ on the week and 23 cars were sold this week.
   FC Stone risk management consultant Brendan Curran wrote in yesterday’s eDairy Insider Closing Bell that  "The strength in the nonfat dry milk market is due to world demand," but "At some point, the severe drought gripping California could also play a role if U.S. supplies decline."

Today’s market closing prices:
Butter: Down 1.25¢, to $1.88/lb.
Cheddar blocks: Up 0.5¢, to $2.36/lb.
Cheddar barrels: Unchanged, at $2.32/lb.
Grade A nonfat dry milk: Down 1.5¢, to $2.04/lb.
Class III milk: Jan.$21.12, +1¢ (+7¢ on the wk.); Feb. $23.11, -18¢ (+33¢ on wk.); Mar. $21.47, -6¢ (+71¢ on wk.); Apr. $20.04, -2¢, May $19.20, unchanged, & Jun. $18.88, +1¢. Based on today’s CME settlements, the first half 2014 average now stands at $20.64, -4¢ from Thursday, and the 2nd half average is $18.27, +2¢ from Thursday.
Looking ahead:
   The California Department of Food and Agriculture will announces the state’s January 2014 Class 4a and 4b milk prices on Monday. USDA issues its December 2013 Dairy Products report on Tuesday, and January Federal order Class II, III, & IV milk prices are announced on Wednesday afternoon.
Monday on DairyLine:
Alan Levitt recaps IDFA’s 2014 Dairy Forum held this week
Team facilitator Kristy Pagel has more on the team meeting concept.