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DairyBusiness Update: June 20, 2014


Dairy Outlook Depends Largely on El Nino
   In his speech at INTL FCStone's 11th Annual Dairy Outlook Conference on June 18, vice president of FSCStone's food division Robert Chesler focused his dairy outlook on milk (CME:DFM14), suggesting there's been a "global trend of more milk" in the dairy market over the last year.
   Writing in Futures, Thomas Dixon reports that Chesler pointed out that almost all of the major milk-producing countries are up in production and price. Moving forward, he discussed what factors could impact whether the market sees a massive correction or sustained growth.
   El Niño, which could be especially strong this year, remains the major potential destabilizer of the market globally, Chesler said.
   New Zealand's production will depend largely on El Niño's effect, as will production in the U.S., particularly in California. Chesler said the current drought in California, however, is overblown — they're still making a lot of milk.
   "Stop listening to (talk about the drought in California)," Chesler said. "The drought is a problem ... but the problem from a milk perspective rolls into next year. The hay that needed to get water for cutting this year got water. They're going to feed that first cut to their cows, but it's the subsequent cuttings of hay that are going to hamper quality — they'll have to go to dry cuts." If El Niño brings rain to the West, California will be very bullish, he said.
   Another major factor that could impact market volatility and price is the EU's abolition of its milk quota in April 2015.
   Read more of Dixon’s report and Chesler’s perspective on China by logging on to:

US Dollar Among Several Factors Impacting Dairy
   Penn State’s Professor of Agricultural Economics, Dr. Jim Dunn, reports in his latest Dairy Outlook that the U.S. dollar is higher in the past month against the Euro and about the same versus the Australian and New Zealand dollars.
   The Euro zone continues to have a variety of challenges as it tries to manage the disparate economies of the member states as well as the problems with Russia’s behavior in Ukraine and elsewhere, which affects its natural gas supply and other things.
   The Wall Street Journal Online recently reported that, “China’s food-safety regulators pulled production permits from more than a third of the country’s infant-formula makers, pushing for consolidation and greater control in an industry that has suffered quality scandals.” The same article noted that foreign brands have a 55% share of the formula Chinese market.
   Dunn addresses income over feed costs and reports on his recent visit to Poland and what lay ahead for its dairy industry in his latest Outlook. To read it, log on to:

USDA Salutes June Dairy Month and Dairy’s New Markets
   AMS Dairy Programs Deputy Administrator, Dana Cole writes on the USDA blog: Every June, USDA joins the rest of the country to celebrate Dairy Month. It is a time to thank our nation’s dairy producers and processors for their tireless work to produce quality dairy products like milk, cheese, and yogurt. Here at USDA, besides getting our fill of our favorite dairy products, we celebrate our nation’s dairy industry every day by finding new markets where people can enjoy their products. This often entails working with other countries’ governments to negotiate export and import requirements as well as helping businesses meet these requirements.
   Our nation’s dairy exporters reach new markets with the help of the Agricultural Marketing Service (AMS). Export certificates are often the critical piece in the trade puzzle. On this front, AMS offers certificates for more than 80% of the countries that accept U.S. dairy exports. Our Dairy Programs can verify that businesses’ dairy products meet export requirements. The AMS Dairy Grading Branch provides export certificates for products or conditions for which they have documentation for or from plants they inspect.
   Certificates are paper or electronic documents which describe and attest to attributes of consignments of food destined for international trade. Certification of food may be based on a range of inspection activities including continuous online inspection, auditing of the quality assurance system, and examination of finished products. With the help of export certificates, importers can confidently receive products that meet requirements agreed upon by the U.S. and the importing country. As a result, people all over the world enjoy U.S. dairy products.
   In recent years, AMS helped open up U.S produced products to several major importing nations. In March 2014, our agency enhanced its system, enabling the availability of electronic sanitary export certificates to China. Now exporters can request their China sanitary export certificates using the Electronic Document Creation System (eDocs). China is the world’s largest importer and is currently the second largest export destination for U.S. dairy products. Working with the Food and Drug Administration (FDA) and the USDA’s Foreign Agricultural Service (FAS), AMS helped 240 U.S. dairy and infant formula firms get audited and registered to export products to China using our eDocs system.
   Another example of AMS connecting exporters to new markets happened in 2010 when the Customs Union (CU) trade bloc — composed of Belarus, Kazakhstan, and Russia — came into existence. A new U.S. – CU dairy veterinary certificate was required to resume trade in those countries. Trade was halted in 2010 when the CU demanded changes to the current U.S. export health certificate. Negotiations continued until March 2014 when AMS was notified that all members of the CU accepted a U.S. proposed export certificate for pasteurized milk products.  The U.S. government interagency team is discussing additional administrative steps before issuing certificates.
   In addition to negotiating export certificate agreements with other countries, AMS has created a number of resources that will help dairy exporters. We encourage you to check out our Dairy Exports website. We recently held 20 webinar trainings that helped exporters become familiar with our systems. Our sites are equipped with important documents, frequently asked questions, and key contacts.
   The effort to increase the number of export destinations for U.S. dairy businesses will help continue a positive trend for the industry. In the last 10 years, dairy exports have averaged a 21% increase per year. Currently, U.S. dairy exports are valued at $6 billion and the country is the world’s leading single country exporter of skim milk powder, cheese, whey, and lactose products.
   AMS is proud to be a leader when it comes to increasing demand for U.S. dairy exports. Whether it’s June or any other time of the year, we are committed to supporting our nation’s dairy producers and processors. We want to make sure that people all over the world can enjoy their quality products.

New Zealand Dairy Farmers Wary of U.S. Farmers
   That’s according to the New Zealand Farmer’s Tim Cronshaw. He writes in his June 20 issue: Fonterra's milk suppliers are wary of the ability of United States feedlot farmers to step up or slow down milk production faster than they can. When grain is cheap and commodity prices are high, as was the case in the soon-to-finish 2013-14 season, this can be to the advantage of operators keeping cows in confined feedlots. As they ramp up milking, this has a bearing on world supplies and the prices Kiwi farmers receive.
   Logic would say they will ease off as global commodity prices falter, but narrowing down their next move is complicated.
   Unlike Fonterra farmers, the bulk of their milk is consumed domestically, although US exports are growing quickly. Their market signals are tied to domestic prices and are "muted" compared with our clear signals.
   This makes it difficult for the likes of Fonterra to weigh up what's going to happen next and calculate the next wave of milk payments for its own farmers.
   It would be wrong to paint too bleak a picture. The starting point for the 2014-15 payout, estimated by Fonterra at $7 a kilogram of milksolids, is the same as for the previous season. Lower commodity prices and a bunch of factors including the US influence, however, have few farmers expecting a repeat of the healthy $8.40/kg forecast for 2013-14.
   Fonterra chairman John Wilson says Fonterra is in a good position, and farmers are happy with today's milk payment, but are rightly looking ahead.
   Read more at: http://www.stuff.co.nz/business/farming/dairy/10180346/US-milk-exports-affecting-NZ-farms.

Protest to Dairy Hearing Petition Made
    California dairy producers, via the California Dairy Campaign (CDC), have called on the California Department of Food and Agriculture (CDFA) to deny the petition made this week by California dairy processors.
   In a letter written to California Agriculture Secretary Karen Ross, CDC President, Joe Agusto, stated: On behalf of the dairy producer members California Dairy Campaign (CDC) represents, I write to request that the California Department of Food and Agriculture (CDFA) deny the petition put forward by California Dairies, Inc. (CDI) calling for a hearing to consider increases in the manufacturing cost allowances in the 4a milk pricing formula.
   Dairy producers have undergone unprecedented financial hardship in recent years and should not be required to pay higher 4a manufacturing cost allowances given the profitability of that class of milk in the domestic and international market. Increasing the manufacturing cost allowances in the 4a formula as called for in the petition would significantly increase the differential between the 4a price and the Federal Order Class IV Milk Price creating even greater inequity in our state dairy pricing system than already exists.
   As a result of the historic drought, California dairy producers continue to pay record high feed costs, face looming feed shortages, and have incurred a range of additional costs due to the lack of water availability. Yet these cost increases are not factored into the milk pricing formulas. In fact, according to 2013 data from the USDA, National Agricultural Statistics Service (NASS), California ranks last out of all fifty states in terms of the average return to dairy producers. California produces 20 percent of the country’s milk supply and has some of the highest milk production costs in the nation, yet California dairy producers are paid the lowest average return per hundredweight of any state. Although dairy producer prices have improved, the future for many dairy producers is uncertain due to the tremendous losses suffered up until this point.     
   According to CDFA data, dairy producer income fell below dairy producer production costs in all but one of the last five years. As dairy producers recover from the financial losses sustained over many years, they simply cannot afford to pay more in manufacturing cost allowances.
   We urge CDFA to deny the request for a hearing put forward by CDI to raise the 4a manufacturing cost allowances in the 4a milk pricing formula. We appreciate your attention in this regard.
   Complete details are posted at CDFA’s website at: http://cdfa.ca.gov/dairy/uploader/postings/petitions/.

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)
   Cash cheese trading saw little change this morning and remains precariously at the $2/lb. level. The 40lb. blocks held right at $2/lb., with 4 carloads exchanging hands at that price and a bid at $2 going unfilled. It was a roller coaster ride but was the second week in a row of decline. The 500lb. barrels inched up another 0.5¢ on an unfilled bid after gaining 0.25¢ yesterday, 1.5¢ Wednesday, 2.75¢ on Tuesday, and losing 0.75¢ on Monday, and ended the day and the week at $2.01/lb.
    The blocks are down 3¢ on the week but 27.5¢ above a year ago. The barrels are up 4.25¢ on the week, 29.25¢ above a year ago, and 1¢ above the blocks. Eighteen cars of block traded hands on the week and eight of barrel. The NDPSR-surveyed U.S. average block price slipped 0.6¢, to $2.0172/lb., while the barrels averaged $2.0176/lb., down 0.3¢.
   Cash butter was unchanged this morning, holding at $2.2350/lb., after the surprise drop yesterday of 1.75¢, which followed the 5.75¢ jump on Wednesday. There was no activity today.
   The spot butter reversed two weeks of loss and is up 5¢ on the week and 73.5¢ above a year ago. Thirty cars were sold on the week. NDPSR butter averaged $2.1836/lb., down 0.2¢.
   Cash Grade A nonfat dry held all week at $1.8250/lb. and with no activity all week. NDPSR powder averaged $1.8624/lb., up 2¢, and dry whey averaged 67.67¢/lb., unchanged from the previous week.

Today’s Market Closing Prices
Butter: Unchanged, at $2.2350/lb.
Cheddar blocks: Unchanged, at $2.00/lb.
Cheddar barrels: Up 0.5¢, to $2.01/lb.
Grade A nonfat dry milk: Unchanged, at $1.8250/lb.
Class III milk (prelim.): June $21.34/cwt., Unchanged; July $21.55, -6¢; Aug. $21.33, +2¢; & Sept. $21.30, +4¢. Based on today’s CME settlements, the Third Quarter 2014 average now stands at $21.39, Unchanged from Thursday. The Fourth Quarter average is now at $20.30, +8¢ from Thursday. The First Quarter 2015 average is now at $18.62, +9¢ from Thursday.
Looking ahead:
   Next week won’t give much to the markets to feed off of as there are only two scheduled USDA reports that we regularly monitor. The first is the preliminary May Cold Storage report, which is released Monday afternoon, and then the Ag Prices report is out Friday afternoon, which will include the latest milk feed price ratio.

Monday on DairyLine:
   Tim Costigan, of Prince Agri Products, discusses how his company deals with quality
Cornell's Rob Ralyea tells us how Cornell is at the forefront of dairy safety outreach.


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