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DairyBusiness Update: May 9, 2014


California’s June Class I Milk Prices Drop 78¢/$4.26 Above Year Ago
   The California Department of Food and Agriculture announced its June Class I milk price today at $25.10 per hundredweight for the north and $25.37 for the south. Both are down 78 cents from May but are $4.26 and $4.25 respectively above June 2013.
  The six-month average now stands at $24.53 for the north, up from $19.85 at this time a year ago, $17.83 in 2012, and $19.42 in 2011. The southern average is $24.80, up from $20.13 a year ago, $18.10 in 2012, and $19.69 in 2011. The June Federal order Class I base price will be announced by USDA on May 21.

WASDE: 2015 Milk Output Estimate Raised; 2014 Unchanged
USDA’s World Agricultural Supply and Demand Estimates (WASDE) report, released May 9, raised its 2015 milk production forecast higher as lower feed costs and strong milk prices are expected to support both herd expansion and gains in milk per cow but its 2014 projection was unchanged..
   • 2014 production and marketings were projected at 206.1 billion lbs. and 205.2 billion lbs., respectively. Both are unchanged from last  month’s projections. If realized, 2014 production and marketings would be up 2.4% from 2013. 
• 2015 production and marketings were projected at 212.1 billion lbs. and 211.1 billion lbs., respectively. If realized, 2015 production and marketings would be up about 2.9% from 2014. 
   Fat-basis exports are forecast lower on increased competition from traditional exporters, primarily in butterfat markets. Continued strength in nonfat dry milk (NDM) will help limit declines in skim-solids exports. Fat-basis import forecasts are expected to be about the same as 2014 but skim-solids imports will be lower. With higher domestic production, cheese, butter, NDM, and whey prices are forecast lower. Both Class III and Class IV prices are forecast lower. The all milk price is forecast at $19.70 to $20.70 per cwt for 2015.
   Fat basis imports are forecast lower while skimsolids imports are higher. Exports are raised on stronger sales of NDM, butterfat and cheese. Butter and whey prices are raised from last month while NDM is lower. Cheese is unchanged but the range is narrowed. The Class III price is raised on higher whey prices. Class IV is up as higher prices for butter more than offset reduced prices for NDM. The all milk price is forecast to average $22.70 to $23.00 per cwt.

Dairy price forecasts  
Estimated Forecast
Product 2013 2014 2015    
Class III ($/cwt) 17.99 20.55-20.85 16.90-17.90
Class IV ($/cwt) 19.05 21.25-21.65 18.55-19.65
All milk ($/cwt) 20.05 22.70-23.00 19.70-20.70
Cheese ($/lb.) 1.7683 1.9950-2.0250 1.6700-1.7700
Butter ($/lb.) 1.5451 1.80-1.86 1.6150-1.7450
NFDM ($/lb.) 1.7066 1.8300-1.8600 1.6050-1.6750
Dry whey (¢/lb.) 0.5902 0.6300-0.6500 0.5500-0.5800

Source:USDA WASDE report, May 9, 2014

High Cost Cheese Hurt April Demand and Sent Prices Plunging
   Cash cheese prices, while trying another rally currently, have plummeted from their recent highs again, but are still well above historic levels for this time of year. When asked in Friday’s DairyLine, what was behind the downfall and was there a drop in commercial disappearance, Jerry Dryer, Editor of the Dairy & Food Market Analyst, answered; “Not through the First Quarter.”
   Through March, American cheese disappearance was up 2.7 percent and other cheese disappearance was up 4.2 percent, he said, and he credited “very strong exports and pretty good domestic use,” but blamed the recent correction in the cheese price to “more recent history, the month of April,” due to push back from the higher prices. That combined with seasonal increases in milk production and a small bump up in the solids content of milk, he said, and “the market is trying to find a new level.” Dryer believes the market will put in a floor at current levels for the near term.
   Dryer doesn’t put a lot of stock in the Global Dairy Trade (GDT) and when I asked him if the GDT cheese price downfall may have contributed to the domestic price falling, he said “I doubt it.” He believes it was “Probably things happening right here in this market.” Most of the product available from Oceania is pretty well committed, Dryer said, “And is pretty thinly traded in the GDT.”
   When asked about butter at an unseasonable $2.1550 per pound, he credited strong exports, adding that “Commercial disappearance hasn’t been a pretty picture.” Domestic sales have been “sluggish,” he said, but exports have been strong and “Is a poster child for the way prices swing.”
   Commercial disappearance for butter was up double digits for the three months ending in January and flat for the three months ending in March, according to Dryer’s data, “And now we got a pop again in April,” which he attributes to “Strong exports given tight supplies in Europe and tight supplies here for a whole host of reasons.”

Dean Foods Posts Surprise Loss
   Reuters reports that Dean Foods Co., the largest U.S. milk processor, cut its full-year adjusted profit forecast after posting a surprise loss for the first quarter, as milk costs reached an all-time high and a severe winter hurt supply. Shares of the company, which sells Meadow Gold and Dean's milk, fell as much as 6 percent on Thursday.
   Dean Foods has been struggling to boost volumes amid tough competition and volatile commodity costs after it lost a contract with Wal-Mart Stores Inc (WMT.N) last year.
   "Due to the previously disclosed loss of business from a large retailer, Dean Foods' unadjusted fluid milk volumes declined 6.7 percent (in the first quarter)," the company said in a statement.
   Dean Foods is facing headwinds due to high raw milk costs and the loss of the private-label milk contract, Chief Executive Gregg Tanner said on a post-earnings conference call.
   Milk prices have been rising in the United States since 2008, when China started sourcing foreign-made milk powder and infant formula after six babies died and over 300,000 children fell ill due to local milk products contaminated with melamine.
   Dean Foods said raw milk prices rose 22 percent in the first quarter ended March 31. Prices continue to rise, increasing 4 percent between March and May, the company said.
   Read more at http://www.reuters.com/article/2014/05/08/us-dean-foods-results-idUSBREA470MW20140508.

Darigold Sued for False Branding
   Politico reports that Seattle-based Darigold, one of the largest dairy producers in the country, is facing a class-action consumer lawsuit alleging that the company is engaging in deceptive business practices by implying in marketing documents that its products are made with “utmost care” for animal health and labor protections for employees.
   In the suit, Ruiz, et al., v. Darigold, Inc., filed May 5 in the U.S District Court for the Northern District of California, the plaintiffs claim “some of Darigold’s milk is produced under conditions where dairy cows are injured and sick, where, despite suffering from bloody and swollen udders, cows are still milked, and where workers are denied the most basic labor protections, such as drinkable water, lunch rooms, meal and rest periods, and an environment free of discrimination.”
   In particular the suit takes aim at a 2010 Corporate Social Responsibility Report, which plaintiffs argue “misrepresents” the conditions in which many of its cows are kept. The suit seeks damages under the Consumer Legal Remedies Act and several state false advertising statutes.
   The complaint is available at: http://politico.pro/1g8TZqs
   Darigold stated in a Thursday press release that it had been named in a class action lawsuit alleging Darigold misrepresented labor and animal care conditions in its 2010 marketing and reporting materials.
   “After review of the claims we are confident that they are meritless and will fail in the course of litigation,” says General Counsel & Sr. Vice President, Corporate Affairs Steve Rowe. “The claims that our dairy producers do not adequately take care of their employees or animals is not only inaccurate, it is offensive to generations of our dairy farm families and the employees who care for the animals. We are proud of the over 500 family farms that work hard each and every day to produce high quality Darigold products that feed our local communities and the world. We stand behind the information contained in our Corporate Social Responsibility reports, which can be found at Darigold’s website at www.darigold.com at the bottom of the “About Us” section.

Off-the-Chart Profitability of Ethanol Production
   Dr. Scott Irwin, of the University of Illinois Department of Agricultural and Consumer Economics, examines the profitability of ethanol production in the U.S. He writes: Trends in the profitability of ethanol production were examined in a farmdoc daily post on March 14th. Using a model of a representative Iowa ethanol plant, it was estimated that a plant earned $23 million in profits during 2013. This was one of the best years ever for ethanol producers in terms of profitability. A new high in weekly profits of $2.55 per bushel of corn processed was reached in early December 2013. 
   The high profits were driven by a drop in corn prices that substantially exceeded declines in ethanol and DDGS prices. It was also argued in the same post that there were logical reasons to suspect that the extended run of profits was unlikely to continue. Just the opposite occurred, as ethanol production profits subsequently exploded off-the-chart. Today's post will examine the spike in the profits of ethanol producers in recent months and the reasons behind it.
   The analysis is based on the same model of a representative Iowa ethanol plant used in the March 14th post and other earlier posts on the profitability of ethanol production (see earlier posts here, here, and here). Rather than repeat the details of the plant model the reader is directed towards the March 14th post for further details on the model. Figure 1 presents the updated (pre-tax) estimates of ethanol production profits per bushel of corn processed.  
   The historic spike in profits began during the first week in February 2014, peaked at the previously unheard level of $4.50 per bushel in the last week of March, and then dropped back to "only" $1.45 per bushel in the first week of May (note: just divide the bushel profits by 2.8 to convert to gallons). The new peak profits were almost $2 per bushel higher than the previous record.  The net result was a profit for the representative plant of $23.4 million during the first four months of 2014, slightly more than the historically high profits earned over the entire calendar year of 2013. 
   Read the complete report at: http://farmdocdaily.illinois.edu/2014/05/off-the-chart-profitability-of-ethanol-production.html

Cheese Importers Elect New Officers
   The Cheese Importers Association of America announced results of their 2014-2016 Election of Officers and Directors. The new President is Dominique Delugeau, Saputo Cheese USA, Inc.. First Vice-President Ken Olsson, AV Olsson Trading Co. Second Vice-President Phil Marfuggi, The Ambriola Co., Inc. Treasurer Daniel Schnyder, Emmi Roth USA, and Secretary Ralph Hoffman, Arthur Schuman, Inc.
   The following Directors were elected to a new three year term: John Angiolillo, Icco Cheese Co., Inc.,  Fiona Hutchinson, Fonterra (USA) Inc., Linda Karaffa, Norseland Inc., Kristine Lukachyk, Finlandia Cheese Inc., Mark Mazzella, Atalanta Corporation, Jordan Phiebig, Galaxy Dairy Products, Inc., Jim Robinson, Jana Foods, Paul Schilt, Mifroma USA, Iarlaith Smyth, Irish Dairy Board, Philippe Surget, Lactalis Deli, Inc. 
Individuals remaining on the CIAA board include: Lee Davis, Pacific Cheese Co., Barry Elkins, World Import Distributors, Inc., Kurt Epprecht Great Lakes Cheese, Jens Bang Pedersen, Bang & Soderlund, Inc., David Raff, MCT Dairies, Inc., Alain Voss, Schratter Foods Inc./Anco Fine Cheese, Todd Druhot, Gourmet Foods International, Philip Musco, Musco Foods Corp., Craig Newman, Schreiber Foods,  and Ken Preuss, Global Sales And Marketing, LLC.
   The Cheese Importers Association of America, Inc. is a non-profit trade association formed more than sixty years ago whose membership comprises the vast majority of the firms engaged in the business of importing, selling, promoting, and distributing cheese and cheese products in the U.S. The CIAA endeavors to support dairy trade, within the context of compliance with international trade agreements, and all applicable US regulations.
   For more information, visit www.theciaa.org or call (202) 547-0899.

DairyBusiness & HolsteinWorld Seek School-year Interns
   DairyBusiness Communications is now accepting applications for three school-year internships beginning September 1. Students interested in applying should have a strong interest in ag communications as each internship will focus around one of DairyBusiness’ three main publications – DairyBusiness East/West, DairyBusiness Weekly and HolsteinWorld.
   Selected applicants will help create content for print and online. They may also be asked to attend and cover industry events in their region and will assist in taking photos, writing captions, stories, blogs, and providing social media coverage of those events.
   Interested applicants should have a passion for writing and working with producers and industry professionals to generate content. Students are required to have some foundation knowledge of a camera, video camera, audio recorder, and need to be willing to learn basic photo, blog and website software. Social media experience is preferred. Some training will be provided, but most intern experience will be gained on the job. The ideal candidate will excel in working independently and have great communication skills.
   Those interested should supply a cover letter and resume by June 15th. Materials can be sent to Elley Castle at ecastle@dairybusiness.com. Please indicate in your cover letter which internship you are most interested in. We will do our best to accommodate publication requests, but it should be noted that selected interns will have the opportunity to work on any and all publications of interest.

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)
   CME cash block cheese ended the week unchanged today, holding at $2.0450/lb. following small gains yesterday and Wednesday. Two cars traded hands again this morning, both at $2.0450/lb., and 2 bids at $2.04/lb. went unfilled. Barrel dropped 3.25¢, after gaining 1.5¢ yesterday, and closed the day and the week at $2.02/lb. Five cars traded hands today, the 1st three cars sold at $2.0350/lb., 1 at $2.0250/lb., and 1 at $2.02/lb., with an offer at $2.02/lb. left on the board.
   Cheese tried to rally this week but petered out by Friday and saw a third consecutive week of decline. The blocks, after falling 3.25¢ Tuesday, inched back a bit Wednesday and Thursday, but closed Friday at $2.0450/lb., down 2.5¢ on the week but still 20¢ above a year ago. The barrels finished at $2.02/lb., down 3.5¢ on the week and 29.75¢ above a year ago. Fifteen cars of block traded hands on the week and seven of barrel. The lagging NDPSR-surveyed U.S. average block price fell 4.6¢, to $2.2463/lb., while the barrels averaged $2.2556/lb., up 0.6¢.
   “Cheese is moving around in the country and there's milk in big cheese-producing regions," according to FC Stone dairy broker Dave Kurzawski in this morning’s Insider Opening Bell. “Production is slowing in California and no big flush has developed yet in the Midwest. Idaho is up 4%-5% in milk production, and they make a lot of cheese there."
   Class III milk futures headed south today, with June down 46¢, July down 38¢, and August down 20¢.
   Cash butter keeps heading higher, up 1.25¢ this morning, to $2.1675/lb., following yesterday’s 0.5¢ gain. Two cars were sold, 1 at $2.1650/lb. and 1 at $2.1675/lb., with an offer at $2.1750/lb. drawing no buyer.
   The Grade A price has gained ground three weeks in a row and hit the highest level since May 27, 2011. It was up 9.25¢ on the week and a whopping 55.75¢ above a year ago. Four cars were sold on the week. NDPSR butter averaged $1.9036/lb., up 4.1¢.
   Grade A nonfat dry milk reversed 2 days of gain today, giving back 0.75¢, and closed the day and the week at $1.78/lb. Two cars exchanged hands this morning, both at $1.78/lb., and an offer at $1.78/lb. was uncovered.
   Powder is down 0.25¢ on the week. Three cars were sold on the week. NDPSR powder averaged $1.9473/lb., down 6.7¢. Dry whey averaged 67.52¢/lb., down 1.2¢.
   "Nonfat still has some weakness," says Kurzawski. "Demand is fairly quiet and the tone is still weak, but the mid-$1.70s seems to be an area where the market looks balanced."

Today’s Market Closing Prices
Butter: Up 1.25¢, to $2.1675/lb.
Cheddar blocks:  Unchanged, at $2.0450/lb.
Cheddar barrels: Down 3.25¢, to $2.02/lb.
Grade A nonfat dry milk: Down 0.75¢, to $1.78/lb.
Class III milk: May $22.71, -13¢ (+1¢ on the week); Jun. $21.23, -46¢ (-20¢ on wk.); Jly $20.27, -38¢ (-13¢ on wk.); Aug. $19.94, -20¢ (+13¢ on wk.); & Sept. $19.90, -3¢ (+5¢ on wk.). Based on today’s CME settlements, the Third Quarter 2014 average now stands at $20.04, -20¢ from Thursday. The 2nd half average is now at $19.56, -14¢ from Thursday.
Looking ahead:
   Next week looks pretty lean as far as USDA reports that we regularly monitor. The Agriculture Department issues its weekly Crop Progress report on Monday. The weekly National Dairy Products Sales Report (NDPSR) is out on Wednesday. The monthly Livestock, Dairy, and Poultry Outlook is out on Thursday, and that’s it for the week so the market will have to feed off the weather and rumor.  

Monday on DairyLine:
   Ag Secretary Tom Vilsack updates us on the implementation of the Farm Bill.
   Chuck Conner, President and CEO of the National Council of Farmer Cooperatives is
               our guest in the second half.


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