DairyProfit Update for Aug. 8, 2012
PrintNFDM misreporting lawsuit allowed to proceed
A national class action lawsuit alleging false reporting of nonfat dry milk (NFDM) prices to USDA – resulting in lower milk prices to producers – will be allowed to proceed. On Aug. 7, the 9th U.S. Circuit Court of Appeals overturned a February 2010 U.S. District Court ruling dismissing the case.
The suit, Carlin et al v. DairyAmerica Inc. et al, was originally filed in California Eastern District Court, March 6, 2009. It charges DairyAmerica, the nation’s largest marketer of NFDM, and dairy processor California Dairies Inc. (CDI) with “negligent misrepresentation, negligent interference with prospective economic advantage and unjust enrichment” by misreporting information used by USDA to set producer milk prices under the federal milk marketing order system.
Prior to April 2012 changes in the Dairy Product Mandatory Reporting Program, USDA’s National Ag Statistics Service (NASS) obtained weekly dairy product price and sales volume information, using those prices to determine minimum producer pay prices through the federal milk marketing order system. Following an audit for the period covering April 29, 2006 to April 14, 2007, USDA’s Ag Marketing Service (AMS) found some price reports included fixed forward pricing sales in which the selling price was set 30 days or more before the transaction was completed. Because those prices may not reflect current market conditions, reporting such prices was explicitly prohibited. AMS estimated the errors resulted in a loss of about $50 million to dairy producers, or about 4¢/cwt.
For a copy of the Appeals Court decision, visit http://www.cohenmilstein.com/news.php?NewsID=521.
WUD files petition asking for California emergency price relief, changes to whey value
Limited to a small whey value cap increase in a previous request for adjustments to the California milk marketing order’s Class 4b milk pricing formula, Western United Dairymen (WUD) filed a petition with the California Department of Food and Agriculture (CDFA), Aug. 6, asking for an emergency hearing on two proposals:
1) emergency price relief due to the current financial pressures on dairy producers, notably due to extremely high feed costs. WUD is requesting a six-month (October 2012 through March 2013) increase of 50¢/cwt. on the minimum milk prices for all classes of milk (Class 1, 2, 3, 4a and 4b).
2) changes to the whey value of the Class 4b pricing formula. WUD is requesting the cap of 75¢/cwt. to be removed, proposing a scale that mirrors more closely the whey value under the federal milk marketing order Class III milk pricing formula. Both the Class 4b and Class III milk pricing formulas are used for milk processed into cheese.
WUD also proposed a dry whey exemption on the first 100,000 lbs. of milk processed daily by cheese makers. The exemption would be only on the whey portion of the Class 4b formula.
To download a copy of the petition, please click here.
Dean Foods to spin off WhiteWave
Dallas-based Dean Foods Company is spinning off its WhiteWave unit. The WhiteWave Foods Company filed a registration statement with the U.S. Securities and Exchange Commission for an initial public offering (IPO) of its Class A common stock. Following the IPO, The WhiteWave Foods Company will own Dean Foods' WhiteWave-Alpro business, which manufactures, markets, distributes and sells branded plant-based foods and beverages, coffee creamers and beverages and dairy products throughout North America and Europe.
Also this week, Dean Foods announced strong second quarter results, driven by continued solid growth across all operating segments as well as a continued focus on expense control.
Dean’s Fresh Dairy Direct reported fluid milk volume sales were essentially flat for the quarter, compared to a nationwide volume decline of approximately 2.5% on a year-over-year basis, based on USDA data and company estimates. Fresh Dairy Direct net sales were $2.2 billion, a 10% decline from $2.4 billion in net sales for the second quarter of 2011, reflecting the pass-through of lower dairy commodity costs. The second quarter 2012 average Class I mover, a measure of raw milk costs, was $15.58/cwt., a decrease of 21% from the second quarter of 2011. Visit www.deanfoods.com.
During the week of July 29-Aug. 4, scattered showers and slightly cooler conditions provided some relief to drought-stressed summer crops – primarily soybeans – in the Corn Belt. However, considerable agricultural harm has already been done. For the week ending Aug. 5, corn and soybean conditions remain at levels unseen since 1988. For example, corn rated very poor to poor stood at 50% on Aug. 5, a 2-point increase from week ago and just below the peak of 53% recorded in August 1988. Soybeans rated very poor to poor also increased 2 points to 39% for the second consecutive week, surpassing the 1988 benchmark of 37%.
On Aug. 5, well over half (59%) of the nation’s rangeland and pastures were rated in very poor to poor condition – a record for this statistic during the 18-year period of record. Visit www.usda.gov/drought for the latest information regarding USDA’s Drought Disaster response and assistance.
Pennsylvania IOFC falls
Despite an increase in milk prices, Pennsylvania’s milk income over feed costs (IOFC) fell by 6.3% in July due to much higher feed costs, according to the August 2012 Dairy Outlook from Jim Dunn, Penn State University ag economist.
The July Pennsylvania all-milk price was up 40¢ than June, at $17.90/cwt. However, feed costs rose 64¢/cow/day, to $6.01/cwt., for cows averaging 65 lbs. of milk per day. Corn, hay and soybean meal prices were all higher, with soybean meal up 45%.
Measured another way, feed costs per hundredweight of milk produced averaged $9.24/cwt., up 98¢ from June, and resulting in a milk income margin over feed costs of $8.66/cwt., down 58¢ from June.
The milk margin has dropped $4.36/cwt. since December 2011, and both Pennsylvania’s IOFC and the milk margin are at their lowest levels since September 2009.
The higher milk prices expected later this year will provide some relief, and fortunately crops in the Northeast are doing better than in 2011, so homegrown feed will be more available, Dunn said.
To see Dunn's full report, visit http://www.personal.psu.edu/faculty/j/w/jwd6/DairyOutlookaug12.pdf
MARKETS: Product prices surge; Class III slightly higher
Today's market closing prices:
Butter: up 2.5¢, to $1.7350/lb.
Cheddar blocks: up 5.0¢, to $1.85/lb.
Cheddar barrels: up 5.25¢, to $1.8250/lb.
Grade A nonfat dry milk: up 0.5¢, to $1.4050/lb.
Extra Grade nonfat dry milk: unchanged, at $1.40/lb.
Class III milk: 1¢ to 35¢ higher through August 2013. Based on current closing prices, the average for August-December 2012 is $18.77/cwt.; the full year 2012 average is $17.34/cwt.; and the 2013 average is $18.52/cwt.
Corn, soy futures higher
Corn: +5¢ to +16¢ through September 2013. The September-December 2012 average is $8.14/bu.; 2013 average is $7.51/bu.
Soybeans: +2¢ to +25¢ through July 2013. The August-November 2012 average is $16.04/bu.; 2013 average is $14.17/bu.
Soybean meal: +$4.50 to +$9.60/ton through January 2013. The August-December 2012 average is $496.03/ton; 2013 average is $396.86/ton.
