DairyBusiness Update: February 4, 2014

Senate Passes Farm Bill
   The Senate passed the long-awaited farm bill this afternoon, 68 to 32, and ended two long years of partisan bickering. The bill amounts to about $1 trillion in spending covers programs for crop agriculture, dairy, conservation, nutrition, and international food aid to name a few. The next stop is the President’s desk where he is expected to sign the measure.  
   National Milk Producers Federation President and Chief Executive Office, Jim Mulhearn, stated in a press release: “It has been a long and torturous road toward the creation of a better safety net for dairy farmers, but with today’s vote in the Senate to approve the farm bill, coupled with last week’s House vote, that five-year journey has reached its end.”
   Mulhearn added; “We didn’t wind up precisely where we wanted in terms of the dairy program, but the milk glass is more than half-full. The new farm bill replaces three outmoded programs intended to help farmers but that often failed in that effort. In their place is a new, more modern, and more comprehensive margin protection program offering dairy producers a far better and more effective safety net. Because it is designed to protect against periods of both low milk prices as well as high feed costs, margin insurance is a better risk management tool to help farmers deal with the global volatility in commodity prices in the 21st century.”

December Dairy Products: More Milk to Vat-Less to Churn and Dryer
December 2013 milk production was up only slightly compared to a year ago, and most of that milk went to the cheese vat for the month, according to USDA’s monthly Dairy Products report issued this afternoon. December 2013 dairy product output, compared to December 2012 and year-to-date (Y-T-D) estimates included:
• Total cheese: 977.68 million lbs., up 2.3%; Y-T-D 11.143 billion lbs., up 2.3%. 
• Total Italian cheese: 433.27 million lbs., up 5.6%; Y-T-D 4.795 billion lbs., up 3.5%.
• Mozzarella: 335.15 million lbs., up 3.3%; Y-T-D 3.721 billion lbs., up 3.0%.
• American-type cheese: 375.86 million lbs., down 2.2 %; Y-T-D 4.419 billion lbs., up
• Cheddar: 270.94 million lbs., down 2.8%; Y-T-D 3.196 billion lbs., up 1.6%.
• Butter: 161.11 million lbs., down 6.9%; Y-T-D 1.867 billion lbs., up 0.4%.
• Dry milk powders – Nonfat dry milk, human, 124.94 million lbs., down 20.8 %,  
     Y-T-D 1.481 billion lbs., down 16.1%; and skim milk powders, 58.14 million lbs., up
     52.4%, Y-T-D 630.83 million lbs., up 65.7%. 
• Dry whey (total): 82.11million lbs., down 8.0%; Y-T-D 934.22 million lbs., down
• Yogurt: 378.71 million lbs., up 4.9%; Y-T-D 4.648 billion lbs., up 5.3%.

Global Dairy Trade Auction Average Up Just 0.5%
   Today’s Global Dairy Trade (GDT) auction saw the weighted average for all products inch up 0.5%, led by a 2.6% increase in butter. Cheddar cheese was down 4.3%, skim milk powder was virtually unchanged, and whole milk powder was up 1.4%.
   The average butter price equated to about $2.1523/lb., up from $2.1124/lb. in the Jan. 21 event ($2.0249/lb. on 80%, down from $2.0609). The Cheddar cheese average was $2.2385/lb., down from $2.3282/lb.; skim milk powder, $2.1528/lb., up from $2.1311/lb., and the whole milk powder average was $2.2703/lb., up from $2.2419/lb. in the last event.

CWT Accepts 25 Export Assistance Requests
   Cooperatives Working Together (CWT) accepted 25 requests for export assistance this morning from Bongards Creameries, Dairy Farmers of America, Foremost Farms USA, Michigan Milk Producers Association, Tillamook County Creamery Association and United Dairymen of Arizona to sell 3.889 million pounds of Cheddar, Gouda and Monterey Jack cheese, 209,439 pounds of butter and 518,086 pounds of whole milk powder to customers in Africa, Asia, Central America and the Middle East.
   The product will be delivered through June, and brings CWT’s year-to-date cheese exports to 12.383 million pounds, plus 3.751 million pounds of butter and 518,086 pounds of whole milk powder to 17 countries on four continents. These sales are the equivalent of 198.8 million pounds of milk on a milkfat basis, according to CWT.

Dairy Margin Highs, Mainly Due to High Milk Prices
   Dairy margins continued to strengthen in the last half of January, led by an ongoing surge in nearby milk prices, according to the latest CIH Margin Watch (MW) report from Commodity & Ingredient Hedging, LLC.
   First Quarter represented a new all-time high for profitability in that period, MW stated, while Second Quarter margins have not been this strong since 2004. Deferred margins in the second half of 2014 are comparatively not as strong, but remain above or near the 90th percentile of the past 10 years.
   The strength in milk futures continues to be paced by record high cheese prices, with spot block cheddar at the CME and results from the latest Global Dairy Trade auction for cheddar each posting all-time highs at $2.295/lb. and $2.33/lb, respectively.
   MW warned of a “potential headwind moving forward,” in that U.S. prices have now caught up to world values for cheese, powder and butter, and U.S. exports may start looking less competitive to certain markets as a result.
   December milk production totaled 16.8 billion pounds which was up 1.6% from November but down slightly year-over-year. USDA reported a 2,000 head increase in milking cows which was smaller than the normal seasonal increase of about 15,000, which would appear to indicate that the heifer supply is short.
   On the feed side, both corn and soybean meal have been relatively quiet for the past couple of weeks following the release of USDA’s January crop report. Both markets appear to have stabilized and remain supported by solid demand, with China maintaining a brisk import pace of soybeans and corn bid by nearby ethanol margin strength.

Dairy Cooperatives Losing Market Share
   That’s according to Mychal Wilmes, managing editor of AgriNews in Minnesota and reported by the Times-New’s MagicValley.com. Wilmes spoke at last week’s National Farmers Convention in Wisconsin Dells, Wisconsin. The event featured a panel of dairy marketing and ag media professionals who addressed the future of America’s dairy industry.
   Brad Rach, director of dairy marketing for National Farmers, underscored the changing makeup of the dairy industry, noting that more processors are becoming privately owned, as well as foreign-owned. “What a difference one year can make,” he said. America’s top four processors today have no dairy cooperatives on the list, and the number one processor is foreign-owned.”
   Mychal Wilmes, talking about the changing role of cooperatives, stated; “Cooperatives are facing a serious challenge. They are losing market share. How can they remain viable in an international marketplace?” How do we keep the wealth generated by agriculture in our own communities?”
   Wilmes said there is also an age crisis looming on the horizon, and that co-ops could have a role in assisting young farmers get into the business as their older counterparts exit. Additionally, he believes co-ops need to find new ways to connect with consumers. “They are our best allies,” Wilmes said.

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   Unchanged sums up most of today’s cash dairy market in Chicago. The block cheese price remained at $2.36/lb., and the barrels held at $2.32/lb. There was no activity in either one.
   Butter held at $1.89/lb, with 2 offers at $1.90/lb. going uncovered.  
   FC Stone risk management consultant Brendan Curran wrote in this morning’s eDairy Insider Opening Bell that "The butter market has had a run-up and pulled back, but still has support" from domestic and international demand.”
   The powder roller coaster headed down this morning, dropping 4¢, to $2.00/lb. Five carloads were sold. The first sale was at $2.04/lb. but the price kept slipping from there. An offer at $2.01 was left on the board.

Today’s market closing prices:
Butter: Unchanged, at $1.89/lb.
Cheddar blocks: Unchanged, at $2.36/lb.
Cheddar barrels: Unchanged, at $2.32/lb.
Grade A nonfat dry milk: Down 4¢, to $2.00/lb.
Class III milk: Jan.$21.12, +1¢; Feb. $22.84, +3¢; Mar. $20.52, -30¢; Apr. $19.41,
-6¢, May $18.82, -6¢, & Jun. $18.75, +5¢. Based on today’s CME settlements, the first half 2014 average now stands at $20.20.24, -6¢ from Monday, and the 2nd half average is $18.29, +11¢ from Monday.
Looking ahead:
   The Agriculture Department announces January Federal order Class II, III, & IV milk prices tomorrow afternoon and that’s it for the rest of the week in terms of regular USDA reports that we monitor.
Wednesday on DairyLine:
   California’s drought not getting better, USDA’s Shayle Shagam comments.
   IDFA’s Jerry Slominski has the last word on the Farm Bill.
   PDPW’s Taylor Fritsch previews the upcoming Cornerstone Dairy Academy.