DairyBusiness Update: February 25, 2014

Cheese Prices Will Stay Strong for Foreseeable Future
  
The big question on everyone’s mind right now is, how long will $2 cheese be around? High Ground Dairy’s Eric Meyer, writing in last week’s Cheese Market News, asks if CME block Cheddar could move higher from where it stands today after setting record highs last month?
   It is unlikely, but certainly not out of the question, answers Meyer. The U.S. cheese market does not live on an island, nor is it the primary driver of milk prices these days. In fact, it has been relegated as a price follower. And as such, the most recent prices out of Oceania are $2.17 per pound for April delivery on the Global Dairy Trade auction platform earlier this week and the USDA midpoint price of $2.38 per pound released Feb. 13. While U.S. prices can oscillate in a wide range due to short-term ordering patterns, cheese appears well supported at these levels, according to Meyer.
   The global market has signaled its need for milk powders in 2013 which forced Class IV milk into the driver’s seat, guiding U.S. market direction for the past 12 months. And with China importing 1.9 billion pounds of skim and whole milk powder in 2013, nearly 50 percent higher than last year and more than double the volume just three years prior, global milk sheds are adapting to satisfy exploding emerging dairy market demand. As a result, countries like New Zealand are shifting their production mix to commodities that deliver the highest return to their farmers. Milk powder production is on the rise around the globe while cheese production has suffered.
   New Zealand’s Q4 2013 total cheese exports declined by 52 million pounds (down 25 percent vs. Q4 2012) but the United States made up for that deficit by expanding exports by 62 million pounds during that same time frame (up 48 percent versus Q4 2012). With whole and skim milk powder prices stuck at extreme highs, global milk production growth is finding its way to the dryer vs. a cheese vat. And until the United States proves it can sustain solid milk production growth, we find it difficult for domestic cheese prices to show any signs of breaking sharply below support levels.
   Multiple sources have suggested the upcoming “spring flush” will bring U.S. cheese prices back to the $1.60s by late spring. This would suggest a “wall” of milk is coming with nowhere to go but the CME spot market. We are not sold on this hypothesis.
   Instead, we remind ourselves that it is the same “seasonal rationale” that led us to predict cheese prices to be in the $1.60s by January which never materialized. New Zealand experienced the same surge of milk production growth this past October during their peak season only to see the global market shrug it off. International demand has been extraordinary over the past six months and much of the growth may already be committed against cheaper futures contracts late last year or even during January’s surge. Fonterra stated in November that it is losing money on every kilogram of cheese it makes, so do not expect it to have any incremental product this season. This leaves the United States as the only viable source for cheese if the world needs it. And so far, global buyers have not shown notable resistance at $2.00+ per pound. In fact, cheese remains a reasonably priced protein source versus other options, even at these levels.
   Eventually, the wall of milk will come and prices will show a very noticeable decline, Meyer concludes, but for now, expect firm prices to remain for the foreseeable future.

More Cheese Goes Abroad
   Cooperatives Working Together (CWT) accepted 23 requests for export assistance today from Dairy Farmers of America, Foremost Farms USA, Land O’Lakes, and Tillamook County Creamery Association to sell 4.791 million pounds of Cheddar, Gouda and Monterey Jack cheese, and 1.032 million pounds of 82% butter to customers in Asia, the Middle East, North Africa and South Pacific.
   The product will be delivered through June and brings CWT’s year-to-date cheese exports to 25.329 million pounds, plus 7.276 million pounds of butter, and 698,865 pounds of whole milk powder to 19 countries on four continents. These sales are the equivalent of 397.8 million pounds of milk on a milkfat basis.

Profitable Dairying Producing “Converts” Down Under
   From “down under,” ABC Rural’s Wendy Collis writes that New Zealand dairy farmers are making ten times as much money as their sheep and beef counterparts. Dairy returns are so strong at the moment that sheep and beef farmers are converting their properties over to dairying to make the most of the good prices.
   Christchurch farm accountant Pita Alexander says there's huge demand from China for milk powder and that's driving growth in the New Zealand dairy industry. "We're having about 40 to 50 dairy conversions in the South Island per year, and maybe 10 in the North Island, and it looks as though it will continue."

Washington Lawsuit Settled to Protect Relatives
   
In an update to our story from last week, the Yakima Herald reports that one of the families facing a legal challenge involving the Safe Drinking Water Act has settled the federal environmental lawsuit to “protect innocent relatives.”
   Rick and Marlene Haak, the former owners of one of five dairies sued in U.S. District Court for alleged pollution, only settled last week to prevent family members from being included the suit, said Marlene Haak.
   “From our perspective, it was a very pressured settlement,” said Marlene Haak, 57.
The Yakima Herald-Republic sought comment from the Haaks the day after the Feb. 6 settlement but the couple did not receive a message.
   The Haaks’ extended family, which has been dairy farming in the Lower Valley since the 1970s, owns the Sunnyside property where the dairy used to stand through a limited liability corporation set up when they bought it in 1996, Marlene Haak said.
   Their opponents accuse them of hiding behind corporations to avoid environmental liability, the Herald reported. The complete story is posted at
http://www.yakimaherald.com/community/lowervalley/sunnysidecontent/1923377-8/dairy-family-settled-suit-to-protect-innocent-relatives.
   You’ll recall Jay Gordon, Executive Director of the Washington State Dairy Federation, warned in last Friday’s DairyLine that this case would set precedent across the country.

Idaho Lawmakers Told of Need for Agriculture Security Legislation
   Supporters from various Idaho agricultural sectors have been explaining the need for agriculture security legislation to the Senate and House Agricultural Affairs Committees.
   “Let me be clear: dairy farmers do not condone abuse, plain and simple” said Idaho Dairymen’s Association President (IDA), Tony VanderHulst.
   “The dairy farmer who fell victim to the activist group is well-known for his unquestioned compassion for his animals. He is a true steward of his cows, his land and his community. To see him be persecuted in the public eye for an issue that everyone agrees has been corrected shows the true and clear motivation of these activist groups”.
   Opponents of SB 1337 who participate in or condone this type of conduct call it an “Ag-gag” bill, to mislead people into believing that the bill will enable Idaho farmers to hide animal cruelty. Testimony before the Senate and House Agricultural Affairs committees has clearly demonstrated that SB 1337 does not prohibit lawful reporting, investigation and prosecution of animal cruelty. There is a hotline at the Idaho State Department of Agriculture to immediately report any abuse or perceived abuse. This hotline can be anonymous if the caller chooses.
   Opponents of SB 1337 assert that their interest in exposing animal cruelty overrides farmers’ constitutionally protected private property and privacy rights. They argue that anyone entering an agricultural facility should be allowed to enter and record the conduct of the facility’s operations without the facility owner’s consent. This position stands in stark contrast to the Idaho legislature’s enactment of a law just last year that prohibits the use of aerial “drones” to record a person’s activities without the person’s written consent.   
   Despite their acknowledgement that the dairy owner was innocent of any wrongdoing and took appropriate corrective action, activist groups are waging yet another media campaign to attack the dairy owner and the dairy industry by misleading their supporters, and the public, into believing another incident of mistreatment has occurred.
   An Agricultural Affairs Committee member who supports the bill appropriately summarized how the activist group has crossed the line, by stating the following in her weekly legislative update. ”By releasing the footage to the internet, with petitions calling for a boycott of products of any company that bought meat or milk from Bettencourt Dairy, the organizations involved then crossed the ethical line for me. The goal of changing behavior then became ruining a business”.
   On January 21st of this year, Idaho’s HSUS state director sent a letter to the dairy owner prior to SB1337 being introduced confirming the continuing objective of the media campaign to impugn the reputations of dairy farmers, this time as leverage against introduction of SB 1337:  “I urge you to work with your fellow Idaho dairy operators (whose reputations could similarly be harmed if this footage were re-aired time and again).”
   To the Idaho dairy industry the message was clear said Bob Naerebout executive director of IDA.  “Do as we demand or we will hurt you and your fellow producer, SB 1337 was introduced because of very threats like this”.
                                                                                                          Edited from Idaho Dairymen’s Association

Dairy Council of California Members to Support Community Health 
   Darrin Monteiro of California Dairies Inc. and producer Pat Van Dam of Two B Dairy have been appointed to the Dairy Council of California Board of Directors by Karen Ross, secretary of the California Department of Food and Agriculture.
   As director of member relations for California Dairies Inc., Hanford resident Monteiro works directly with the more than 400 dairy producer members of the second largest dairy processing cooperative in the United States. He also represents California Dairies Inc. at industry meetings and events.
   “Darrin’s insight into his organization’s member base and his well-rounded knowledge of the dairy industry will prove to be an asset for our organization and our charge to serve as the dairy industry’s contribution to community health,” said Tammy Anderson-Wise, Dairy Council of California CEO.
   Prior to joining California Dairies Inc., Monteiro worked at the Farm Service Agency, a branch of the U.S. Department of Food and Agriculture, where he completed the FSA’s managerial program certifying him to run any FSA office in the country. Before that, he worked on his family’s Fresno County-area farm. Monteiro graduated from Fresno State University with a degree in Agriculture Business.
   Producer Van Dam has been involved in the dairy business her entire life and currently owns Two B Dairy in Ontario, Calif., which she and her husband Bert have run since 1989. Along with Van Dam’s appointment to the Dairy Council of California board, she serves on the California Milk Advisory Board and the boards of California Beef and FSA. She is also the current president of the San Bernardino County Farm Bureau.

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   One unfilled bid of each took cash cheese a little higher this morning as buyers tried to attract some product to the CME. The blocks were up 0.75¢, following yesterday’s 2¢ rise, and are now at $2.19/lb. The Cheddar barrels inched up 0.25¢, after yesterday’s 1.75¢ gain, and hit $2.1775/lb.  
   Cash butter jumped to $1.81/lb. on a sale but the next carload sold at $1.80/lb., and the next at $1.7975/lb. An uncovered offer took it to its close of $1.7950/lb., down 0.5¢ on the day.
   Cash Grade A nonfat dry milk jumped 2.25¢ this morning, following yesterday’s 0.25¢ gain, and hit $2.07/lb. Two carloads traded hands this morning, the 1st at $2.0625/lb., the 2nd at $2.07/lb., but a bid at $2.07/lb. was left on the board.

Today’s Market Closing Prices:
Butter: Down 0.5¢, to $1.7950/lb.
Cheddar blocks: Up 0.75¢, to $2.19/lb.
Cheddar barrels: Up 0.25¢, to $2.1775/lb.
Grade A nonfat dry milk: Up 2.25¢, to $2.07/lb.
Class III milk: Feb. $23.20, Unchanged; Mar. $21.90, -28¢; Apr. $20.78, -51¢; May $20.06, -28¢, & Jun. $19.87, -18¢. Based on today’s CME settlements, the Second Quarter 2014 average now stands at $20.24, -32¢ from Monday. The 2nd half average is $18.84, -8¢ from Monday.
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Looking ahead:
   USDA’s Economic Research Service will release its monthly Dairy Situation and Outlook report tomorrow and include the latest dairy product commercial disappearance information. The Ag Prices report is issued Friday afternoon and include the latest milk feed price ratio.
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Wednesday on DairyLine:
   Dr. Brian Miller from Boehringer Ingelheim Vetmedica, discusses the importance of    
    culturing your milk for mastitis treatment.
   PDPW's Kathy Muth continues to prepare for the Annual Business Conference March
    12-13 in Madison, WI.

http://dairyline.com/wednesday.mp3