DairyBusiness Update: January 24, 2014

GDT Auction’s “Forward Curve” is Significant
   The U.S. Dairy Export Council’s Alan Levitt says the most significant part of this week’s Global Dairy Trade (GDT) auction was what he referred to as the “Forward curve.” Speaking in today’s DairyLine Radio broadcast, Levitt explained that is the “winning bid prices out into the future,” and “they’re all basically flat or rising.”
   The forward curve on U.S. delivered skim milk powder, for example is close to $4500 per ton or over $2/lb. thru July, he said, and “that’s significant because it tells us that the market seems to think that things are going to hold for quite awhile.”
   He believes pent up demand is responsible. “Buyers were looking at the high prices toward the end of 2013, hoping things would pull back in early 2014,” Levitt said, “And they just haven’t and now they have to come back to the market and continue to buy and continue to pay these historically high prices for all the commodities.” Levitt says that bodes well for price into mid-year.
   “China is the most important factor driving the global dairy markets right now,” says Levitt, and December import numbers were up significantly again. Second half imports of milk powder, whey, cheese, and butterfat were up 52% from a year ago, he said, “So they’re absorbing any increase in world milk production or supply.” That is significant on two fronts, he concluded, namely the quantity China is importing and the fact that they’re willing to pay historically really good prices.

Fourth Quarter 2013 Milk Production Up Just 0.4% From 2012
   Milk production in the U.S. during the October-December quarter totaled 49.3 billion lbs., according to yesterday’s Milk Production report, up just 0.4% from the same quarter a year ago. The average number of cows in the U.S. during the quarter was 9.21 million head, up 3,000 from the same period last year.
   Total 2013 milk output in the 50 states hit 201.19 billion lbs., up from 200.32 billion in 2012. Cow numbers averaged 9,226 head, down 7,000 from 2012, and output per cow averaged 21,806 lbs., up 109 lbs.

The “Reviews” Are Coming In
   Dairy industry analysts are weighing in on the December Milk Production report. High Ground Dairy’s Eric Meyer wrote; “It does appear that the nation’s milking herd has completed its contraction phase and has begun the process of growth. With extremely favorable margins beginning to show up on dairy farmers’ milkchecks, we would anticipate this growth phase to accelerate in the coming months.” He reports that “Winter has been brutal for much of the country with both above average precipitation and deep freeze conditions that have extended into January. Upper Midwest states have been hit hardest by these conditions as production per cow has not come close to keeping pace with last year’s mild winter volumes. Lower quality feed in some pockets of the Upper Midwest have also added to their struggles.”
   He concludes; “We believe the milking herd has begun its expansion phase as the strongest income-over-feed margins in US history are about to bestow themselves upon the nation’s dairy farmers. However, herd growth may be conducted at a cautious pace early on in many areas of the country as dairymen become more conservative with their fiscal approach during this bullish cycle.”
   FC Stone dairy broker, Dave Kurzawski, wrote in this morning’s eDairy Insider Opening Bell: “Yesterday's Milk Production report showing December output virtually unchanged from a year ago was neutral versus pre-report expectations. However, flat production could be considered bullish in view of strong demand. Generally in dairy, the futures markets have a bias to the upside now after the corrective move in the past few days."

Momentum Building for California Federal Order
   Members of the California Dairy Task Force met this week in Sacramento in an attempt to revitalize the dairy industry in the Golden State. The task force is an informal group of dairy producers, cooperatives and processors established by Secretary of Agriculture Karen Ross.
   Several issues were discussed including the quota system, investment decisions, risk management and alternative pricing to the Class 4 markets.
   “From the time the task force started until now, we have seen a dramatic increase in interest to go towards a California federal order,” Rob Vandenheuvel, GM of the Milk Producers Council, told DairyLine.
   Dairymen are still waiting on details regarding a federal order. The cooperatives have been working diligently in putting together a draft order to be submitted to USDA. The federal order process is lengthy and there was some discussion by task force members about what can be done in the interim.
   “Federal order has the biggest momentum in terms of moving forward with a long term plan,” Vandenheuvel said. “But there are a lot of unanswered questions.”
   The Co-ops have been clear that a quota program will continue to be administered, but the logistics still need to be resolved. Other issues that still need to be worked out include pooling and transportation.
   “The things we know is that the California system is not working,” Vandenheuvel said. “It’s not being properly administered. There is a lot of interest going with the federal order because most of these dairymen have family, friends, and colleagues that operate in federal orders all over the country, and they seem to work fairly well in managing milk pricing and pooling revenues.”
   Meanwhile, the four working groups of the California Dairy Task Force will continue to work in the short term - all the while recognizing the federal order process is underway. To listen to the podcast, log on to www.dairyline.com.

Louisiana State University Hosts Southern Regional Dairy Challenge
   The eighth Annual Southern Regional Dairy Challenge, which ran November 17-19, 2013, attracted 51 students from 11 universities and colleges to the event hosted by the Louisiana State University.
   A press release stated that “The Southern Regional Dairy Challenge, in a new weekday format, continued to provide students an opportunity to practice their dairy management knowledge, as well as leadership and communication skills, in a "real world" setting.  All students evaluated the same farm, which was an excellent family owned operation in southeast Louisiana. An added benefit of the new weekday format was the interaction with more industry representatives than ever before, thus providing a tremendous networking opportunity for the students as they look toward a future in the dairy industry,” says contest planning committee chair Cathy Williams of Louisiana State University.
   Dairy Challenge is defined as “an innovative competition developed by industry and university professionals, which exposes students to opportunities in a vibrant dairy industry. Working in four- or five-person, mixed-university teams, students at the Southern Regional Dairy Challenge assessed all aspects of a working dairy farm and presented recommendations to judges and participating farm families.”
   The 2014 national contest – and the 2nd annual Dairy Challenge Academy - will be April 3-5 in Fort Wayne, IN. In addition, four regional events are held each year. Find details and complete results from this year’s event at www.dairychallenge.org.

Fox Valley Technical College to Host Students from 10 States

Fox Valley Technical College will host dairy students from 18 schools in 10 states at the Midwest Dairy Challenge, February 5-7, 2014, in Appleton, Wis. Dairy Challenge® is a prominent educational event for college students planning a career in the dairy industry.
   Eighty dairy students from 13 universities and five post-secondary programs are expected at the 10th annual Midwest Dairy Challenge. This is the first time Fox Valley Technical College has hosted the Midwest event, which has been held in Wisconsin three other times. Complete details are posted at www.dairychallenge.org .

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   Cash cheese set another record high today and some product was finally sold. The 40lb. Cheddar blocks leaped to $2.31/lb. this morning, up 1.5¢ on the day and the 6th consecutive session of gain. Two carloads sold, the 1st sale of block since Dec. 20, 2013. One car sold at $2.2950/lb. and the 2nd at $2.31/lb., with a bid at $2.3025/lb. going unfilled. The 500 lb. barrels were up 1.75¢, to $2.2750/lb., again on 1 unfilled bid. Barrel hasn’t sold since Jan. 14.    
   The bulls found plenty to feed on this week and the gains at the GDT helped fuel prices in Chicago. The blocks are up 8¢ on the holiday-shortened week, 66.5¢ above a year ago, and the highest level since May 2008. The barrels are up 7.25¢ on the week and 70.25¢ above a year ago.
   Dairy broker, Dave Kurzawski, says "There is disbelief in the spot market's ability to stay over $2.20/lb. for an extended period of time. These markets are very volatile. I don't see anything to change the direction of spot just yet. It may not go higher today, but it is well supported."
   Cash butter gave back another 1¢ today, following yesterday’s 4¢ loss, and closed the day and the week at $1.89/lb. Two cars were sold this morning, the 1st at $1.88/lb. but the 2nd was at $1.89/lb., and 1 bid at $1.89/lb. went unfilled. The spot price shot up to $1.94/lb. on Wednesday, the highest it has been since October 9, 2012, but relapsed yesterday and today, however it is still was up 3.75¢ on the week and 38.5¢ above a year ago. A whopping 24 carloads found new homes this week.
   Cash Grade A nonfat dry milk was down 2¢ this morning, following yesterday’s 1.5¢ decline and 1.75¢ loss on Wednesday, and is now at $2.05/lb. The 1st sale was at $2.06/lb. and the next 2 were at $2.05/lb. An offer at $2.0675/lb. was left on the board. Extra Grade held at $2.09/lb, with no activity on this its final day of trading at the CME. The Grade A is down 4.75¢ on the week while Extra Grade was up 1¢. 25 loads of Grade A powder was sold this week.
   Softening powder prices may be a warning, according to Kurzawski, who points out that “Strong nonfat prices supported dairy markets for the past six months, so this week's lower powder prices could soften the strength in other dairy markets.”

Today’s market closing prices:
Butter: Down 1¢, to $1.89/lb.
Cheddar blocks: Up 1.5¢, to $2.31/lb.
Cheddar barrels: Up 1.75¢, to $2.2750/lb.
Grade A nonfat dry milk: Down 2¢, to $2.05/lb.
Extra Grade nonfat dry milk: Unchanged, at $2.09/lb.
Class III milk: Jan.$21.05, +13¢ (+11¢ on the wk.); Feb. $22.45, +10¢ (+53¢ on the wk.); Mar. $20.47, +2¢ (-2¢ on the wk.); Apr. $19.44, -6¢, May $19.06, -15¢, & Jun. $18.75, -10¢. Based on today’s CME settlements, the first half 2014 average now stands at $20.20, -1¢ from Thursday, and the 2nd half average is $18.10, -5¢ from Thursday.
Looking ahead:
   Next week’s USDA report schedule is pretty lean. The Economic Research Service issues its U.S. Dairy Situation at a Glance Monday afternoon and the monthly Ag Prices report is issued Friday, Jan. 31, and will include the latest Milk Feed Price ratio.
Monday on DairyLine:
   Dairy promotion and research is the topic of our DMI update
   Dairy team facilitator Kristy Pagel on the importance of team meetings.