DairyBusiness Update: February 3, 2014

California Cheese Milk Price Up $4.47 from 2013
California’s January 2014 4b cheese milk price was announced this morning by the California Department of Food and Agriculture at $20.31 per hundredweight, up $2.28 from December 2013 and a whopping $4.47 above January 2013. That’s the highest it has been since July 2007’s $20.54 but shy of the record $21.18 in June 2007.
   The 4a butter-powder price is a record high $22.13, up 97 cents from December and $5.05 above a year ago. It trumped the September 2007 price of $21.62. The comparable January Federal order prices are announced by USDA on Wednesday.

Dairy Heifers Numbers Up 2%
   As I reported last week, livestock auctions in the West are showing strengthening prices for dairy heifers since the beginning of January, according to DMN, and improved operating margins are cited as a reason, something that is occurring throughout the country. The Agriculture Department’s Cattle report issued Friday shows that, as of January 1, 2014, the number of heifers, 500 pounds and over expected to calve in 2014 totaled 2.98 million head, up 52,600 head or 2 percent from January 2013. But, milk cow replacements, 500 pounds and over, totaled 4.54 million head, 12,000 less than a year ago. Meanwhile; the dairy herd is pegged at 9.21 million cows, down 9,000 from a year ago.
   The total number of cattle and calves in the U.S. on January 1 was 87.73 million head, down 1.6 million head or 2 percent below January 2013 and the lowest level since 1951. Cattle on feed, at 12.695 million head, are down 669,000 head or 5 percent from a year ago.

Global Market Outlook Firm
   Global dairy markets remain firm heading into February, according to the U.S. Dairy Export Council’s (USDEC) latest Global Dairy Market Outlook. It also warns that milk production from the major suppliers is on the rise, but is easily absorbed by the market. “China is buying at unprecedented levels, supporting the entire dairy complex,” says USDEC.
   Mild weather and record high milk prices have spurred a milk production recovery across Europe. New Zealand pastures are in good condition and production is ahead of a year ago. In the September-November period output was up 6.0% from prior year. Production for the full 2013/14 is projected to be up 6-7%. However, drought in Australia has dashed hopes of growth this year. Output in the first five months of the season was down 3.9%.
   U.S. milk production hasn’t yet responded to favorable milk margins; says USDEC, in the last four months of 2013, production was up just 0.5% from the year before.
   “China buying remains the key driver of the global dairy markets,” according to USDEC. In the last four months of 2013, China imported a staggering 550,404 tons of milk powder, whey, cheese and butterfat –more than the purchases of Russia, Mexico, Japan and Algeria put together.
   This figure is up 74% from the year before. For the full year, imports were up 34% from 2012 and up 61% from 2011. Meanwhile, China’s appetite (and willingness to pay historically high prices) has squeezed out other buyers in recent months.
   The bottom line is that USDEC expects the markets to remain firm well into second quarter, at least. New Zealand is now on the downhill side of the season, and production is focused on WMP at the expense of cheese, SMP and butter. As China’s appetite is sated; other buyers will still need to stay in the market to rebuild their holdings. However, they may not be willing to buy at the lofty price levels of the Chinese.

Dairy Business Association to Hold Symposium in Green Bay
   The Dairy Business Association (DBA) will hold its 2014 Access Symposium on February 18-19, 2014 at Lambeau Field in Green Bay, WI. The association “enlists a proactive approach through lobbying, grassroots and community efforts to promote the modernization of the dairy industry in our state,” according to a DBA press release.
   First day speakers include State Secretaries including Sec. Cathy Stepp, Sec. Mark Gottlieb, and Sec. Ben Brancel addressing current regulations facing producers. 
   The second day focuses on down cow crisis management. Several experts, including Al Setka of public relations firm Wixted & Co. and Attorney David Crass from Michael Best & Friedrich, will discuss best management practices on how to humanely take care of down and sick cattle on dairy operations. In addition, there will be a crisis workshop where producers will learn firsthand how to handle crisis situations at their dairy operations.  For complete details, call Michelle Philibeck at 920-213-7588 or e-mail mphilibeck@widba.com.

Farm Bill Has Uncle Sam Standing By
   That’s how California’s Milk Producers Council’s Rob Vandenheuvel sees it. Writing in his January 31 newsletter, Vandenheuvel said “Processors continue to be protected, but taxpayers are now on the hook for a much larger potential liability if dairy farmer  margins drop,” Vandenheuvel wrote. “Every dairy in the U.S, regardless of size, has the opportunity to get government-subsidized margin protection on up to 90% of their production. So when dairy margins drop, the government payments won’t be limited to just the 2.985 million pounds that the MILC program paid out on. Their exposure will be exponentially larger than that.”
  You’ll recall that supply management, as advocated by National Milk, was dropped from the dairy title, primarily at the demand of House Speaker John Boehner. Vandenheuvel says that means “the government was comfortable assuming the additional financial liability that comes with a margin protection program that has no provisions aimed at restoring supply/demand balance.”
   He concludes; “In five years, when this program is up for renewal we’ll have an opportunity to evaluate whether that was a wise choice or not. In the meantime, we operate in an industry that now exports about 16% of our production, and is therefore vulnerable to global shifts completely outside of our control like dollar valuations, global weather patterns or political unrest. We all hope for the best, but it is a very positive thing to have some of our downside price risk shared beyond just the 50,000 U.S. producers.” The Senate is expected to vote on the Farm Bill tomorrow.

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   The block cheese price climb paused today, maybe has ended, as cash prices in Chicago were unchanged, first time since last Monday on the blocks. They held at the record high $2.36/lb., with 1 offer at that price going uncovered. The 500lb. Cheddar barrels remained at the record $2.32/lb., with no activity.
   Buyers were looking for butter today. Eleven carloads traded hands. The first sale was at $1.89/lb., then 7 at Friday’s price of $1.88/lb, but the price crept back up to close $1.89/lb, up 1¢ on the day, following 3 sessions of loss last week. An offer at $1.89/lb. got no response.  
   The powder roller coaster didn’t move today. Cash Grade A held at $2.04/lb., with a bid at that price going unfilled and 2 offers at $2.06 left on the board.
   This morning’s FC Stone Insider Opening Bell (IOB) reported that last week's NDPSR showed powder sales volume in the week ended Jan. 25 was down 19% from the previous week's volume of 21.9 million lbs. The IOB also reported that the U.S. Commodity Futures Trading Commission has approved NZX as a registered Foreign Board of Trade, which allows U.S. entities to trade the NZX markets (Oceania).  

Today’s market closing prices:
Butter: Up 1¢, to $1.89/lb.
Cheddar blocks: Unchanged, at $2.36/lb.
Cheddar barrels: Unchanged, at $2.32/lb.
Grade A nonfat dry milk: Unchanged, at $2.04/lb.
Class III milk: Jan.$21.11, -1¢; Feb. $22.81, -30¢; Mar. $20.82, -65¢; Apr. $19.47, -57¢, May $18.88, -32¢, & Jun. $18.70, -18¢. Based on today’s CME settlements, the first half 2014 average now stands at $20.30, -34¢ from Friday, and the 2nd half average is $18.18, -9¢ from Friday.
Looking ahead:
   The Agriculture Department issues its December 2013 Dairy Products report tomorrow afternoon and January Federal order Class II, III, & IV milk prices are announced Wednesday afternoon by USDA.
Tuesday on DairyLine:
   FC Stone dairy economist Bill Brooks comments on the record high cheese prices
   Denise Behnke from BouMatic has a SmartDairy update