DairyBusiness Update: February 28, 2014
February Milk-Feed Price Ratio Spells P R O F I T
The Agriculture Department’s latest Ag Prices report issued this afternoon shows that higher monthly average milk prices offset some gains in feed prices to put the preliminary February milk-feed price ratio to its highest level in over six years. The index, at 2.55, is up from 2.46 in January and 1.52 in February 2013. It's also the seventh consecutive monthly increase and the highest since January 2008.
The February U.S. average all-milk price was $24.70/cwt., compared to $23.50/cwt. in January 2014 and $19.50/cwt. in February 2013. February corn, at $4.47/bushel, was up 5¢ from January, but $2.57 less than February 2013. February 2014 soybeans averaged $13.10/bushel, up 20¢ from January, but down $1.50 from February 2013. Alfalfa hay averaged $188/ton in February, up $3 from January 2014, but $30 less than February 2013.
Ag Prices Report Shows Rising Cull Cow Prices
Estimated U.S. February cull cow prices (beef and dairy combined) averaged $93.60/cwt., according to estimates in this afternoon’s Ag Prices report. The average is up $5.30/cwt. from January’s revised estimate and $11.80/cwt. more than February 2013, and possibly the highest monthly average ever. At that price, a 1,200-lb. cull cow is worth $1,123.
Cost of Milk Production at $24.23/cwt.
USDA’s Dairy Situation at a Glance Dairy Data shows the U.S. national cost of production (COP) in January at $24.23 per hundredweight, down slightly from December 2013’s $24.66, and compares to $25.79 for January 2013.
The COP includes operating costs such as feed, veterinary, medicine, bedding, marketing, custom services as well as allocated overhead such as hired labor, capital recovery of machinery and equipment, land rental, taxes, insurance, and general overhead. The dollar amount is not necessarily the cost to produce 100 pounds of milk but all of the costs the sale of 100 pounds of milk has to cover.
Oceania Milk Production Mixed
USDA’s Dairy Market News (DMN) reports that Australia milk production has suffered from recent heat waves and limited bounce backs in production. Dairy Australia forecasts output for the 2013/14 season to be flat to 2% lower, compared to last season.
Recent rains and cooler temperatures have improved cow comfort levels in some areas. Prompted by adequate water supplies, lower feed costs, higher milk prices, and having most of the hot weather behind them, many dairy producers are looking to prolong milk production this season.
New Zealand milk production in December was reported by DCANZ at 2.72 million tons, up 4.7% from December 2012 and 11.8% higher than two years ago. Some production areas on both the North and South Islands are currently dry and needing rain to promote pasture growth. Strong global demand and good margins are continuing to prompt producers to provide supplemental forage feeding to extend the milk production season. Manufacturers are building supplies to fill future commitments over the carry over period. Butter oil demand has improved following recent price declines, according to DMN.
Demand for Powder is Good
Skim milk powder (SMP) prices are stable with only a marginal decline on the upper end of the range in Oceania, reports DMN. Product availability is very limited with most supplies committed for First and Second Quarter. Production is filling current orders and building supplies for future commitments. Global demand remains strong with many buyers looking to the more available supplies in the EU and the US at competitive price levels.
“The firm SMP and whole milk powder markets are supporting the cheese market,” says DMN, “as cheese makers need a good return on cheese in order to make it. Without good returns for cheese, manufacturers are inclined to make milk powders. Cheese production is covering domestic demand needs and building supplies to cover long term commitments.”
European Milk Production Rising
Western Europe milk production continues to increase, according to DMN. Weather conditions are phenomenal in the region with some areas reporting conditions 4-6 weeks ahead of the typical spring trend. Heavy milk production and good prices for milk powders have dryers operating at capacity levels. Export demand for milk powders is very active as EU prices are internationally competitive and gaining more interest.
Near term available supplies are very limited. Bulk butter prices, after declining for a number of weeks, are now drawing increased export interest. Whey trading activity remains quiet.
Milk production in Eastern Europe is behind the Western European pace, but increasing along the seasonal trend. Winter weather patterns are fairly normal. Milk powders are more readily available for the near term in the region. Butter and cheese exports to Russia remain active.
FDA Proposes Updates to Nutrition Facts Label on Food Packages
The U.S. Food and Drug Administration yesterday proposed to update the Nutrition Facts label for packaged foods to reflect the latest scientific information, including the link between diet and chronic diseases such as obesity and heart disease. The proposed label also would replace out-of-date serving sizes to better align with how much people really eat, and it would feature a fresh design to highlight key parts of the label such as calories and serving sizes.
“Our guiding principle here is very simple: that you as a parent and a consumer should be able to walk into your local grocery store, pick up an item off the shelf, and be able to tell whether it’s good for your family,” said First Lady Michelle Obama. “So this is a big deal, and it’s going to make a big difference for families all across this country.”
The National Milk Producers Federation (NMPF) stated in a press release: “As we review the details of today’s announcement on proposed food label changes, we are open to improvements that will help consumers make informed choices.
We applaud the provision to highlight a food’s dietary contribution of potassium and vitamin D, two nutrients most Americans are not consuming enough of. Milk is a great source of those, as well as two other key nutrients, calcium and protein, that are already highlighted on the current nutrition facts panel. This change will help consumers better understand the important role that dairy plays in a healthy diet.
There are some parts of the proposal that need greater clarification, such as the definition of ‘added sugars,’ and we look forward to working with the FDA to address these issues.”
Complete details are posted at http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm387418.htm.
Processors: Proposals have Huge Implications for Dairy
“The proposed nutrition label and serving-size changes have huge implications for the dairy industry beyond the required nutrient declaration changes, says the International Dairy Foods Association (IDFA) on its website. They will also result in the need for some products that use nutrition claims such as “low-fat” or “fat-fee” to reformulate to meet the claims based on changed serving sizes,” said Cary Frye, IDFA vice president for regulatory and scientific affairs.
IDFA will review the proposed changes in-depth to discover their full impact on the dairy industry and work with members to provide feedback to FDA. The public comment period will run 90 days following the proposed rule’s publication in the Federal Register, which likely will be tomorrow.
FDA aims to complete the regulations next year, and companies would have two years to comply after the final rules are published.
In addition to filing comments, IDFA will continue to work with its food industry partners, including the Grocery Manufacturers Association, to emphasize the effectiveness of voluntary labeling options,” said Jerry Slominski, IDFA senior vice president of legislative affairs and economic policy. “IDFA also will continue to educate policy makers on Capitol Hill about the great nutritional value of dairy products.”
Canadian Supply Management Co$ts Consumers
Canada's dairy supply management policy is costly to millions of Canadians, consumers pay higher prices for dairy products to support a small number of farms, and the most efficient farmers are limited to the small Canadian market, according to the first release of findings from The Conference Board of Canada analysis of supply management and reported in the Digital Journal.
"All Canadians have a stake in supply management," said Michael Bloom, Vice-President, Industry and Business Strategy. "Canadians, including those with lower incomes, pay about $276 per family more for dairy products than consumers in other countries."
"In addition, the policy effectively limits farmers' growth opportunities by focusing them on the slow-growing Canadian market. Canada's most efficient producers are already among the world's best and there is every reason to believe that they can compete globally. In effect, supply management policy is limiting income and jobs for Canada."
The Conference Board report, Canada's Reforming Dairy Supply Management: The Case for Growth, argues that a win-win reform package needs to be accompanied by a new vision for industry growth. Since dairy consumption in Canada is stagnant, export markets are key to industry growth.
Costs to Scrap Canadian Supply Management is Affordable
So reports the Globe and Mail. Compensating dairy farmers for scrapping the supply management regime would cost a fraction of the oft-cited estimate of $20-billion-plus, according to a soon-to-be-released Conference Board of Canada study.
Government could buy out the owners of Canada’s 12,500 dairy farms for as little as $3.6-billion
The study is part of an effort by the independent Ottawa-based think tank to demonstrate that Canadian farmers and processors are missing out on a vast and expanding global market for their products, particularly in Asia.
“There is a big prize out there for our dairy farmers to go after,” Michael Bloom, the Conference Board’s vice-president of industry and business strategy, said Wednesday in Ottawa at a panel discussion organized by the Ottawa Economics Association.
The estimated buyout price tag is based on the book value of the quota that farmers now hold to produce milk in Canada’s protected and tightly regulated dairy industry.
Book value is a fairer measure than the higher market price because many farmers acquired their quota free when the system was created in the 1970s, or long ago wrote off the cost, Mr. Bloom explained. “If there is going to be a buyout, using book value is a better way to do it.”
The Conference Board pegs the market value of dairy quota at $23-billion, in line with numerous other previous studies. It can be the largest asset farmers own, often used as collateral to finance other farm activities. Quota for chicken, turkey and eggs is worth another $7-billion at market value, according to Mr. Bloom.
Canadian farmers are prohibited from exporting all but a small amount of product because domestic price and production controls are considered subsidies under World Trade Organization rules.
Canada’s dairy industry is facing unprecedented threats from new trade agreements, including the recently negotiated deal with Europe and the proposed 12-country Trans Pacific Partnership.
Foreign suppliers are eager to grab even a small slice of the Canadian market, which boasts some of the highest prices and margins in the world, Université Laval agricultural economist Bruno Larue said at the same event. A steep tariff wall protects the market, but Canada gives up additional duty-free quota with each new trade agreement to protect supply management, he explained. In the European deal, Canada gave Europe the right to sell an additional 18,500 tonnes of cheese here.
“Foreigners like our market because the prices are high,” Prof. Larue said. “They don’t have to export a lot to make a lot of money in Canada.”
He suggested that producers in Europe, the United States, Australia and New Zealand are actually better off with supply management because they make so much money selling small quantities here. “They just want a bigger piece of the action,” he said.
Canada’s high prices are the result of “successive monopolies” and “cascading high margins” throughout the supply chain, from farmers to processors and grocery chains, he said.
The industry will lose in the long run unless it reforms now because more and more foreign product will come over the tariff wall, Prof. Larue added.
Among his suggested solutions: significantly boost production quota, break down provincial barriers and make it easier to buy and sell quota. The longer farmers and governments wait, the more costly it will be to phase out supply management, he said.
Past No Longer Predictor for Future
So says the International Dairy Foods economist Bob Yonkers when it comes to dairy markets. The dairy market environment has changed significantly just in the past few years, making U.S. dairy markets of today, and likely in the future, very different as a result, Yonkers explains.
He offered examples. The U.S. dairy industry has been used to seeing price declines for most manufactured dairy products after the holiday/football seasons end. When the industry depended largely on the domestic market that was not an unreasonable expectation, but today the industry is exporting more than 15 percent of U.S. farm milk solids. While traditional domestic market factors will continue to play roles, global market indicators are increasingly important and cannot be ignored.
For most of the past year, reports out of China have indicated problems with that country’s domestic farm milk sector due to industry restructuring driven by food safety considerations. In addition, China’s demand for livestock products has grown for several decades, and dairy has been a big part of that growth, both for food and as feed for other livestock. Demand for U.S. dairy exports, both directly into China and also into other regions of the world, was the major factor keeping U.S. domestic dairy market prices from making the expected downturn after the holidays.
Also, Yonkers said it’s important not to limit the search for global market indicators to only those which have played significant roles in the past. Take a look at these market developments. Since the start of its production season last fall, New Zealand milk production is up significantly over last year. In addition, much of Western Europe is experiencing a mild winter and milk production is up there. In Australia, however, heat and drought have that country’s milk production running three percent below last year; much of Eastern Europe and Russia are seeing reduced milk volumes also. In the United States, milk production growth has been slow and dairy demand has remained strong in spite of high wholesale dairy prices.
Another frequently heard statement is that when U.S. wholesale market prices reach levels seen recently, demand destruction will soon follow. However, comparing what happened in the past, when the CME cheese price rose above $2.00 per pound, to today is no longer as relevant.
Since 2007, global food inflation has driven up the cost of all agricultural commodities and the world is adjusting to higher food prices. In the past when corn averaged $2.25 a bushel, rarely reaching the $4 level, and soybeans hovered around $6 a bushel and $10 was unusually high, the $2.00 per pound wholesale cheese price did seem high to end users. But today, and into the future, according to most baseline forecasts, $4 corn and $10 soybeans are the new normal.
Yonkers said it’s clear now that past market behavior will be no predictor of current or future market behavior for the U.S. dairy industry.
California Federal Order Problematic to Quota & Minimum Standards?
Those are just two of the issues to be addressed at Western United Dairymen’s (WUD) annual meeting March 5-7 in San Luis Obispo. The theme this year is “Taking Action, Embracing Change.” One of the changes being embraced is possible formation of a Federal Milk Market Order. CEO Michael Marsh reported in Friday’s DairyLine that the producer community in California has become very frustrated when comparing local milk prices to milk going into cheese in other parts of the country.
That will be addressed on Thursday and include presentations by USDA Agricultural Marketing Service Dairy Programs Deputy Administrator, Dana Coale, as well as two attorneys, one specializing in Federal orders, Chip English, a partner at Davis, Wright, Tremaine LLP, and the architect of the California regulatory system, John Vlahos, Partner, Hanson Bridgett LLP, and WUD's long-time legal advocate.
California’s quota system is a “problematic issue,” according to Marsh, “Because quota is very important to California dairy producers and securing it is also going to be one of the challenges with a federal order.”
Marsh said he believes that cooperatives are drafting language for a proposed federal order for California that envision USDA administering the federal market order and a transfer of quota monies would come from USDA, back to the California Department of Food and Agriculture to redistribute to producers. That provision, however, will take legislation within the California legislature to implement that, he said.
When asked about California’s higher minimum standards with respect to its fluid milk, Marsh said “I think we’ll be okay.” He admitted that he had a scare in July, 2012 when Rep. Steve King of Iowa had offered an amendment in the House Ag Committee’s markup that would have eliminated California’s fluid standards but it was not included in the final farm bill so “we will be able to maintain our higher fluid standards.”
Details are posted at www.wudconvention.com.
Dairy Business Assoc. Promotes Video
With the recent release of the Mercy for Animals video, dairy farmers across the country have been asking, "What is the best way to handle down cows?" The Dairy Business Association of Wisconsin and ANIMART, Inc. have teamed up and have been proactively answering this question. Both organizations are getting essential down cow management information out to farmers; something no one else in the industry has done.
At the Dairy Business Association's Access Symposium on February 19 at Lambeau Field, the day's topics highlighted the importance of down cow management and crisis situations.
The most anticipated presentation of the day was that of Dr. Mike Costin of ANIMART who discussed his experiences in developing a balanced approach to handling down cows. Because of down cow challenges farmers face, there is a great need for standard operating procedures that are practical and meet animal handling standards.
As Dr. Costin says, "In today's modern dairy facilities, 'down cows' are a fact of life. Many reasons can cause a cow to go down ranging from disease and injury, to a simple slip on the concrete. Simply stated, there is no easy way to handle a down cow or this situation. Adding to the challenge is many outside entities are increasing focus on how you address this challenge."
Dr. Costin and ANIMART have developed a down cow "Standard Operating Procedures" document to share with the dairy industry. The SOP discusses five areas for effective handling of a down cow, which are: 1.) Moving a Down Cow Using a Sled; 2.) Moving a Down Cow by Means of Mechanical Conveyance; 3.) Moving a Down Cow out of the Parlor; 4.) Moving a Down Cow out of the Return Alley; and 5.) Moving a Down Cow Out of a Stall (Cow Facing Forward). The SOP also discusses keys to establishing a down cow team and humane euthanasia. ANIMART invested over 500 man hours in the development and discussion of this SOP for the benefit of the dairy industry.
"We believe in working together as an Industry to empower producers is the best approach; and to this end we have made an example of Dr. Costin's Down Cow SOP available to the public through the Dairy Business Association," commented Dan Ellsworth, President of ANIMART. "In addition, we are providing this so other veterinarians may use it as a guideline to set up farm specific SOPs for their clients with or without our direct involvement."
Laurie Fischer, the Dairy Business Association Executive Director, added, "With recent events, so many dairy producers were concerned about the absolute best ways on how to handle down and sick cattle. I am so pleased that our industry now has a protocol that can be used by dairy producers from around the county."
To view the ANIMART Down Cow Standard Operation Procedures, please click here.
Mielke Market Daily / Week’s End Review
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
Cheese sellers were nowhere to be found this week in Chicago. One unfilled bid again took the spot block price 0.25¢ higher this morning, a repeat of the last 5 sessions really, all on unfilled bids. The blocks finish the week at $2.2225/lb. The barrels were unchanged again, like yesterday, with no activity and close the week at $2.20/lb. after 3 days of gain earlier in the week but also with no product exchanging hands. The blocks are up 6¢ on the week and 64.75¢ above that week a year ago when they bottomed out for the year at $1.5750/lb. The Cheddar barrels closed Friday at $2.20/lb., up 4.25¢ on the week and 64¢ above a year ago. Most Class III futures retreated.
Things heated up in the butter market this morning as 19 trades occurred and the price pole vaulted 10¢, to $1.88/lb., biggest single day increase since September 12, 2013. Sales ranged from $1.78-$1.88/lb. Two bids at $1.88/lb. were unfilled and an offer at $1.90/lb. got no response. The Double A price is up 9.5¢ on the week and 30.5¢ above a year ago. A whopping 36 carloads traded hands on the week. The approaching Easter holiday demand and exports are keeping butter prices strong.
The Grade A nonfat dry milk roller coaster went nowhere today, following a 1¢ gain yesterday, 4¢ loss Wednesday, 2.25¢ gain Tuesday, and a 0.25¢ rise on Monday. Cash powder finishes the week at $2.04/lb., down 0.5¢. One car was sold this morning at $2.04/lb. (12 on the week) and a bid at $2.0250/lb. was left on the board.
Today’s Market Closing Prices:
Butter: Up 10¢, to $1.88/lb.
Cheddar blocks: Up 0.25¢, to $2.2225/lb.
Cheddar barrels: Unchanged, at $2.20/lb.
Grade A nonfat dry milk: Unchanged, at $2.04/lb.
Class III milk: Feb. $23.18, -1¢; Mar. $22.15, -8¢ (-3¢ on the wk.); Apr. $20.85, -12¢ (+56¢ on wk.); May $20.07, -14¢ (-27¢ on wk.), & Jun. $19.94, -13¢ (-11¢ on wk.). Based on today’s CME settlements, the Second Quarter 2014 average now stands at $20.29, -13¢ from Thursday. The 2nd half average is $18.99, -1¢ from Thursday.
The California Department of Food and Agriculture announces the state’s February Class 4a and 4b milk prices Monday. The biweekly Global Dairy Trade Auction takes place on Tuesday and USDA issues its January Dairy Products report. USDA announces February Federal order Class II, III, and IV milk prices Wednesday afternoon.
Monday on DairyLine:
If this were the Olympics, the U.S. would have won the gold medal for exports.
USDEC’s Alan Levitt explains.
More milk is coming out of Kansas and Billy Brown from the Kansas Dept. of Ag tells
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