DairyBusiness Update: March 3, 2014

California 4b Milk Price Up $5.73 from 2013
The California Department of Food and Agriculture announced the state’s February 4b cheese milk price today at $21.14 per hundredweight, up 83 cents from January and $5.73 above February 2013. That put the two-month average at $20.73, up from $15.63 in 2013, $13.83 in 2012, and $14.71 in 2011.
   The Class 4a butter-powder milk price is $23.08 per cwt., up 95 cents from January and 5.07 above a year ago. The 4a two-month average now stands at $22.61, up from $17.55 a year ago, $15.85 in 2012, and $17.19 in 2011. Comparable Federal order Class milk prices will be announced by USDA on Wednesday.

December Fluid Sales Off 0.8%
   December 2013 packaged fluid milk sales totaled 4.35 billion lbs., down 0.8% from December 2012. (Sales were not adjusted for calendar considerations).
   December sales of conventional products, at 4.16 million lbs., were down 1.5%; organic products, at 199 million lbs., were up 14.4% Organic represented about 4.6% of total sales for the month.
   January-December 2013 total packaged fluid milk sales, at 51.51 billion lbs., were down 2.3% from 2012. Year-to-date sales of conventional products, at 49.24 billion lbs., were down 2.6%; organic products, at 2.27 million lbs., were up 5.1%. Organic represented about 4.6% of total sales.

                                                                                          Source: Dairy Market News

US Became the “BIG Cheese “ in 2013
2013 was a great year for U.S. dairy exporters as volume was up 22 percent to almost 700 million lbs., according to the U.S. Dairy Export Council (USDEC).
   “That’s like exporting all the cheese produced in Minnesota,” USDEC’s Alan Levitt reported in today’s DairyLine.
   The United States saw exports up in all the major markets, according to Levitt. Mexico was up 26 percent, Korea up 25 percent, The Middle East North Africa region was up 40 percent, and Japan was up 21 percent. Even China, which is still a relatively small customer, saw an increase of 29 percent.
   “It’s been a really nice run,” Levitt said. “That level of exports has more than tripled since 2009, so it’s a real significant volume.”
   Another way of putting it in context is the U.S. is exporting nearly 50 loads of a cheese per day. But what hasn’t received a lot of mention is that in 2013 the U.S. became for the first time, the worlds’ largest single country cheese exporter.
   The U.S. passed France and the Netherlands in 2007, Germany in 2008, Australia in 2010, and New Zealand 2013.
   “If this were the Olympics we have won the gold medal,” Levitt said. “It’s a big achievement and we want overseas buyers now to think of us as the market leader and look to us as a strong partner.”
   Levitt says maintaining our spot as the number one cheese supplier in the world “requires a shift in mindset and tactics because market leaders take a different approach than those with a smaller slice of the pie.”
   “Market leaders aren’t looking to chip away at competitors share to build business,” he said. “Instead, they’re looking to grow the market as a whole and to expand the pie.”
   For example, being the market leader in pizza cheese means focusing on building overseas pizza consumption and also getting more cheese on pizza. Or, it could mean working with food companies to get them to incorporate cheese into more processed foods.
   “It’s that sort of expanding the pie work that’s at the core of USDEC’s marketing approach and U.S. suppliers are actively taking part in this work as well,” Levitt concluded.

Big Test for Global Dairy Trade Tomorrow
   So says High Ground Dairy’s Eric Meyer. “Now into its third straight auction, Fonterra raised its 12 month forecast volume across all commodities. At 1.89 billion lbs., this is the largest total since High Ground Dairy began keeping track of this data last summer. Since bottoming out in early September, Fonterra’s rolling 12 month forecast has increased more than 20%.
   Whole milk powder (WMP) volumes were bumped up 3.8% to 1.19 billion lbs. while skim milk powder’s (SMP) forecast spiked 6.3% versus two weeks ago to 332.8 million lbs. Fonterra also revised the 12 month forecast for anhydrous milkfat (AMF) 4.1% higher to 178.9 million lbs,, butter up 7.9% to 96.4 million lbs., and cheese 4.3% higher to 53.8 million lbs. This was the first 12 month volume increase on cheddar cheese since mid-October.
   More important, says Meyer, Volumes for tomorrow’s trading event are bucking New Zealand’s declining production curve and are higher than the previous two auctions. Sharp upward revisions were made across all major commodity categories versus two weeks ago across the next four trading events.
   A total of 50.7 million lbs. WMP will be offered at tomorrow’s GDT auction, revised +12% higher than the latest estimate two weeks ago. Another 4.3 million lbs. was added across the following three trading events thru the end of April. Of the increase, more than half was loaded into the next four auctions, according to Meyer.

New Law Celebrated by Idaho Dairy Industry
   The Times-News Magicvalley.com reports that the Idaho dairy industry is celebrating a new law that criminalizes undercover filming and recording of agricultural operations. But opponents of the law say it condones animal abuse and does nothing to prevent animal cruelty on the farm.
   Tony Vanderhulst, president of the Idaho Dairymen’s Association, milks 5,500 cows two to three times a day at his facility west of Wendell. Dairy farmers don’t need animal activists secretly filming to stop animal abuse, he said.
   “My eyes can’t be everywhere,” Vanderhulst said. “But there are plenty of eyes here.”
Dairy veterinarian Eric Flikkema walks the dairy’s alleys twice a week and checks every cow.
   “If there is a problem, he’ll know about it,” said Vanderhulst.
   “If I see something, I will put a stop to it,” said Flikkema.
   Dairy employees know to report abuse, as do the many vendors and visitors to the diary, Vanderhulst said.
   The Idaho State Department of Agriculture routinely performs on-site inspections for dairy farm sanitation and waste containment. In 2012, the state’s 17 inspectors made nearly 8,000 unannounced visits to the 542 dairies it oversees, according to Idaho Dairymen’s Association.
   “During the course of a normal inspection, ISDA personnel will take note of the livestock present on the facility and notify the state veterinarian if an animal care investigation should be conducted for violations of animal welfare, neglect or abuse,” said Pamela Juker, spokeswoman for the department.
   ISDA also has an animal care complaint hotline, Juker said. Complaints are investigated within 24 hours.
   Several state dairy inspectors contacted by the Times-News said they could not comment on the industry’s ability to monitor animal abuse.
   Opponents of the new law don’t see it that way. “Animal abuse is rampant in the dairy industry,” Vandhana Bala, an attorney with the Los Angeles-based animal-rights group Mercy For Animals, told the Times-News Thursday. “I don’t believe the dairy industry is capable of monitoring itself.”
   Not so, Vanderhulst said Friday hours before Gov. C.L. “Butch” Otter signed the “ag-gag” bill into law.
   “Dairymen share the same concerns as Mercy for Animals. Our aim is healthy cows, through good animal husbandry,” he said.
   Those in the agriculture industry call it an “ag-security” law. But to those outside the ag industry, it’s an “ag-gag” law.

California Dairies to Bring More Powder to the World
   California Dairies, Inc. (CDI), the largest dairy processing cooperative in California, will increase its processing capacity with the addition of a third evaporator at its Visalia plant. A CDI press release stated that “Committed to becoming the leading source of dairy nutrition for a healthy world, the project will align CDI’s assets and capabilities to produce the value-added milk powders the world market demands.”
  “Management continues to look for new ways to add value to its member-owners' milk through the expansion and improvement of its assets and product offerings,” said Andrei Mikhalevsky, CEO. “The addition of a new evaporator combines increased capacity and improved capabilities to offer CDI the flexibility to adjust product portfolios as market demands shift, which will grow market share and maximize member-owner profits.”
   The largest capital project undertaken since the Visalia plant was built in 2007, the new evaporator will increase CDI’s ability to meet tight export specifications on value-added milk powders. This will allow CDI to focus on expanding relationships with its international customers and improving its presence in the global markets, both of which align with the company’s strategic goal. The evaporator is expected to be online February 2016.

It’s a Small World After All
   I thought of that after reading this morning’s FC Stone Insider Opening Bell. My first reaction to the lead story was, does that have to do with me in (name your town). It states: “Tensions escalated in Ukraine as Russian troops surrounded the Ukrainian military base of Crimea. Increasing aggression from Russia sent many commodity markets soaring in early morning trade as investors worldwide dumped equities for gold, crude oil, and grains. Dairy markets did not respond much to the worsening situation even though Russia is a major importer of dairy products, particularly butter.  
   Andrew Critchlow writes in The Telegraph; “As Russia threatens Crimea, one of the Ukraine’s main export routes for the millions of tonnes of grain the country exports every year, there is more at stake than regional sovereignty.
   The cost of the loaves on our tables could shoot up should supplies from Europe’s breadbasket be effectively choked off in the Crimea’s strategic port of Sevastopol or the Black Sea port of Odessa, experts have warned. Ukraine is of vital importance to global food supply, ranking only behind the US by some estimates in global grain production.
However, the Ukraine’s grain has the shortest distance to travel on average before it is shipped to international markets, making it especially critical to meeting short-term global food supply.
   “Crimea is extremely important as it is where most of Ukraine’s grain is exported by ship from its ports,” said Kona Haque, head of agricultural commodities research at Macquarie. “Ukraine is very important and by some counts it is already the second-largest grain exporter.”
   Can events in Crimea affect Main Street, USA. The answer today is, yes, they can and they do!

China’s Market Impact Up: a “House of Cards?”
   No one denies that world dairy markets are where they are because of China’s buying spree but how long will it last? The Daily Dairy Report’s Sarina Sharp warns in the February 28 Milk Producer’s newsletter that “there are growing concerns about the health of the Chinese economy.” She reports that a Bank of America-Merrill Lynch survey of investment fund managers found that nearly half believe the possibility of a “hard landing” in China is the biggest tail risk to the global economy.
   China is already suffering a liquidity crisis and the real estate boom there seems to be ending. The former could slow business investment, while the latter may restrict asset appreciation among the growing middle class.
   Economic pain in China could quickly translate into a decline in the flow of dairy products and other commodities to Southeast Asia. Furthermore, it seems presumptuous to assume that the Chinese milk production deficit will compound itself year after year. At the very least, dairy and other commodity markets that are increasingly dependent on import demand from a single source should be wary of amplified volatility.”

Yogurt Added to WIC Program is Praised
   The International Dairy Foods Association (IDFA) is praising USDA’s final changes to its Special Supplemental Nutrition Program for Women, Infants and Children (WIC) program. A posting on IDFA’s website states that the changes include increased access to low-fat dairy, allowing yogurt as a partial milk substitute.
   The interim rule was issued in 2007 and implemented the following year, but USDA continued to take comments through February 2010. At that time, IDFA submitted additional comments, asking the department to reconsider its previous request to include yogurt as an authorized partial substitute for fluid milk. IDFA also worked with food industry coalitions to advocate on the Hill and within USDA for the yogurt substitution.
   “IDFA is pleased that USDA has continued to align the WIC program with the Dietary Guidelines for Americans, which recognize yogurt as ‘an appropriate equivalent milk product’ consumers can choose to obtain the recommended two-to-three servings of dairy each day,” said Clay Hough, IDFA senior group vice president. “In fact, a pilot study conducted by IDFA member General Mills and several other organizations has shown that adding yogurt to the WIC program can help to increase dairy consumption and improve nutrient intake among participants.”
   In addition to the yogurt substitution, USDA will no longer require a medical waiver for soy milk substitution. The rule also encourages companies to reformulate products to use lower levels of sodium.

Western Jersey Rep Named
   Maija Haggith, Bellingham, Wash., has been named Western Area Representative for the American Jersey Cattle Association and National All-Jersey Inc., effective February 14, 2014. Haggith will provide on-farm service in Arizona, southern California, New Mexico and west Texas. She will also travel nationwide as an evaluator for the AJCA Linear Type Traits Appraisal program.
   “Maija brings broad practical experience in many areas of the industry to this position,” said Neal Smith, Executive Secretary and CEO, “but most of all, a passion for Jerseys and the Jersey business. She has a strong work ethic, warm personality and commitment to the industry that will make her very effective in working with established and new Jersey owners throughout this territory.” For more details, log on to www.USJersey.com  

Apply Now for International Jersey Conference in South Africa
   Young Jersey breeders who have exhibited unique leadership qualities and achieved success in their Jersey businesses now have the opportunity to gain further knowledge and industry contacts at the 20th International Conference of World Jersey Cattle Bureau (WJCB).
   The WJCB’s Jersey Educational Travel Award (JETA) provides scholarships for five individuals to participate in the conference scheduled for September 12-21, 2014 in Cape Town and Arniston, South Africa.
   Individuals ages 18 to 40 in the conference year who can demonstrate an involvement in dairy farming, enthusiasm for breeding and developing Jersey cattle, and who have a genuine interest in an international education experience are invited to apply.
   Thursday, May 1, 2014 is the deadline for U.S. applicants to submit materials to the American Jersey Cattle Association, by mail to 6486 E. Main Street, Reynoldsburg, OH 43068-2362, or by email to info@usjersey.com. Details on the application process are posted at www.usjersey.com/News/JETA_2014_USApplication.pdf.

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
   Cash block Cheddar ticked up another 0.5¢ this morning in Chicago on 1unfilled bid but an uncovered offer took the barrels down 4¢, the first descent since Feb. 12. The prices are now at $2.2275/lb. and $2.16/lb. respectively and the spread is at an abnormal 6.75¢.  Most Class III futures retreated in double digits in the upfront months, with the April contract plunging 59¢.
   Business was quiet in the butter market this morning, following a busy Friday of 19 trades and a price jump of 10¢. There was no activity today and the price remains at $1.88/lb.
   FC Stone market analyst, Chris Hildebrand wrote in this morning’s Insider Opening Bell that Easter demand for butter and China's insatiable appetite for whole milk powder are tightening U.S. and world milkfat markets. In January China imported a record 275 million pounds of whole milk powder.
   The Grade A powder roller coaster headed down this morning, dropping 1.25¢, to $2.0275/lb. Two cars traded hands, the 1st at $2.03/lb. and the 2nd at $2.0275/lb. A bid at $2.0250/lb. and an offer at $2.0325/lb. were left on the board.

Today’s Market Closing Prices:
Butter: Unchanged, at $1.88/lb.
Cheddar blocks: Up 0.5¢, to $2.2275/lb.
Cheddar barrels: Down 4¢, to $2.16/lb.
Grade A nonfat dry milk: Down 1.25¢ , to $2.0275/lb.
Class III milk: Feb. $23.20, +2¢; Mar. $21.89, -26¢; Apr. $20.26, -59¢; May $19.67,
-40¢, & Jun. $19.67, -27¢. Based on today’s CME settlements, the Second Quarter 2014 average now stands at $19.87, -42¢ from Friday. The 2nd half average is now $18.96, -3¢ from Friday.
Looking ahead:
   The Global Dairy Trade Auction is on tap for tomorrow and the Agriculture Department issues its January Dairy Products report. February Federal order Class milk prices are announced by USDA Wednesday afternoon.
Tuesday on DairyLine:
   FC Stone’s Bill Brooks on the recent rise of butter prices
   Smart Dairy update with BouMatic’s Denise Behnke