DairyBusiness Update: March 31, 2014

Corn Planted Acreage Down 4% from 2013/Soybean Acreage Up 6%
Corn planted area for all purposes in 2014 is estimated at 91.7 million acres, down 4 percent from last year, according to USDA’s Prospective Plantings report issued today. If realized, this would represent the lowest planted acreage in the U.S. since 2010; however, would represent the fifth largest corn acreage in the U.S. since 1944.
   Soybean planted area for 2014 is estimated at a record high 81.5 million acres, up 6 percent from last year. Compared with last year, planted acreage intentions are up or unchanged across all States with the exception of Missouri and Oklahoma.
   All cotton planted area for 2014 is expected to total 11.1 million acres, 7 percent above last year. Upland area is expected to total 10.9 million acres, up 7 percent from 2013. American Pima area is expected to total 158,000 acres, down 21 percent from 2013.

MILC Program Extended
   In a move not likely needed due to high milk price levels, the U.S. Department of Agriculture’s Farm Service Agency (FSA) Administrator Juan M. Garcia announced an extension of the Milk Income Loss Contract (MILC) program.
   The extended MILC protects dairy farmers enrolled in the program against income loss through Sept. 1, 2014, or until a new Margin Protection Program for dairy producers (MPP), established by the 2014 Farm Bill, is operational.
   Contracts for eligible producers enrolled in MILC on or before Sept. 30, 2013, are automatically extended until the termination date of the MILC program. Dairy operations with approved MILC contracts will continue to receive monthly payments if a payment rate is in effect.
   MILC compensates enrolled dairy producers when the Boston Class I milk price falls below $16.94 per hundredweight (cwt), after adjustment for the cost of dairy feed rations. MILC payments are calculated each month using the latest milk price and feed cost, just as in the 2008 Farm Bill. The payment rate for October 2013 through January 2014 marketings is zero. Payment rates during the months after January 2014 until the termination of the MILC program will be determined as the appropriate data becomes available.
   Since MILC payments are limited to a maximum amount of milk production each fiscal year, dairy operations may select a production start month other than October 2013 (the start of fiscal year 2014). Producers who want to select a different production start month must visit their local FSA office between April 14, 2014, and May 30, 2014.
   FSA will provide producers with information on program requirements, updates and sign-ups as the information becomes available. For more information on MILC, contact a local FSA county office or visit the FSA website at www.fsa.usda.gov.

Cheese Production Building/Butter Mixed
   Cheese production is building slowly as milk supplies increase towards the spring flush, according to USDA’s Dairy Market News (DMN). Current production levels are increasing slower than many manufacturers had hoped for. Advance export sales continue to draw inventory away from domestic sales. Domestic cheese demand is good despite high prices.
   Prices of butter are steady to higher on strong seasonal demand and very good export orders. The market tone is firm as butter manufacturers finish Easter/Passover retail orders. Production rates are mixed amongst the regions as cream supplies tighten and cream pricing increased. Butter makers look to replenish light inventories.

Transportation Issues Have Raised Feed Costs
   That’s the assessment of Friday’s Daily Dairy Report (DDR). The hauling mark-up on all varieties of feed is higher than ever, according to the DDR. This additional cost is not reflected in the income-over-feed calculation, as it has little effect on the prices farmers receive for their corn or soybeans.
   The booming oil industry is largely to blame for the rise in transportation costs. Rail cars in the United States and Canada are in short supply because they have been commandeered to transport oil from the heartland to refineries on the coasts. There are simply not enough pipelines. With fewer rail cars available, a greater share of the feed supply depends on the trucking industry. However, the oil industry is also using more trucks to haul materials to the oilfields. These issues have slowed the flow of Canada’s record-large canola crop, which is only slowly trickling into the United States—despite a pronounced shortage of oilseeds here.
   The weather is also a factor. Winter has been harsh, and snow and ice have slowed the flow of trucks and barges throughout the country. When feed finally arrives at dairies around the country, it comes with a higher transportation mark-up, and it may not have arrived on time, which represents an indirect cost to dairy producers who depend on consistent feed rations, the DDR said.

Questions Remain on New Dairy Title
   The Milk Producers Council’s Rob Vandenheuvel writes in his March 28 member newsletter that “The ink is now dry on the new five-year Farm Bill; it’s the law of the land,” and points out that there are many details that still need to be ironed out in the “rule-making” process at the U.S. Department of Agriculture (USDA). Major issues remain that were left somewhat vague in the bill language, and in the coming months, USDA will be providing clarity on those issues.
   He lists what we know from the bill language and what still needs to be clarified by USDA. Here are some of the things we know for certain from the bill:
• The Milk Income Loss Contract (MILC), Dairy Price Support and Dairy Export Incentive Programs are either repealed or will soon be repealed (MILC is temporarily extended until the Margin Protection Program is in place).
• The replacement program – the Margin Protection Program – provides direct payments to participating dairy farmers when the margin between the U.S. All-Milk Price and a National Average Feed Cost (which is clearly defined in the bill language) goes below certain pre-defined levels.
• The amount of milk that a dairy can enroll in the new program is based on the highest annual production for your dairy in 2011, 2012 or 2013. For the life of the five-year Farm Bill, the only increases allowed to your facility’s production history are based on the overall national increases in milk production.
• Each dairy facility is treated as a separate entity, just as the MILC program was handled.
• The cost of participating in the program is $100 per year, plus any premiums due for dairies that “buy up” additional protection. The premiums are also known, as they are locked in for the five-year Farm Bill.
• There are two tiers of premiums: a lower premium on the first 4,000,000 lbs of milk and higher one for all milk above that (however, what qualifies that first 4,000,000 lbs is not yet known).
• Payments are generated when the average margin in a two month period (Jan-Feb, Mar-Apr, etc.) is below the margin your dairy selected for the program. (i.e., you elected to “buy up” the program to cover a $6.00 per cwt margin, and the average margin in Jan-Feb 2014 was $5.50 – you would receive $.50 per cwt on the milk you were able to protect).
   So what are some of the issues that still need to be clarified? They include:
• When the Margin Protection Program officially begins (there is reference to a September 1st deadline, but it’s not clear if the program starts then or signups begin then).
• What the enrollment period is for dairies.
• Whether the program is operated on a calendar year basis or fiscal year basis (like the Oct 1 – Sept 30 calendar for the MILC program).
• Exactly how “new producers” will be defined.
• How a dairy that changes locations will be treated.
• How much of your production will be eligible for the lower premium.
• How your premiums will be paid.
• Whether you actually have to produce the milk in order to be eligible for the payouts.

California Drought’s Scary Impact on Hay Prices
   The drought situation in California is “Pretty Scary,” according to Utah State Ag Economist Dillon Feuz. He’s heard that irrigation companies are telling forage and other row crop growers that they may not have water. That makes it hard to say where hay prices are heading. “$300 per ton is not out of line,” he said on DairyLine Radio. “If California stays this dry, that could be the impact.”
   California is a big enough player that most of the hay that leaves Utah and Nevada is probably going into California, either directly to exports or into the dairy industry to supplant hay that’s leaving the Golden State. Most of Arizona’s hay is under irrigation from the Colorado River.
   “I don’t think they’re going to be as short as California, so there production should still be up,” he said. “But again, California is a big player in the hay market and if you drastically reduce one of the major players then you are going to have a shock that’s going to be felt across the western states.”
   While hay producers may be fine with it, it could have an impact on many dairy producers in the west.
   “Your benefit is sometimes your neighbors’ loss,” Feuz said. “Certainly they recognize if hay prices get too high and force dairies out of business, then they’ve just lost a major local buyer of their product.”

Lawmakers Seek EPA Information on Ethanol Mandate
   Congressmen Bob Goodlatte (R-Va.), Jim Costa (D-Calif.), Steve Womack (R-Ark.), and Peter Welch (D-Vt.) sent a letter to Environmental Protection Agency (EPA) Administrator Gina McCarthy on Friday requesting additional information on the challenges of implementation of the Renewable Fuel Standard’s (RFS) ethanol mandate. This letter is a follow-up to a recent meeting between the lawmakers and Administrator McCarthy.
    In October, Goodlatte, Costa, Womack, and Welch sent a letter signed by 169 bipartisan Members of the House of Representatives to the EPA asking them to lower the ethanol mandate for 2014. They also joined together to introduce H.R. 1462, the RFS Reform Act, which eliminates corn-based ethanol requirements, caps the amount of ethanol that can be blended into conventional gasoline at 10 percent, and requires the EPA to set cellulosic biofuels levels at production levels.  This legislation has drawn the support of 59 bipartisan cosponsors and more than 50 outside organizations.  
    “As efforts to reform the Renewable Fuel Standard continue, we are interested to learn more about challenges faced by the EPA in implementing this law. We hope that the answers provided by the EPA will help us to ensure that any legislative fix effectively addresses these challenges. Congress created this artificial ethanol market that is distorting the food and feed market, and Congress must provide relief from its unintended consequences.”  
   To view a PDF copy, click here.

Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke) The cash cheese price spread widened this morning to 13.5¢ as the blocks held at $2.3850/lb., with no activity and the barrels dropped 4¢ on an offer to $2.25/lb. The blocks have lost 4.75¢ in the past 3 sessions, while the barrels have dropped 12.75¢ in 5 sessions.
   FC Stone risk management consultant Chris Hildebrand wrote in this morning’s Insider Opening Bell that some participants had expected prices to “tank” when blocks came to the CME but that didn’t happened. "The market has been more orderly," he said, noting that milk supplies are a little tight in much of the country. "A few more blocks have been available on the CME spot market, but the age of the cheese is fairly young," says Hildebrand. "We could see a little more at the exchange as prices come off their highs, but I don't expect much. A lot of it is earmarked for the export market."   
   Butter was unchanged, holding at $2/lb. One car was sold at that price and an offer at $2.01/lb. was left on the board.
   Hildebrand says butter demand is strong ahead of Easter and Passover and for exports.
   Cash Grade A powder was also unchanged, holding at $2.03/lb., with no activity.
   China bought heavily in January and less in February, according to Hildebrand, but its buying has picked up again. "We still see steady demand overseas even though prices in Oceania and Europe have dropped," he says. The dry whey market also looks well supported in the near term.

Today’s Market Closing Prices:
Butter: Unchanged, at $2.00/lb.
Cheddar blocks: Unchanged, at $2.3850/lb.
Cheddar barrels: Down 4¢, to $2.25/lb.
Grade A nonfat dry milk: Unchanged, at $2.03/lb.
Class III milk: Mar. $23.27, +1¢; Apr. $23.79, -2¢; May $21.71, +7¢; & Jun. $20.47, -2¢. Based on today’s CME settlements, the Second Quarter 2014 average now stands at $21.99, +1¢ from Friday. The 2nd half average is now at $19.44, -5¢ from Friday.

Looking ahead:
   The biweekly Global Dairy Trade auction is tomorrow. Prices have dipped the last two events and dairy eyes will be watching tomorrow’s results closely. The California Department of Food and Agriculture will also announce its March Class 4a and 4b milk prices tomorrow. Federal order prices are announced Wednesday afternoon by USDA and the monthly Dairy Products report is out on Thursday afternoon.
Tuesday on DairyLine:
   An Idaho resident has a change of heart after hearing the real story about the “Ag Gag” bill. Bob Naerebout from
       the Idaho Dairymen’s Assn. explains.
   Dr. Todd Bilby tells us about the Dairy Heat Stress Road Show, going on this week in  several states.