DairyBusiness Update: April 7, 2014
USDEC: U.S. Dairy Exports Continue record Run
The U.S. Dairy Export Council (USDEC) reports that U.S. February export volumes were the highest in six months (on a daily-average basis), led by strong sales of cheese, whey proteins and butterfat. U.S. suppliers shipped 160,510 tons of milk powders, cheese, butterfat, whey and lactose in February, up 19% from last year. Total value of all exports was $585.2 million, up 37% from a year ago. On a daily-average basis, this is the highest figure ever.
Cheese exports in February were 31,264 tons, up 44% from a year ago and the most ever on a daily-average basis. Shipments to Mexico were up 46% vs. prior year, while Japan (+58%) and South Korea (+43%) posted large gains. In addition, exports to Saudi Arabia nearly tripled.
Total whey exports topped 39,000 tons in February, the most in six months. Export volumes were 18% more than January (daily average) and 11% more than a year ago. Exports of dry whey, whey protein concentrate and whey protein isolate were all above prior-year and prior-month levels. China remains the major customer for U.S. whey products, with February purchases up 47% from a year earlier.
U.S. exporters also continue to expand shipments of butterfat (+102% vs. last February), whole milk powder (+191%) and milk protein concentrate (+58%). In the last eight months, butterfat exports averaged 9,700 tons per month, with the majority going to the Middle East/North Africa region. Major customers for WMP are Algeria, China and Vietnam. Top buyers for MPC are New Zealand and Morocco.
Meanwhile, exports of nonfat dry milk/skim milk powder (NDM/SMP) have slowed considerably from the volumes shipped from April- October last year. During that seven-month stretch, U.S. exports averaged 51,268 tons per month. In February, exports were just 36,168 tons. As a result, NDM/SMP exports in January represented only 45% of U.S. powder production for the month, leading to a hefty build-up of inventory. In the first two months of the year, NDM/SMP shipments to Southeast Asia were up 38% from the prior year, but sales to Mexico were down 22%.
Lactose exports in the first two months of 2014 were about the same as the first two months of 2013.
U.S. exports (on a total milk solids basis) were equivalent to 15.5% of U.S. milk solids production in February. Imports were equivalent to 2.9% of production. Complete details are posted at www.usdec.org.
Cheese Demand Good/Output Growing but Inventory Building Risky
Improved milk supplies are helping cheese plants to increase production, according to USDA’s Dairy Market News (DMN). More plants are running at full production. Cheese demand continues to be good and manufacturers are striving to fill that need. Good export demand continues to draw on available inventories. Domestic orders remain fair to good into retail accounts.
Cheese stocks are adequate to fill most immediate needs with manufacturers often describing them as tighter than desired. Prices this week are lower as buyers look to fill orders, but often are cautious about building their inventories at high price levels. Cheese prices are significantly higher than year ago prices.
Inventory Building is Wanted in Butter
Butter prices are weaker as some international markets converge to U.S. prices, according to DMN. The market tone is becoming unsettled as manufacturers finish up most spring holiday orders. Production rates are steady to lower as a few butter churns ran slower due to tighter cream supplies. Domestic demand is very good following seasonal trends. Export orders are above previous years causing tighter supplies, but international sales are expected to slow some as price competition is increasing. Many butter manufacturers look to rebuild inventories upon completing current seasonal retail orders.
Senate Moves To Protect Bratwurst and Bologna from EU Over-Reach
The U.S. Senate is keeping up the pressure on the European Union (EU) to not hamper U.S. production and exports through the appropriation of common food names, according to the Consortium for Common Food Names (CCFN). This time the focus is on commonly used meat names, such as “bologna” and “black forest ham”.
In a letter to U.S. Trade Representative Michael Froman and Agriculture Secretary Tom Vilsack, the senators urged them to defend common names, especially in negotiations with the EU on the Trans-Atlantic Trade and Investment Partnership (TTIP).
Last month the Senate sent a similar letter focused on common cheese names that are under attack, including “parmesan”, “feta” and “asiago”, among others. But U.S. meat products are also at risk in pending trade negotiations.
“This trade barrier is of great concern to meat and other food manufacturers in our states,” the senators wrote in today’s letter. “We urge you to continue to push back against the EU’s efforts to restrict our meat exports, particularly to nations with which we already have free trade agreements (FTAs).”
In country after country, the EU has been using its FTAs to persuade trading partners to impose barriers to U.S. exports under the guise of protecting geographical indications (GIs). For example, as part of their recently implemented FTA with the EU, countries in Central America agreed to impose new restrictions on the use of “bologna”, effectively closing an export opportunity that the U.S.-Central America FTA opened for U.S. companies. Similar trade barriers are being imposed in other parts of Latin America and are also under discussion in many Asian countries involved in negotiations with the EU.
“We thank the U.S. Senate for once again stepping forward to call attention to this fast-growing type of agricultural trade barrier,” said Jaime Castaneda, Executive Director of the CCFN, an international non-profit alliance. “The EU has been aggressively moving to ‘own’ these names, at the expense of not only U.S. farmers and businesses but also those in many other countries around the world. Countries are beginning to catch on to what the EU is doing, and to cry foul.”
CCFN supports the goal of ensuring that legitimate GIs like Idaho Potatoes and Parmigiano Reggiano are appropriately protected. However, overly restrictive GIs for meats could hit smaller businesses particularly hard , since they often specialize in artisan and other specialty meat products.
“What you call a food is a very big deal,” Castaneda added. “It can add up to billions of dollars for U.S. companies and hundreds of jobs. And for consumers, restricting these names means less choice, more confusion, and very likely higher prices for some of their favorite foods.”
European GIs encompass many food and beverage categories, meaning many areas of food trade worldwide are potentially threatened by the EU’s unfair claims to the exclusive use of common food names and even common-place terms such as “classic”, “ruby” and “chateau”.
“We ask that USTR and USDA continue to work aggressively to ensure the EU’s GI efforts on commonly used meat product names do not impair the ability of U.S. businesses to compete both domestically and internationally. We ask you to make this a top priority through official TTIP, Trans Pacific Partnership (TPP) and bilateral negotiations,” the letter concludes.
The full letter can be found here on the CCFN website, www.CommonFoodNames.com.
Rabobank Has Warning for New Zealand Competitiveness.
Jamie Gray warns in the April 6 New Zealand Herald that Rabobank says New Zealand's milk production growth is likely to be constrained over the next five years as the ability to change land use will become more difficult and expensive. The bank said the future growth of the New Zealand dairy industry would partly depend on how efficiently producers adapted their production systems to meet heightened environmental controls.
"This will require even closer engagement locally with regulators and the wider community, alongside a rigorous program of measuring, monitoring and mitigating environmental impacts," Rabobank said in a report on New Zealand's competitiveness in the agriculture sector.
More broadly, New Zealand risked a "golden opportunity" to grow its agricultural base unless it adopted a coordinated, joint approach to improve its competitiveness.
The report, which covered the New Zealand and Australian agribusiness sectors, said both countries' food and agribusiness industries were increasingly coming under threat from a growing group of competitors from South America, Eastern Europe and Asia.
The report said the critical areas were rising production costs, international market access, logistics, regulatory pressures, capital constraints and product development.
Rabobank's general manager food and agribusiness research and advisory, Luke Chandler, said while the rising demand growth for food from Asia remained an opportunity, New Zealand and Australia risked missing the boat without a more coordinated effort from industry and government.
Read more at http://m.nzherald.co.nz/#!/business/news/article.cfm?c_id=3&objectid=11233346
Students “Fed UP” with Michelle Obama’s Lunch Overhaul
That according to a story posted on The Blaze. First, about one million public school students said “no way” to their cafeteria menus after Michelle Obama’s anti-obesity campaign led to anger and frustration over food that apparently many American kids didn’t want to stomach. But for those without other options, all that’s left is the power of social media and cell phone cameras when they simply can’t take another bite.
Right along that line, you’ll recall a couple weeks ago we reported on changes that USDA made to food items available through the WIC program. Milk and cheese will continue to be included and, for the first time, yogurt will be included however, USDA removed the option of reduced fat, or two percent, milk from the WIC program. Until now, women and children between the ages of two and five had the choice of skim, low fat (one percent) or reduced fat (two percent) milk. But when the new requirements of the final rule go into effect, children two and older and women will be limited to lowfat or fat free milk.
The International Dairy Foods Association (IDFA) warned that “This could be a concern since the majority of WIC participants reportedly opt for reduced fat milk. For these families to continue receiving the nutritional benefits of dairy, they will need to make a switch to lowfat or fat free milk.”
How many of us want Uncle Sam dictating what we eat? To read the complete Blaze story, log on to: http://www/theblaze.com/stories/2014/04/05/students-fed-up-with-michelle-obamas-school-lunch-overhaul-menu-item-snapshots-spell-out-why/
Factors to Consider with a California Federal Milk Marketing Order
California's 4b milk price gap with the Federal order Class III price is a bit more complicated than distance factors. Why am I not surprised?
A joint effort by Dr. John Newton, Department of Agricultural and Consumer Economics University of Illinois at Urbana-Champaign, Dr. Cameron Thraen, Department of Agricultural, Environmental and Development Economics at Ohio State University, and Dr. Andrew Novakovic, of the Charles H. Dyson School of Applied Economics and Management at Cornell University, address the issue and list their key findings:
The 2014 Farm Bill permits California producers to keep some form of their unique quota system if a Federal Milk Marketing Order is adopted. The value of the California quota state-wide is estimated to exceed $1 billion dollars and entitles California producers to as much as $1.70 per hundredweight in additional milk price revenue.
Any gains in farm level milk prices due to the adoption of Federal Order classified prices in California would be dependent on the market-wide utilization of milk and may be offset if high value milk is consistently de-pooled.
Current California state order pricing rules contribute to California's competitive position in the national cheese market. If Federal Milk Marketing Order provisions are adopted in California higher milk prices paid by California cheese makers may make them less competitive along the supply chain and could provide long-run incentives to shift processing capacity away from cheese into other dairy ingredient sectors.
The posting is a must read for Californians and is posted at: http://farmdocdaily.illinois.edu/2014/03/2014-farm-bill-key-factors-to-consider-ca-fed-milk-marketing-order.html.
The posting compares in depth the Federal Milk market Order program with California’s State order and while space limits us here, with respect to the difference in the California 4b cheese milk price and the Federal Order Class III, the article states that Historically the FMMO classified prices and the California state order prices followed one another closely. The FMMO class IV price and the California 4a price (milk used to produce butter/powder) are highly correlated and have an average difference of only $0.31 per hundredweight over 2000-2013. However, in recent years the FMMO class III price and the California 4b price (milk used to produce cheese and whey) have begun to diverge, Figure 1. Prior to 2009 the per hundredweight difference in the two prices series averaged $0.42 and post-2009 this difference increased significantly, reaching a high of $3.63 in December 2011, and averaged $1.43 from 2010 to 2013. These large differences are driven almost exclusively by the value of whey, a by-product of cheese production, in the price of solids-non-fat in the 4b formula.
FMMOs incorporate wholesale whey product prices in the class III price formula directly while California indirectly incorporates the whey price per pound using a whey factor value formula. The formula is capped at $0.75 per hundredweight and makes the California price much less responsive to changes in whey prices.
This and several other issues are addressed by Newton, Thraen, and Novakovic.
World and Dairy Producers Need to Understand
Tom VanNortwick, Executive Director of the National Dairy Producers Organization, Inc. writes that “For the first time in nearly 5 years, dairy producers are today being paid a price for the milk they bring to the market that more accurately mirrors what it actually costs to produce the milk on the farm in the 21st century. What it actually costs the dairy farmers of this country to produce a hundred weight of milk remains a highly debated subject, as we are told time and time again by producers; "every dairy producer’s circumstances are different and it is almost impossible to put one number on milk production costs." Not to mention that the numbers from the "farm production" of milk don’t truly reflect the “total costs” for each producer and every hundred weight of milk.
What most people don’t know is that once the milk is in the tank, then the milk truck arrives at the farm. Even though the milk is about to change hands, there is no established price the producer will be paid for that tank full of milk. There is the past price and the future price, but not much is said or can be counted on as the current price. So the milk is loaded into a tanker truck and the meter just keeps on running. You see after the milk is loaded into the tanker, the dairy producers then pay their share of the cost to deliver the milk to the processors. Next, milk producers pay a share of processing costs to the processors through the mandated make allowance program, which amounts to more than $2.40/CWT.
Read more at http://nationaldairyproducers.org/index.html
Mielke Market Daily
(A daily wrap-up of dairy markets and the things affecting them, from DairyBusiness Update associate editor Lee Mielke)
The cash Cheddar cheese blocks took another tumble this morning, dropping 5¢, after plunging 7.25¢ on Friday, and are now at $2.30/lb. Two cars were sold, the 1st at $2.33/lb., the 2nd at $2.31/lb., but an uncovered offer took the price down further. The barrels held at $2.2250/lb., so the spread fell to a more manageable 7.5¢ but is still above the typical 3-5¢.
Class III futures continued to slide with the May contract plunging 53¢.
Butter was unchanged this morning, holding at $1.97/lb., with no activity.
FC Stone risk management consultant Chris Hildebrand wrote in this morning’s Insider Opening Bell that the butter market is “stable at the moment, but holiday demand will likely cut off by the end of this week. The weather is improving and Midwest milk production will likely kick in."
Grade A nonfat dry milk was unchanged today as well, holding at $1.9975/lb., also with no activity.
Hildebrand says that demand for nonfat dry milk from Mexico has also slowed.
Today’s Market Closing Prices
Butter: Unchanged, at $1.97/lb.
Cheddar blocks: Down 5¢, to $2.30/lb.
Cheddar barrels: Unchanged, at $2.2250/lb.
Grade A nonfat dry milk: Unchanged, at $1.9975/lb.
Class III milk: April $23.95 +1¢; May $21.43, -53¢; & Jun. $20.47, -9¢. Based on today’s CME settlements, the Third Quarter 2014 average now stands at $19.99, -4¢ from Friday. The 2nd half average is now at $19.45, -3¢ from Friday.
The Agriculture Department issues its latest Crop Production report Wednesday along with the monthly World Agricultural Supply and Demand Estimates report, which will include the latest milk production estimate and milk price forecasts. California’s May Class I milk prices are announced by the California Department of Food and Agriculture on Thursday.
Tuesday on DairyLine:
USDEC’s Alan Levitt updates us on the softening world market
James Kleinke from Schaefer Ventilation gives us the latest research on heat stress.