Mielke: Milk subsidies debate comes to boil

By LEE MIELKE

For the Capital Press

A group of South Dakota dairy manufacturers are opposing the supply management provision included in legislation expected to be included in the draft farm bill, according to a press release from the International Dairy Foods Association.

The group included the presidents and CEOs of four large dairy companies: Saputo Cheese USA Inc., Lake Norden Food Ingredient Company (Davisco Foods International Inc.), Valley Queen Cheese Factory Inc., and Bel Brands USA. They expressed concern to Sen. John Thune, R-S.D., pointing to the growing dairy industry in South Dakota, and called it "alarming that Congress would consider legislation that would limit milk production, increase regulation and allow government interference in free markets," according to the release.

Thune sits on the Senate Committee on Agriculture, Nutrition and Forestry, which will consider the legislation as part of the proposed "Dairy Security Act," expected to be included in the farm bill.

"The dairy industry in South Dakota has been growing tremendously in recent years," the dairy leaders wrote. "Our investments in dairy manufacturing plants in the state bring new jobs as well as increased demand for milk from dairy farmers. In fact, we have been working with Governor Daugaard in his efforts to bring new milk production to our state in order to keep up with the growth in our operations.

"It's also important to note that the opportunity for dairy expansion into global markets is terrific for our industry," the dairy leaders added. "Just a decade ago, our nation was a net importer of dairy products. Now, we export the equivalent of 15 percent of the milk produced by our nation's dairy farmers." They called on Thune to oppose "this approach for the dairy industry and our nation."

National Milk Producers Federation's board of directors supported a resolution urging Congress to pass a farm bill in 2012 that contains "an improved safety net for farmers in the form of the Dairy Security Act." A press release said the board does not support any extension of current farm programs and "delay the creation of a better dairy program."

"Kicking the can down the road into 2013, where the farm bill is concerned, is neither good politics, nor good policy," said Randy Mooney, chairman of NMPF and a dairy farmer from Rogersville, Mo. "The tough choices about budget priorities won't be any easier next year. But more to the point, dairy farmers need a better program than what we have right now. A farm bill extension in 2012 doesn't do us any good."

The federation has worked since 2009 to formulate a comprehensive economic safety net that is based on margins, rather than just the farm level price of milk, a NMPF press release stated. After developing its own proposal, the Foundation for the Future, NMPF worked with Reps. Collin Peterson, D-Minn., and Mike Simpson, R-Idaho, to include those concepts into House Resolution 3062, the Dairy Security Act.

NMPF's Chris Galen reported on the first of four field hearings on the new farm bill by the House Ag Committee in Thursday's DairyLine. The first hearing was held in upstate New York where much of the focus was on dairy. The federation had three dairy producers testify in support of the DSA, Galen reported.

The Senate, on the other hand, completed its four farm bill hearings this week.

"All the cards are now beginning to line up to have something done, at least in the ag committees by the end of this spring or by early summer, getting a farm bill created," Galen said. "The key will be trying to get it passed through Congress and signed by the White House this year before the elections sweep away anything that can get done here in Washington."

Prices and supply

Cash block cheese closed mid March at $1.5825 per pound, up 9 cents on the week, the third week in a row for a gain, but still10 1/4-cents below a year ago when they plummeted 33 cents, to $1.6850, and barrels plunged 26 1/2, to $1.70. The barrels also closed Friday at $1.5825, up 8 cents on the week, and 11 3/4-cents below a year ago. The gains came on bids; no cheese was sold in the cash market this week.

The blocks have been trading below the barrels from time to time the past few weeks. Why is that noteworthy? The March 15 Daily Dairy Report reminds us that "Margins for block manufacturers are squeezed when the barrel price exceeds the block price." The NASS-surveyed block price inched up a half-cent, to $1.4926. The barrels averaged $1.5146, up 0.8 cent.

FC Stone dairy economist Bill Brooks wrote in the March16 e-Dairy Morning Executive Edition that "there is concern about where milk and dairy product supplies will be later this year and some buying is likely occurring for the summer grilling season."

In some heavy trading, cash butter closed Friday at $1.5150, up 6 1/2-cents on the week, but 55 1/2-cents below a year ago. Twenty-six cars were sold. NASS butter averaged $1.4150, down 0.8 cent. NASS nonfat dry milk averaged $1.3410, down 2.3 cents, but whey reversed six weeks of decline and regained 1.3 cents, climbing back to 61.93 cents per pound.

"Unlike the cheese market, buyers of butter have found the price level at which sellers are willing to let go of product," Brooks said. "There are concerns about future milk supplies and warm weather could be pulling milkfat into ice cream and other Class II products," he said. "There is no shortage of milkfat."

Back to the futures

The average Class III milk price for the first six months of 2012 stood at $16.35 per hundredweight on Feb. 3, (after factoring in the announced January and February Class III milk prices) $16.19 on Feb. 10, $16.08 on Feb. 17, $15.69 on Feb. 24, $15.65 on March 2, $15.77 on March 9, and was hovering around $16.04 late morning March 16.

California's April Class I milk price was announced by the California Department of Food and Agriculture at $17.21 per hundredweight for the north and $17.48 for the south. Both are down 39 cents from March and $4.45 below April 2011. The northern price 2012 average now stands at $18.30, down from $18.56 a year ago at this time and $16.37 in 2010. The southern price average is $18.57, down from $18.83 a year ago and $16.65 in 2010. The federal order Class I base price is announced by USDA on March 23.

Expectations

Milk cow estimates were raised again in the Agriculture Department's latest Livestock, Dairy, and Poultry Outlook. Herd size contraction is still expected later in 2012. Milk per cow was also raised above earlier forecasts.

Feed prices are expected to be higher during 2012 than last year. The corn price is expected to average $5.90 to $6.50 per bushel for the 2011-12 crop year, an increase from the $5.18 average in 2010-11. Soybean meal is forecast higher than in February at $310 to $340 per ton, but lower than the $346 in 2010-11.

The increase in the soybean meal price forecast this month is due to reduced supplies from South America. The higher feed prices expected this year will continue to pressure the milk-feed price ratio. The preliminary February milk-feed price ratio was 1.58, well below 2.01 posted in February 2011. This producer profitability indicator is unlikely to improve as the effect of higher feed prices will be exacerbated by forecast lower milk and dairy product prices this year.

Prices for replacement heifers, which will enter the herd during 2012 and into mid-2013, were also above expectations, suggesting that there is demand for dairy replacements and further expansion.

Milk production

February's forecast cow numbers were increased to 9.2 million head for the year and production per cow was raised to 21.7 million pounds. Most of the gain in cow numbers is expected to come in the first half of 2012. The relatively mild winter in most of the U.S. is ideal for production, boosting yield per cow in the first half of 2012. However, weaker producer returns are expected to lead to herd contraction and lower milk per cow in the second half of the year says USDA.

Milk production remains heavy in the Southwest, according to USDA's weekly update. California and New Mexico processing plants are working on extended schedules to handle the milk as conditions are favorable for milk cows.

Pacific Northwest milk output is well above a year ago. Milk and condensed product is being moved around the region to accommodate ongoing repairs at a drying facility in Lynden, Washington. There are more concerns about high feed prices and future milk price projections, according to USDA.

Milk production is increasing in Central region. Surplus milk supplies are being discounted at up to $4 a hundredweight under Class prices. Bottled milk needs are variable with some snow related storms closing schools. Northeast milk output is increasing. Florida and other Southeastern states are also seeing milk output rise. Auxiliary plant capacity continues to be utilized to balance the milk supplies. Pastures are benefiting from rains, according to USDA.

Exports

USDA's Foreign Agricultural Service reports that January exports of cheese and dry whey were up from a year ago.

Exports of nonfat dry milk and skim milk powder fell just behind prior year levels, while exports of butter and milkfat and whey protein concentrate were notably lower than a year ago, according to the CME's Daily Dairy Report.

Cheddar cheese exports increased 27 percent, or 2.4 million pounds, to 10.8 million in January versus a year ago.

"This stellar gain is due, in part, to the continual growth in Cheddar cheese exports to our neighbor, Mexico," the report stated. Cheddar exports to Mexico totaled 2.3 million pounds, up over 560 percent from a year ago. Mexico accounted for over 21 percent of U.S. cheddar exports during January, according to the DDR.

Cooperatives Working Together accepted 15 requests for export assistance from Dairy Farmers of America, Darigold, Maryland and Virginia Milk Producers Cooperative and United Dairymen of Arizona to sell a total of 1.7 million pounds of cheddar and Monterey Jack cheese and 827,000 pounds of butter to customers in Asia, the Middle East and Africa.

The product will be delivered through August 2012 and pushed CWT's 2012 cheese exports to 30.4 million pounds and butter to 28.8 million to 18 countries. On a butterfat basis, the milk equivalent of these exports is 876 million pounds or the annual production of approximately 42,570 cows, according to CWT analysis.