Lee Mielke
Mielke Productions

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February 18, 2014
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Lee Mielke: Monthly Dairy Prices 2-17-14

The Agriculture Department announced the January Federal order Class III milk price this week at $21.15 per hundredweight (cwt.), up $2.20 from December 2013, $3.01 above January 2013, the highest level it has been since August 2011, and equates to about $1.82 per gallon. It is 84 cents above California’s comparable 4b cheese milk price.

Class III futures settled Friday, pointing to an unseasonal peak for the year at $22.87 in February and would be the highest milk price ever. The March contract settled at $20.72; April, $19.44; May, $18.81; and June at $18.78.

The January Class IV price, a record high $22.29, is up 75 cents from December and $4.66 above a year ago. The Class II price is $22.21, up 55 cents from December, $4.02 above a year ago, and the highest since August 2007.

The four-week AMS-surveyed cheese price used in calculating this month’s prices averaged $2.0838 per pound, up 20.8 cents from December. Butter averaged $1.6475, up 1.7 cents. Nonfat dry milk averaged $2.0335, up 8 cents, and dry whey averaged 60.25 cents per pound, up 3.2 cents from December.

California’s 4b January 2014 cheese milk price is $20.31 per cwt., up $2.28 from December 2013 and $4.47 above January 2013. That is the highest it has been since July 2007s $20.54 but shy of the record $21.18 in June 2007. The 4a butter-powder price is a record high $22.13, up 97 cents from December and $5.05 above a year ago. It trumps the September 2007 price of $21.62.

The 4b price is closer to the Federal order Class III milk price, just 84 cents below it. While, that is the smallest gap in nine months, it’s not likely to give much comfort to California producers who saw that gap average $1.57 per cwt. in 2013, varying from 67 cents in April to as much as $2.30 in January 2013.

In politics, the Senate passed the long-awaited farm bill this week, 68 to 32. The signing ends two long years of partisan bickering and amounts to some $1 trillion in spending on crop agriculture, dairy, conservation, food stamps, nutrition, and international food aid to name a few.

National Milk Producers Federation (NMPF) President and Chief Executive Office, Jim Mulhern, said “It has been a long and torturous road toward the creation of a better safety net for dairy farmers.” “We didn’t wind up precisely where we wanted in terms of the dairy program,” he admitted, “But the milk glass is more than half-full. The new farm bill replaces three outmoded programs intended to help farmers but that often failed in that effort. In their place is a new, more modern, and more comprehensive margin protection program,” he said, “Offering dairy producers a far better and more effective safety net. Because it is designed to protect against periods of both low milk prices as well as high feed costs, margin insurance is a better risk management tool to help farmers deal with global volatility in commodity prices in the 21st century.”

The bill is bittersweet for NMPF which fought long and hard for a controversial supply management provision to control milk production, only to see it dropped when House Speaker John Boehner, threatened to keep such a bill from even coming to the Floor for a vote.

NMPF released an analysis of the resulting proposal, which it supports and points out that the main feature is the Dairy Producer Margin Protection Program. NMPF says the Margin Protection Program is a “new and unique safety net program that will provide dairy producers with indemnity payments when actual dairy margins are below the margin coverage levels the producer chooses on an annual basis. Its focus is to protect farm equity by guarding against destructively low margins, not to guarantee a profit to individual producers. The Farm Bill requires the Margin Protection Program to be established no later than September 1, 2014.”

NMPF cautions that the program supports producer margins, not prices, and is designed to address both catastrophic conditions as well as prolonged periods of low margins. Under this program, the “margin” will be calculated monthly by USDA and is simply defined as the all-milk price minus the average feed cost.

Average feed cost is determined using a feed ration that has been developed to more realistically reflect those costs associated with feeding the entire dairy farm enterprise consisting of milking cows, heifers, and other related cost elements.

The new Farm Bill also creates a new Dairy Product Donation Program that would be triggered in the event of extremely low operating margins for dairy farmers and would also provide nutrition assistance to individuals in low income groups by requiring USDA to purchase dairy products for donation to food banks and other feeding programs.

The program would only activate if margins fall below $4.00 for two consecutive months and would require USDA to purchase dairy products for three consecutive months, or until margins rebound above $4.00. The program would trigger out if US prices exceed international prices by more than 5 percent. Under this provision USDA would purchase a variety of dairy products to distribute to food banks or related non-profit organizations. USDA is required to distribute, not store, these products and organizations receiving them would be prohibited from selling them into commercial markets.

The bill eliminates the Dairy Price Support Program and the Dairy Export Incentive Program, the Federal Milk Marketing Order Review Commission established in the previous Farm Bill, and, once the Margin Protection Program is up and running, the Milk Income Loss Coverage (MILC) program will be ended.

Three existing dairy programs are renewed through 2018; the Dairy Promotion and Research Program (“checkoff”), the Dairy Indemnity Program, and the Dairy Forward Pricing Program. To read complete details log on to www.NMPF.org/files/Farm-Bill-Dairy-Title-Summary-012814.pdf.

California’s Milk Producers Council’s Rob Vandenheuvel wrote in his January 31 newsletter, “Processors continue to be protected, but taxpayers are now on the hook for a much larger potential liability if dairy farmer margins drop. Every dairy in the U.S, regardless of size, has the opportunity to get government-subsidized margin protection on up to 90 percent of their production. So when margins drop, government payments won’t be limited to just the 2.985 million pounds that the MILC program paid out on. Their exposure will be exponentially larger than that.”

The International Dairy Foods Association’s (IDFA) Jerry Slominski said in Wednesday’s DairyLine that “The compromise dairy title in the Farm Bill represents historic reform of our nation’s dairy policies. This is a major step toward moving our dairy industry away from the failed agriculture policies of the past and toward policies of the future that will enable our entire industry to grow and capture new markets.”

Meanwhile cash cheese ended its record climb and started downhill this week, ending gains in the block price that occurred in seven of the previous eight weeks. The blocks peaked January 31 at a record high $2.36 per pound and barrels at a record $2.32 on January 30. The blocks closed Friday, February 7, at $2.2325 per pound, plunging 12-3/4-cents on the week but are still 58-1/4-cents above a year ago. The Cheddar barrels finished at $2.2050, down 11-1/2-cents on the week, ending four consecutive weeks of gain, but 64-1/2-cents above a year ago. Eight cars of block traded hands on the week and two of barrel. The lagging NDPSR block price averaged $2.2271, up 9.1 cents, while the barrels averaged $2.2348, up 8-1/2-cents.

Record high cheese prices are becoming more of an issue for manufacturers, according to USDA’s Dairy Market News (DMN). While the high prices are welcome, there is increased resistance for purchases above immediate needs. Buyers are reluctant to build excess inventories at high prices as are manufacturers. Some plants that are in good shape inventory wise are allowing contracted milk to move to alternate production facilities.

Lower than expected milk volumes in the West were responsible for a large manufacturer to announce limited layoffs. Difficult winter weather in the East is being blamed for some production slowdowns but good export demand from previously committed sales continues to move cheese out of the country. U.S. prices are closer to international prices and have slowed current demand.

Cash butter closed the week at $1.82 per pound, down 6 cents on the week but 26 1/2-cents above a year ago. Twenty eight cars traded hands on the week. NDPSR butter averaged $1.7916, up 12.3 cents.

Butter manufactures are focusing on rebuilding inventories, according to DMN, but a mix of tight cream supplies, good domestic demand, and active export sales are “hindering the process.”

Cash Grade A nonfat dry milk closed Friday at $2.0175, down 2 1/4-cents. Eight cars sold in the cash market. NDPSR powder averaged $2.0638, up 2 cents, and dry whey averaged 61.36 cents per pound, up 0.5 cents from the previous week. ❖

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The Fence Post Updated Feb 11, 2014 02:47PM Published Mar 10, 2014 02:10PM Copyright 2014 The Fence Post. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.