We monitored two issues this week, Senate action on immigration reform and the USDA ruling reclassifying low carb dairy beverages. National Milk’s, Chris Galen, reported that the President’s address Monday night put the immigration issue on the front page. The Senate will likely pass a compromise bill that includes additional enforcement but guest worker provisions as well, issues that dairy farmers are concerned about, he said.

The tough nut, according to Galen, is that even if the Senate passes such a bill, it will then go to a compromise committee with House members to work out the differences with the bill it passed last year. House leaders have expressed opposition to the Senate’s approach and Galen believes it will be very difficult to reach a compromise. The House version is very much a “punitive enforcement bill,” he said, while the Senate bill will hopefully recognize that agriculture needs immigrant workers in order to be viable.

National Milk has its own legislative criteria, namely that it allows for guest workers so that the labor pool on dairy farms doesn’t just dry up. The Federation also does not want dairy producers having to become INS agents before hiring.

The 2006 growing season is underway and when asked about the prospects for the major dairy feed items, Dairy Profit Weekly editor, Dave Natzke, said “A lot depends on the weather but early indications are that energy costs aren’t the only items dairy producers may pay more for in 2006.”

Natzke said that USDA data shows that dry hay stored on U.S. farms as of May 1 was down 23 percent from a year ago and the decline is widespread, with 36 states reporting hay inventories below a year ago.

Drought conditions last summer in the central Corn Belt and southern Great Plains States forced increased supplemental hay feeding, according to Natzke, and a dry winter in Texas and Missouri hampered pasture growth and forced producers there to continue supplemental feeding through winter and spring.

He added that hay stocks did increase in the northern Great Plains and upper Mississippi Valley states and mild winters helped maintain larger hay inventories in Montana, Minnesota and North Dakota but the shorter supplies elsewhere pushed average hay prices about $10 per ton higher in April compared to March. Natzke reported there’s also concern regarding cottonseed due to reduced plantings and forecasts of a busy hurricane season.

The USDA’s first outlook for 2006 corn and soybean crops expects both to be smaller than last year. Domestic and foreign demand of both corn and soybeans is expected to increase, which Natzke said will pressure prices higher. If corn prices come in at the middle of USDA’s latest forecast, he warned “it could be the highest average farm price for corn in 10 years.”

Southeast Asia is quickly emerging as one of the world’s most important, fastest growing dairy markets. So says Dan FitzGerald, who has represented the U.S. Dairy Export Council in the region for the past nine years. I asked FitzGerald if China wasn’t the greatest opportunity for U.S. dairy producers in the region.

“No doubt China is an economic powerhouse,” FitzGerald answered, “But U.S. producers should keep in mind that the six nations of Southeast Asia in which USDEC have been active, Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam are very profitable markets for U.S. dairy exports. In fact, it’s already the largest aggregate global market for U.S. produced ingredients.

In 2005, imports to Southeast Asia of U.S. whey, skim milk powder, and lactose surged 31 percent over 2004, with U.S. dairy exports to the region totaling $263 million in 2005. By value, the region was our third-ranked market, behind Mexico and Canada in 2005. That same year, U.S. producers and suppliers sold twice as much to Southeast Asia as to Japan and three times as that sold to China.

FitzGerald says U.S. exporters continue to face strong competition in Southeast Asia from Oceania, but he quickly adds that, while Australia and New Zealand are entrenched in the region, they cannot supply the entire region.

April milk production in the 23 major states totaled 14.2 billion pounds, up 3.7 percent from April 2005, according to preliminary data from the USDA. Revisions raised the March total by 25 million pounds. April cow numbers totaled 8.24 million head, 124,000 above a year ago. Production per cow averaged 1,727 pounds, up 37 pounds.

USDA estimated 170,100 culled dairy cows were slaughtered under Federal inspection in April, 3,000 less than April 2005. Through the first four months of 2006, 749,000 dairy cows were slaughtered, down 24,000 from a year ago.

The cash market viewed the Milk Production report as bullish because it was a bit below expectations, according to the CME’s Daily Dairy Report. Block cheese ended the week at $1.20, 32.75 cents below a year ago. Barrel closed Friday at $1.19, 32 cents below a year ago. Six cars of block were sold and four of barrel. The NASS U.S. average block price hit $1.1521, up 0.2 cent. Barrel averaged $1.1377, down 0.1 cent.

Butter closed Friday at $1.1775, 26.5 cents below a year ago. Only three cars were sold. NASS butter averaged $1.1704, up 0.8 cent. Price support purchases for the week amounted to 5.5 million pounds of nonfat dry milk and raised the cumulative total to 38.7 million, compared to 31.8 million pounds a year ago.

The June Federal order Class I base milk price was announced Friday at $10.75 per cwt., $2.87 below a year ago. The price triggers a 99.96-cent MILC payment to producers.

The recent block/barrel price inversion (barrel price higher than the block) came to an end this week but Mary Ledman, Principal of Dairy Direct in Chicago, said that the inversion was nothing new for May, and pointed to the increased demand for process cheese due to “summer grilling months” as the reason. Process cheese is produced from barrel cheese.

Ledman has a “cautious forecast” that cheese prices will inch up gradually but she doesn’t expect anything over 5 cents, up or down, for the next six weeks. She doesn’t expect significant changes in butter prices either.

The USDA’s latest Livestock, Dairy, & Poultry Outlook predicts 2007 milk production will hit 183.1 billion pounds, up from 182 billion projected for 2006. Both cow population and output per cow are expected to continue to rise in 2006 and 2007 and don’t look for a decline in cow numbers until second half 2007, according to the report, and then it will likely only be 0.3 percent. Quarterly output per cow is expected to continue a modest upward movement.

The milk feed price ratio is projected between 2.5 and 3.0 and should signal an end of expansion but it’s not low enough to trigger a major liquidation. Cow numbers are predicted to expand through second quarter 2006, hold steady in third quarter, and then begin a decline that will continue through 2007.

This farm news was published in the May 24, 2006 issue of Farm World.