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While mostly symbolic, NMPF happy about new DEIP allocations
By Lee Mielke

National Milk’s Chris Galen praised the USDA, Oct. 19 for announcing new Dairy Export Incentive Program (DEIP) allocations recently, something NMPF had repeatedly called for, but he said it was largely symbolic because the USDA is not accepting any bids to export product at this time.

He acknowledged that, with world powder prices being so high and supplies so tight, it wouldn’t be prudent to use the DEIP for that, but 6.7 million pounds of cheese and 46.5 million pounds of butterfat are eligible for export. Prices for those products, particularly cheese, are much lower, he said, so NMPF hopes that the USDA will use the DEIP to export those products.

It has been three years since anything was exported via the DEIP, according to Galen, largely because of strong markets. Two years ago the USDA also announced the allocations but never exported any product, he said, and last year they didn’t even announce the allocations.

He said “It’s high time now, given where prices are and given the fact that, going into 2007, it doesn’t look like the cheese price is going to pick up in the first half of next year, we think it prudent to use the DEIP in the next six or seven months.”

National Milk has also communicated to the USDA that the CWT export assistance program is a compliment to the DEIP and not a replacement. The CWT is to be used in tandem, he concluded, not in lieu of the DEIP.

The CWT program accepted two export bids this week from Dairy Farmers of America. The first was for 165,000 pounds of Cheddar cheese to South Korea and the second for 294,800 pounds of anhydrous milk fat to Mexico.

Spikes in cheese prices in late August and September helped boost Federal order Class III milk prices but some orders saw a return of an old nemesis; negative producer price differentials (PPDs). Dairy Profit Weekly editor, Dave Natzke said in Friday’s broadcast the negative PPDs result in farmer confusion.

Federal order producers are paid for protein, butterfat and other solids based on their Class III value, Natzke explained. They then receive a premium, or PPD, which is the average value of pooling Class I, II and IV milk, relative to Class III.

However, in September, the Federal order Class III price was $12.29 per hundredweight (cwt.), compared to a Class I base price of just $10.85. The result is that September’s Class III price could be slightly above that order’s uniform or blend price, resulting in a negative PPD.

In the six federal orders that utilize component pricing, September PPDs dropped to their lowest level in 16 months, according to Natzke. Producers in two orders, the Central and Pacific Northwest, saw PPDs of a negative 6 cents and a negative 40 cents per cwt. respectively.

Producers in some zones of the Upper Midwest Federal order could also see negative PPDs, Natzke warned, so those producers may see a slight deduction on their milk check, although some cooperatives cover the deduction, instead of passing it along to producers.

Natzke also reported that the USDA’s latest report shows dairy exports entered the final months of fiscal year 2006 on a strong note. On a percentage basis, the value of dairy exports posted stronger gains than imports in August, he said.

Monthly U.S. dairy exports were valued at $170 million, up about 5 percent from July 2006 (and $21 million more than August 2005). U.S. dairy imports increased to $233 million, up 1 percent from July (and $37 million more than August 2005).

Through the first 11 months of fiscal year 2006, U.S. dairy exports hit $1.7 billion, while imports totaled $2.5 billion, both up by about 4 percent from the same period a year earlier 2005.

Speaking of exports, Monday’s “DMI Update” focused on the importance of the Mexican market to U.S. producers. The U.S. Dairy Export Council’s ingredients manager, Rodrigo Fernandez, reported that Mexico is the U.S. largest market and accounts for 31 percent of U.S. dairy exports. He said the value of those exports average about $510 million per year, triple what it was five years ago.

Nonfat dry milk comprises about 45 percent of those exports in volume, according to Fernandez, but USDEC is also working to develop other markets such as whey proteins and lactose as ingredients.

The U.S. also exports milk protein concentrates and manufactured products like cheese. Fernandez said that Mexico imports about 160 million pounds of cheese per year and about 32 percent of those imports are from the U.S., making it Mexico’s largest cheese supplier.

September milk production in the top 23 states totaled 13.3 billion pounds, up 2 percent from September 2005, according to preliminary data in the USDA’s latest Milk Production report. Cow numbers totaled just under 8.3 million head, down 6,000 from August, but 79,000 more than a year ago. Output per cow averaged 1,615 pounds, up 16 from a year ago. There was no revision in the August data. Output remained at 13.9 billion pounds, up 1.6 percent from a year ago.

California’s September milk production was up 2 percent from a year ago, thanks to 10,000 more cows and 25 pounds more per cow. Wisconsin was up 0.6 percent on 8,000 more cows. Output per cow was unchanged. New York was down 0.4 percent, on a 9,000-cow drop, although output per cow was up 15 pounds. Pennsylvania was up 2.5 percent, thanks to a 60-pound gain per cow, but cow numbers were off 8,000 head. Idaho was up 6.5 percent, on 28,000 more cows and a 10-pound gain per cow, and Minnesota was up 2.5 percent. Cow numbers were unchanged from a year ago.

The biggest gain was posted in Texas, up 10.5 percent, thanks to 18,000 more cows and a 70-pound gain per cow. Colorado was next, up 7.5 percent, thanks to a 35-pound gain per cow and 6,000 more cows. Idaho was next.

Kentucky showed the biggest loss, down 9.7 percent. Cow numbers were down 9,000 head and output per cow was off 10 pounds. Washington was next, down 3.9 percent, on 8,000 fewer cows and a 15-pound loss per cow, followed by Virginia, down 3.6 percent.

Meanwhile Friday’s Livestock Slaughter report showed that 206,000 dairy cows were culled in September, 11,000 head less than in August, but 16,000 more than September 2005. There have been 1.7 million cows ushered out of the dairy business in the first nine months of 2006, 60,000 more than the same period a year ago.

Downes-O’Neill dairy broker, Dave Kurzawski, warned of rising corn prices in Wednesday’s broadcast. December prices shot past $3 a bushel, he said, and is causing concern among producers, especially those who haven’t locked up their grain needs and, “With a milk feed ratio that’s already somewhat compromised, this is starting to put a pinch on most dairy producers.”

Kurzawski blamed uncertainty in the market. He said the wet fall made it difficult to get into the fields to harvest the crop and is running behind a year ago and the five year average. As of October 15, the corn harvest only stood at 41 percent.

“That is what started the whole rally,” he said, “From there technicals took over and certainly the funds in the market have pushed this market to, what I think, is out of line for the December contract, which is over $3 right now.” He quickly added that $4-$4.50 corn is a possibility in the next 12-18 months.

This farm news was published in the Oct. 25, 2006 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.