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Dairyline: Ban on U.S. dairy products slowing exports to Mexico
By Lee Mielke

Cheese prices took a hit the week of January 23. Block closed Friday at $1.2375 per pound, down 11.25 cents on the week, 47.75 cents below that week a year ago, and the lowest block price since mid June 2003. Barrel closed Friday at $1.21, down a dime on the week and 48 cents below a year ago. By the way, the price support on block is $1.1314 and $1.1014 per pound on barrel.

Only two cars of block traded hands on the week. This was the first cash sale of cheese since December 27. The NASS U.S. average for block slipped to $1.3654, down 1.2 cents. Barrel averaged $1.3530, down 0.2 cent.

Butter closed at $1.2650, down 7.5 cents on the week and 29 cents below a year ago. Seventeen cars were sold. NASS butter averaged $1.3531, down 0.8 cent.

Nonfat dry milk continued to fall, with Grade A closing Friday at 88 cents per pound, down a nickel, and Extra Grade at 89 cents, down 6 cents on the week. Insiders tell DairyLine that powder may soon start moving to Uncle Sam via the price support program, something that hasn’t happened since November 2004.

The weakening nonfat dry milk market led the decline in cheese, according to market analyst, Mary Ledman, principal of Dairy Direct in Chicago. Speaking in Tuesday’s DairyLine broadcast, Ledman said the powder market has buoyed the markets and the 4 percent increase in milk production in 2005 but softness on the export market is undermining that, plus a lot of surplus milk during the holidays was converted into nonfat dry milk and ended up “looking for a home.”

Strength in the dollar may have also caused us not to be quite as competitive, she said, “But this is a seasonal low in demand and it’s taking its toll.”

When asked how low cheese might go, Ledman answered, “I think we could test the $1.25 mark on barrels,” but she didn’t think block would get that low because she felt buyers would step in and “Capture some of this low side.” “With the world cheese market near that $1.25 mark, I don’t think we’re going to go much lower than that,” she concluded.

Dairy Profit Weekly editor, Dave Natzke, provided some more insight into the nonfat dry milk market in his Friday report, blaming retaliation by Mexico for a controversial U.S. trade policy, specifically referred to as the Byrd Amendment. Authored by West Virginia Senator Robert Byrd, the law went into effect in 2000 and established import tariffs on products to protect domestic industries from cheap imports.

The money goes directly to the companies that file petitions for financial damages, according to Natzke, rather than the U.S. Treasury. It has come under fire since the day it began, he said, and was declared illegal by the WTO in 2003, but it remains in effect.

In retaliation, the European Union and several other countries imposed tariffs on U.S. goods. Of particular interest to dairy, Natzke said, is that Mexico, applied a 30 percent tariff on U.S. dairy products containing 50 percent or more dairy solids.

National Milk claims the tariffs effectively price the U.S. out of the Mexican market, halting a thriving export business. National Milk, the U.S. Dairy Export Council and the International Dairy Foods Association have expressed concern to the Bush Administration, which also opposes the Byrd Amend-ment however the only way to repeal it is through an act of Congress, Natzke said.

Late last year the House, in its version of the Budget Reconciliation Act, did just that however House-Senate conferees modified the language to delay repeal until October of 2007, according to Natzke.

Speaking of exports, the CWT program accepted three export bids this week from Dairy Farmers of America.

One is for 33,000 pounds of Cheddar, Colby, and Monterey Jack cheese to Israel. A second is for 13,200 pounds of Mozzarella to Israel, and a third is for about 1,200 pounds of Cheddar, Swiss, and Monterey Jack to Barbados, West Indies. This is only the third bid accepted in 2006 but is the first CWT sale to a Caribbean nation.

Meanwhile, December butter stocks totaled 57.1 million pounds, down 3.3 million pounds or 6 percent from November, but 12.1 million or 2 7 percent above a year ago, according to preliminary data in the USDA’s latest Cold Storage report.

American type cheese totaled 517.5 million pounds, up 4.6 million pounds or 1 percent from November, and 36.5 million or 8 percent above a year ago. November’s inventory was revised up 3.7 million pounds. Total cheese stocks amounted to 731 million pounds, up 14.2 million pounds or 2 percent from November and 25.2 million or 4 percent above those a year ago.

U.S. dairy cow slaughter totaled 200,000 head in December, down 8,000 from November and 25,000 less than a year ago, according to the Agriculture USDA’s latest Slaughter report. About 2.252 million dairy cows were “retired” from the dairy business in 2005 Dairy broker Robin Schmahl, of AgDairy in Elkhart Lake, Wis., said he has tracked dairy cow slaughter numbers since 1994 and reports that 2005 had the lowest slaughter total since that time.

In politics, National Milk has drawn fire for its support of a Food and Drug Administration proposal which allows liquid ultra-filtered milk in manufacturing standardized cheeses in the U.S. Chris Galen responded in his weekly Thursday DairyLine discussion that the Federation is “Acknowledging the reality of the past decade, that ultra-filtered milk has been going from farms in some parts of this country to cheese processing plants in other parts, primarily the Upper Midwest.”

“National Milk has been on record the past six years as opposing any changes in cheese standards allowing dry forms of filtered milk, primarily milk protein concentrate from being used in standardized cheeses,” Galen said. “But we do want to encourage the use of ultra-filtered milk because that milk is coming from American farms and it would be going to make American style cheeses.”

When asked if that would be a foot in the door to the use of dried product, Galen replied, “It’s unfortunate that some people are getting confused by the fact that there’s a distinction, and a very important one, between allowing liquid forms of ultra-filtered milk and the dry forms.”

“The real issue,” he said, “is that if you restrict or ban this practice, one that’s been going on for a decade, the people who would be hurt by this, are not the producers in the Southwest where this milk has been coming from, it would be the producers in the Upper Midwest.”

Those cheese plants would be less competitive, according to Galen, and “Would go out of business meaning fewer places for Upper Midwest farmers to sell their milk and lower milk premiums overall.” He asked, “Do we want to have a competitive cheese business in the Upper Midwest primarily, or do you want to accelerate the loss of those plants?”

Another concern often expressed regards cheese quality. Galen said there’s no evidence that cheese quality suffers by using ultra-filtered milk, in fact most research shows there is no difference. It’s still milk, he said, “We’re only filtering milk that’s coming from U.S. cows, it’s not some unnatural, artificial ingredient, it’s highly concentrated milk protein with some of the lactose removed.”

The FDA proposal does not allow for the use of any dry product, according to Galen, and NMPF has been very clear, he concluded, that they do not support any change that would allow the use of dry forms of the product.