Dairy Profit Weekly Editor Dave Natzke gave DairyLine listeners an update Friday on some court cases involving some prominent players in the dairy industry, namely the nation’s largest dairy processor, Dean Foods, and the largest dairy cooperative, Dairy Farmers of America (DFA).

Last week, a U.S. District Judge in Wisconsin ordered prosecutors to turn over identities and information of individuals interviewed in preparation for the filing of an antitrust lawsuit against Dean Foods. That suit, filed by the U.S. Department of Justice and Attorneys General in Wisconsin, Michigan and Illinois, alleges Dean’s 2009 purchase of two fluid milk bottling plants from Foremost Farms, a Wisconsin-based dairy cooperative, was an effort to monopolize the regional fluid milk market.

In a separate antitrust case in U.S. District Court of Tennessee, a judge ruled in early September that a lawsuit brought by southeastern U.S. dairy producers can continue under “class action” status. That suit alleges Deans, as well as DFA and others, conspired to monopolize fluid milk markets in the Southeast. Another hearing on that case is scheduled for Dec. 10.

In late September, a U.S. District Judge in Minnesota denied a motion by DFA for summary judgment of a case involving alleged manipulation of cheese and Class III milk futures prices by former DFA employees on the Chicago Mercantile Exchange dating back to 2004.

In a related case, also in September, Pizza Hut, one of the nation’s largest pizza restaurant chains, filed a lawsuit against DFA, also alleging cheese price manipulation. Pizza Hut owners filing the suit charge DFA’s trading activities kept cheese prices artificially high, raising the pizza chain’s ingredient costs.

In December 2008, DFA and former executives agreed to pay the U.S. Commodity Futures Trading Commission $12 million in civil penalties related to CME trading activities, without admitting or denying guilt, Natzke reported.

Corn estimates surprise industry
A big drop in corn yield and production estimates in USDA’s October’s crop report caught the industry by surprise. Insiders blame poor, late-season weather across much of the Corn Belt. USDA forecast corn production at about 12.7 billion bushels, down 3.8 percent from the 13.2 billion that was forecast last month and lower than last year’s record 13.1 billion bushels.

There was little reaction to the report in the cash dairy markets, at least until Friday. The block cheese price closed at $1.74 per pound, down 3 cents on the day and the week, but still 31 cents above a year ago. Barrel closed at $1.7325, down a quarter-cent on the week, but 30.25 cents above a year ago. Three cars of block traded hands on the week and none of barrel. The NASS U.S. average block price hit $1.7502, up 1.1 cent. Barrel averaged $1.7567, up 0.7 cent.

Butter finished Friday at $2.1850, unchanged on the week, and 94.25 cents above a year ago. Nothing traded. NASS butter averaged $2.2106, down 0.4 cent. NASS nonfat dry milk averaged $1.1586, down 0.6 cent, and dry whey averaged 36.4 cents, down 0.1 cent.

The crop report portends higher feed prices for dairy farmers that haven’t been able to get coverage for their corn and protein needs going into 2011, warns market analyst Mary Ledman, Principle of Keough Ledman and Associates Incorporated of Libertyville, Ill.
Ledman said Class III futures responded in sympathy to the report. “The 2011 gains were the highest we’ve seen in weeks,” she said. “The October and November Class IIIs moved up nicely the last couple weeks but we didn’t see much movement in the Class III prices in the second half of 2011. Clearly the shortage in the corn crop, the rising corn price, is elevating Class III futures, particularly the second half of 2011.”

When asked if Monday’s slippage in barrel cheese was a sign of things to come she replied, “I think it’s a sign that end users aren’t anxious to put cheese away at the current price levels.”

Most end users anticipate greater milk production seasonally, Ledman said, “And typically that’s the case in the second half of October and November, seasonally increasing milk prices as well as seasonally increasing components.”

“If you add the seasonality factor of milk production plus the milk checks that dairy producers are going to see in October, November, and December it’s hard to imagine not having a strong increase in milk production due to the seasonality and the price incentive for producers,” Ledman concluded.

Class I milk price improves 27 cents
Speaking of milk checks, California’s November Class I milk price is $18.71 per cwt. for the North and $18.98 for the South. Both are up 27 cents from October and $3.67 above November 2009. The Federal order Class I base milk price is announced by USDA on Friday, Oct. 22.

CWT, this week, accepted six requests for assistance in selling a total of 2.95 million pounds of American cheese to customers in the Middle East and Asia, to be delivered, now through February 2011. Since CWT reactivated the program in March, it has helped members export 47.8 million pounds of cheese and 33 million pounds of butter and anhydrous milkfat.

The views and opinions expressed in this column are those of the author and not necessarily those of Farm World. Readers with questions or comments for Lee Mielke may write to him in care of this publication.