This column begins another chapter for my career in the dairy industry, minus my radio responsibilities, and I look forward to reporting the insights and perspectives of well respected experts in the industry here each week.
And what a week to begin after learning of the death of America’s No. 1 enemy, Osama Bin Laden, but its impact on the dairy industry remains to be seen, if there is any. Don’t laugh. It’s a world economy now, and it doesn’t take much to rattle it. Just look at what’s happened at the gas pump.
Down on the farm, record-high feed costs, thanks in part to putting corn in the car and not just the cow, are eating more of the increased milk price dairy farmers have been seeing and rising transportation costs to move that milk are being mentioned in reports from around the country.

The USDA’s latest Ag Prices report showed April’s average corn price at a record $6.40 per bushel, up 87 cents from March, and $2.99 above April 2010. Soybeans averaged $12.80, up 10 cents on the month, and $3.33 above a year ago. Alfalfa hay was bringing $155 per ton, up $19.

The April all-milk price, at $19.70 per cwt., was down 70 cents from March, but was up $5.10 from a year ago.

National Milk’s Roger Cryan wrote in his Dairy Market Report that high feed costs are “becoming the defining factor in global dairy markets” as well, but he believes current high dairy prices will hold through the fall. Rising feed costs will eventually limit U.S. milk production growth, he warns, especially in markets where cheese sets the milk price.

Milk production has been growing in the largest dairy exporting countries overall, according to Cryan, but world-wide demand growth has been greater, holding up global dairy prices.

The CME’s Daily Dairy Report pegs the U.S. cost of feed per hundred pounds of milk at $10.71, “the most ever,” and the income over feed costs at $8.99, down $1.88 from March. The Milk-Feed ratio is 1.84, the lowest since August 2009.

Dry ingredient markets

Editor Alan Levitt said cheese, butter and dry ingredient markets found support and moved in a fairly narrow range throughout April, which should bode well for the second half of the year.

Block cheese traded within a nickel range for most of April, he said, butter moved in a 3-cent range, then jumped 7.25 cents the last three days of April and continues to creep higher. NASS surveyed powder prices were between $1.56 and $1.58 per pound in April, he said, and whey prices ran between 46.7 and 48.4 cents per pound.

He added that the “relatively stable markets” occurred during the start of the spring flush. Production continues to run above year-ago levels in most of the country, he warned, yet demand has been robust enough to prevent inventories from accumulating.

In the first quarter, cheese use was up approximately 6 percent from the prior year and butter use was up about 7 percent, according to USDA’s latest data. Nonfat dry milk and skim milk powder disappearance was 10-15 percent higher, with more than half of U.S. production going overseas, according to Levitt.
Global markets also remain solid, thanks to strong buying from China and Russia in particular, Levitt said, and world dairy trade has exploded. In the first two months of the year, exports of milk powder, cheese, butterfat and whey from the four main exporters (New Zealand, the EU-27, the United States, and Australia) was up 16 percent from the prior year and up 32 percent from two years ago.

The strong demand at home and overseas resulted in record-high milk prices in the early part of 2011. In the first four months of the year, the All-Milk price averaged $18.98, according to Levitt, the most ever, and up 24 percent from last year. The Class III averaged $16.69, the second highest ever.

Prices fluctuating

The California Department of Food and Agriculture announced the state’s April 4a butter-powder price at $19.45 per cwt., up 39 cents from March, $5.96 above April 2010, and $5.11 above the 4b price, the highest spread ever, according to the Daily Dairy Report.

The 4b cheese milk price is $14.34, down $2.42 from March, $2.04 above a year ago, $2.53 below the comparable Federal order Class III price, and equates to about $1.23 per gallon. The state’s 4b price average for the first four months of the year now stands at $15.13, up from $12.28 at this time a year ago, but compares to a $16.69 average for the Federal order Class III price.

What lies ahead depends a lot on what happens at the Chicago Mercantile Exchange. Cash block cheese, after five consecutive sessions of gain, inched back a quarter-cent the first Friday in May and closed at $1.6475 per pound, up 3.5 cents on the week, and 26.75 cents above a year ago. The barrels closed at $1.66, up 5.75 cents on the week, 28.75 above a year ago, and a penny and a quarter above the blocks. Six cars of block traded hands on the week and 18 of barrel.

The lagging NASS-surveyed block price (one of the primary influences in USDA’s computation of Federal order milk prices) averaged $1.6173, down 0.3 cent, while the barrels averaged $1.6225, up fractionally on the week.
Butter closed Friday at $2.0950, up 2 cents on the week, and 49 cents above a year ago. Twenty eight cars were sold on the week, 15 on Friday. The NASS butter price averaged $2.0071, up 1.9 cents.

Cash Grade A nonfat dry milk closed at $1.64, down a half-cent on the week. Extra Grade also closed at $1.64, down 16 cents on the week. NASS powder averaged $1.5987, up 2.7 cents, while dry whey averaged 47.64 cents, down 0.4 cent on the week.

Cheese production strong

We don’t have to worry about running out of cheese anytime soon. U.S. vats produced 916 million pounds in March, up 13.4 percent from February and 2.4 percent above March 2010, according to USDA’s latest Dairy Products report.
American type cheese hit 365 million pounds, up 11 percent from February, and 0.3 percent above a year ago, with Cheddar output hitting 266 million, up 9.6 percent from February, but 6.1 percent below that of a year ago.
Mozzarella output was  at 311 million pounds, up 13.7 percent from February, and 3.6 percent above a year ago. Total Italian type cheese came in at 400 million pounds, up 14 percent from February, and 5.1 percent above a year ago.

A lot of milk however was diverted to the churn and the dryer. Manufacturers buttered us up with 156.5 million pounds, up 4.8 percent from February, and 12.4 percent above a year ago.

Nonfat dry milk output, at 126 million pounds, was up 14.1 percent from February, but 8.9 percent below a year ago, however skim milk powder production was up 15.9 percent from February and 51.3 percent above a year ago. Skim milk powder primarily heads for the export market.
Flavored milk out of school?

Last week you’ll recall we reported that the National Conference on Interstate Milk Shipments (NCIMS) was considering changes to the Pasteurized Milk Ordinance (PMO) which would lower the national somatic cell count (SCC) standard incrementally in 2012 and 2013, reaching 400,000 cells per milliliter in 2014. The current standard is 750,000 cells.

National Milk’s Chris Galen said the proposal failed by one vote so the “status quo prevails.” He theorized that opponents view the PMO as a milk safety process and that somatic cell counts are not a milk safety issue, though Galen quickly added that it is a milk quality issue and is why the Federation supported the proposal.