As reported last week, lawmakers passed a budget bill that included enhancements to dairy’s Margin Protection Program (MPP). Effective immediately for the 2018 calendar year, the package reforms the MPP and provides access to additional risk management tools from USDA.

The National Milk Producers Federation said, “These key elements will create $1.2 billion in baseline spending for the next farm bill, paving the way for additional improvements to the MPP.”

NMPF added, “The MPP reforms include raising the catastrophic coverage level from $4 to $5 for the first tier of covered production for all dairy farmers; adjusting the first tier of covered production to include every dairy farmer’s first 5 million pounds of annual milk production (about 217 cows) instead of 4 million, a recognition of the growth in herd sizes across the country, and it reduces the premium rates, effective immediately, for every producer’s first 5 million pounds of production, to better enable dairy farmers to afford the higher levels of coverage that will provide more meaningful protection against low margins.

“The package modifies the margin calculation to a monthly (from bi-monthly) basis, to make the program more accurate and responsive in difficult months. It also waives the annual $100 administrative fees for underserved farmers; directs USDA to immediately reopen the program signup for 2018, and lifts the $20 million annual cap on all livestock insurance, including the Livestock Gross Margin (LGM) program. This will allow USDA to develop a wider variety of additional risk management tools for dairy producers that can complement the MPP.”

Legislation has also been introduced in the Senate that would keep dairy farms from having to provide air emissions data under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).

NMPF praised the Fair Agricultural Reporting Method (FARM) Act, stating that “The CERCLA provisions in question were originally enacted to address accidental hazardous air emission emergencies from toxic waste sites. However, because of recent court decisions, the CERCLA law soon will require farms to generate reports that regulatory agencies do not want and will not use, unless Congress legislates a change to the underlying law.”

Milk production growing

The USDA’s monthly Livestock, Dairy and Poultry Outlook, issued Feb. 14, mirrored dairy projections in the Feb. 8 World Agricultural Supply and Demand Estimates report. It stated that milk production continued growing throughout 2017, increasing 1.7 percent over 2016 (adjusted for leap year). Milk cows numbered 9.392 million head, on average, an increase of 64,000 from 2016. Milk per cow was 22,937 pounds, 1.0 percent higher than 2016 (adjusted for leap year).

“Along with higher milk prices through most of 2017, relatively low feed prices contributed to the increase in milk production for the year,” said USDA. “Average calendar-year prices for corn, soybean meal, and alfalfa hay were $3.36 per bushel, $316 per short ton, and $145.33 per short ton, respectively. The milk-feed ratio averaged 2.42 for the year, an increase from 2.26 in 2016,”

The Outlook added, “Relatively strong global demand for products appears to have contributed to the rise of prices in 2017, especially for products with high milk-fat content. Consumer perceptions of butterfat have changed in recent years as several studies have indicated possible lower risks of consuming butterfat and detrimental effects of alternative trans-fats.

“Higher global demand and U.S. price competitiveness translated into higher U.S. exports. While the U.S. dairy industry benefited from higher global demand, domestic use of dairy products was relatively weak in 2017. On a milk-fat basis, domestic use increased only 0.3 percent from the previous year, quite remarkable after three years of solid growth, particularly the 3.3 percent growth of 2016. On a skim-solids basis, domestic use decreased by 0.7 percent after three years of growth. Domestic use declined for all of the dairy products tracked by USDA Economic Research Service except for butter, American-type cheese and lactose.

“Domestic use of butter increased by only 0.3 percent. Domestic use of Other-than-American cheese fell by 0.1 percent, first decline since 2008, a year of recession. The weak domestic use of 2017 is puzzling given the strengthening of the economy throughout the year. While higher wholesale prices compared to 2016 may have played a role in the relatively low quantities demanded, the price changes were likely not large enough to fully account for the observed statistics.”

Unfortunately, the Outlook’s feed price forecasts were raised from last month. The 2017-18 corn price forecast is $3.05-$3.55 per bushel, an increase of 5 cents at the midpoint of the range. The soybean meal price forecast is $305-$335 per short ton, an increase of $5 at the midpoint of the range. The alfalfa hay price was $148 per short ton in December, unchanged from November but $21 higher than December 2016.

Demand could be stronger

Matt Gould, analyst and editor of the Dairy and Food Market Analyst newsletter, echoed some of the Dairy Outlook’s remarks about domestic disappearance numbers in the Feb. 12 Dairy Radio Now broadcast.

“They were nothing to write home about,” Gould said, and that covered Fourth Quarter as well as the entire year. He cited butter as an example, pointing out that butter’s popularity has been rising, even featured on the cover of Time magazine and fat is being considered healthy again. But data shows U.S. butter consumption increased less than 1 percent last year and was essentially flat in Fourth Quarter.

Butter demand is not surging like we’ve been hearing, he said, but “while one blip isn’t a trend, it’s something we definitely have to watch.”

Other than American cheese, like mozzarella and other Italian-style cheeses have seen demand slow as well, according to Gould. Growth was pretty flat in 2017, up about 1 percent in Fourth Quarter, he explained, “But these aren’t terrific growth rates. Population growth is around 0.8 percent, so you’re seeing demand growth just barely above population growth.”

Demand for nonfat dry milk and dry whey was essentially flat last year as well, he said, “so broadly speaking the U.S. dairy market is seeing domestic demand growth that is very meek and the market is looking for exports for support.”

When asked how things looked in January, Gould said that the Super Bowl helped cheese sales and butter sales picked up, after being weak in December, but “more and more you’re seeing news about plant-based foods so by most accounts we’re not seeing any huge uptick in demand,” he concluded.

Good trend in cheese demand

Cash block Cheddar cheese closed Valentines Week at a slightly more romantic $1.54 per pound, up 3 cents on the week but 4 cents below a year ago. The barrels closed Feb. 16 at $1.48, up 12 cents on the week and 14 cents below a year ago, with 13 cars of block trading places and 38 of barrel.

Midwest cheese makers are reporting some positive trends in cheese demand, said Dairy Market News. “Barrel sellers have reported that inventories are limited, and buyers searching for loads produced as recently as early 2018 are out of luck.”

Cheddar demand, along with Cheddar inventories, vary from plant to plant. Spot milk into cheese production was widely available, as it has been most of the year and spot milk prices ranged from flat to $3 under Class III.

Cheese makers in the West report relatively steady domestic demand. Although a few manufacturers have seen the typical seasonal slowdown of orders for finished goods, overall, cheese is moving without a lot of discounting. Higher cheese prices in the EU and Oceania are helping generate good sales opportunities in some international markets. Cheese production is active while there is an abundance of milk. Cheese inventories are generally heavy.

Butter had a better week after dipping to the lowest price since November 2016 the previous week. It climbed to $2.15 per pound on Feb. 15, but lost a nickel Friday to close at $2.10, still up 7.25 cents on the week but 5.75 cents below a year ago, with a whopping 72 cars unloaded on the week, 32 on Feb. 16 alone.

DMN said butter interest is trending up throughout the Central region. Current prices have garnered the attention of buyers, as butter producers report steady to increased sales this week. Cream remains available for butter churning, although there are some reports that cream suppliers are not offering as much.

Cash Grade A nonfat dry milk finished on Feb. 16 at 70.5 cents per pound, down 3 cents, and 16.5 cents below a year ago, on 13 sales reported for the week.

The CME will launch a spot dry whey contract starting March 12.

HighGround Dairy said it’s “excited for the dairy industry to have a daily view at dry whey prices that we believe will accelerate participation in futures and options contracts as it did for NFDM a few years ago.”

Refresher on milk pricing

A quick refresher on milk pricing; in most of America, milk prices are determined using complex formulas by the USDA, but the system has evolved over the years from a simple volume/butterfat basis to the current multiple component pricing, which takes into consideration volume, butterfat, protein and various other components of the milk, as well as where the milk is to be used.

There are four Classes of milk; Class I is fluid in the bottle or jug and yields the highest rate of return to the farmer. Class II is milk that goes into ice cream, yogurt and cream cheese. Class III is milk that goes to cheese and dry whey, and Class IV is milk used in butter, nonfat and whole milk powder.

It takes 9.6 pounds of milk to produce 1 pound of cheese. Every penny movement in the cheese price is equivalent to about 10 cents on the Class III milk price.

Dry whey is a bi-product from making cheese. About 100 pounds of milk will yield 10 pounds of cheese and six pounds of dry whey. A 1-cent movement in the dry whey price equals about 5.9 cents on the Class III price.

The Class IV price is driven by powder and butter. About 100 pounds of milk will yield 8.6 pounds of nonfat dry milk and 4.2 pounds of butter. A penny movement on the nonfat dry milk price will mean about 8.6 cents on the Class IV milk price, and a penny movement on butter results in a 4.2 cent impact on the Class IV price.

Farmers receive a uniform or blend price, which is determined by their region of the country, based upon how much of that farmer’s milk went into the four different classes in his milk market order. California is currently not part of the Federal order system and has its own milk classes and pricing formulas.

The California Department of Food and Agriculture announced its March Class I milk price at $15.20 per cwt. for the north and $15.47 for the south. Both are down 27 cents from February and $3.42 below March 2017.

The three-month average stands at $15.58 for the north, down from $18.51 at this time a year ago and compares to $16.08 in 2016. The southern average, at $15.85, is down from $18.78 a year ago and $16.35 in 2016. The March Federal order Class I base price will be announced by the USDA on Feb. 22.

California dairies wait on SCOTUS

The process of forming a Federal Milk Market Order in California is on hold as dairy producers await the outcome of a Supreme Court decision in a court challenge regarding the use of Administrative Law Judges.

Such a judge presided over California’s September Federal order hearing so USDA says it is delaying its Final Decision on the FO. A Feb. 13 USDA conference call reiterated the Department’s reasoning to hold off its decision.

Worst case scenario the process would have to start over from scratch however USDA says it will hire a judicial officer to review the record, word by word, and, if he determines the record complete he will ratify it, according to Western United Dairymen, and if not, he will would seek additional feedback.

Just as Coke and Pepsi battle falling consumption, dairy industry woes continue in fluid milk consumption as well. USDA’s latest data pegs December packaged fluid sales at 4.1 billion pounds, down a hefty 4 percent from December 2016.

Conventional product sales totaled 3.9 billion pounds, down 4.1 percent from a year ago; organic products, at 215 million pounds, were down 1.9 percent and represented about 5.2 percent of total sales for the month.

Whole milk sales totaled 1.3 billion pounds, down 0.4 percent from a year ago, but up 2.2 percent for the year, and made up 31.6 percent of total fluid sales in the month and 30.7 percent for the year. Skim milk sales fell to 338 million, down 11.7 percent from December 2016 and down 11.9 percent for all of 2017.

Total packaged fluid milk sales in 2017 slipped 48.1 billion pounds, down 2.2 percent from the same period a year ago. The 2017 total was just 0.7 percent below 2016. Conventional products for 2017 totaled 45.5 billion pounds, down 2.3 percent; organic products, at 2.6 billion pounds, were virtually unchanged. Organic represented about 5.4 percent of total fluid milk sales in 2017.

Cooperatives Working Together (CWT) accepted four requests for export assistance the week of Feb. 12 from cooperatives to sell 1.213 million pounds of Cheddar cheese to customers in Asia and the Middle East. The product has been contracted for delivery through May.

Obituary

Lastly, with tears in my eyes, I mourn the loss of my Dad, “Ken,” on Feb. 16, a World War II veteran, who would have turned 95 on May 29.

He now joins my wonderful Mother, who the Lord took home six years ago, after they celebrated 64 wonderful years together. I am so grateful for the faith, heritage and legacy they both gave me, my children and grandchildren.

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.