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House, Senate pass bill to offer $290M in support for dairy farmers

Help is on the way for financially struggling dairy farmers. The House and Senate this week passed and sent legislation to President Obama that includes $290 million for direct support to dairy farmers and $60 million to purchase cheese and dairy products for food banks and nutrition programs.

The bill hit some opposition from Sen. Barbara Boxer (D-Calif.) who was concerned over how the direct payments would be made, fearing they would be targeted to smaller dairy operations. After meeting with Agriculture Secretary Vilsack, Boxer said she was encouraged that the Agriculture Department “is committed to ensuring that these emergency funds are distributed to our dairy producers in a way that is regionally equitable.”

Meanwhile, the Agriculture Department has again raised its 2009 and 2010 milk production forecasts due to higher milk per cow and a slower rate of decline in cow numbers in 2010. 2009 output is now predicted to hit 188.9 billion pounds, up 500 million from last month’s estimate. 2010 production is projected at 187.2 billion pounds, also up 500 million pounds from a month ago.

Import forecasts were raised as butterfat and cheese imports are stronger than expected. Stronger world dairy prices and a weak U.S. dollar are expected to increase export demand for U.S. dairy products, according to USDA.

Net removals reflect adjustments in CCC and Dairy Export Incentive Program activities for nonfat dry milk, butter, and cheese.
Firmer domestic and export demands are expected to support prices for cheese, whey, and NDM. However, butter prices are forecast lower as supplies remain large.

Class III prices improving
Class III prices for 2009 and 2010 were raised from last month and Class IV prices were raised for 2009. Look for the 2009 Class III price average to range $11-$11.10 per cwt., up from the $10.65-$10.85 projected a month ago. The 2010 average will jump to $13.85-$14.75, according to the report, up from the $13.75-$14.75 projected last month.

The 2009 Class IV is expected to average $10.35-$10.55, up from $10.10-$10.40, and the 2010 average is now $12-$13, up a nickel from last month’s projection.

The August Dairy Products report tells us where the milk is going. Butter production hit 100.2 million pounds, down 14.1 million pounds or 12.3 percent from July and 15.7 million or 13.6 percent below August 2008. Nonfat dry milk output amounted to 105.6 million pounds, down 26.4 million or 20 percent from July, and 9.6 million or 8.3 percent below a year ago.

Mozzarella cheese output totaled 274.2 million pounds, down 0.9 million pounds or 0.3 percent from July, but 13.9 million or 5.3 percent above a year ago.

Total Italian type cheese, at 349.8 million pounds, was up 0.5 million pounds or 0.1 percent from July, and 13.2 million or 3.9 percent above a year ago.

Cheddar production totaled 262.8 million pounds, down 4.3 million pounds or 1.6 percent from July, but up 5.6 million pounds or 2.1 percent from a year ago.

American type cheese amounted to 345.2 million pounds, down 7.2 million pounds or 2 percent from July, but up 5.4 or 1.6 percent from a year ago.

Total cheese output came to 849.5 million pounds, up 8.2 million pounds or 1 percent from July, and 21.2 million or 2.6 percent above a year ago.

The report reflected what has already happened, according to market analyst, Alan Levitt, editor of the CME’s Daily Dairy Report. “It told us what I think we already knew,” Levitt said in Tuesday’s DairyLine. “More milk has gone into the cheese vat than in butter-powder so total cheese production was up 2.6 percent and August butter production was the lowest in three years, down 13.6 percent from a year ago,” and milk powder output was down from a year ago and the smallest since September 2007.

Manufacturer stocks of nonfat dropped 54 million pounds, down 28 percent in July and August and are actually below a year ago for the first time in two years so that’s likely driving the powder market up, he said.

Commenting on reports last week that legislation is making its way on Capitol Hill that would purchase dairy products for government feeding programs, Levitt said it depends on the timing and the particulars. $60 million would go to purchasing cheese, he said, and would equate to about 40 million pounds and, if it’s all Cheddar and it’s all purchased at once, that would instantly short the market, he warned, and if it’s other varieties or is spread over a number of months, the impact could be lessened.

The total cheese inventory, as of Aug. 30, was 105 million pounds above a year ago, Levitt reported, “So, if we took 40 million out of that, it will certainly help but the devil is in the details.”

He quickly added that, this might already be priced in the market as there have been rumors that some industry groups wanted USDA to buy 100 million pounds of cheese, so that might have already been a factor as the price has been climbing the last few weeks.
CWT eliminated 2 percent

Last week’s CWT herd removal came as a surprise to Levitt. CWT has eliminated more than 175,000 cows in the last five months or 2 percent of the dairy herd, he said, “So that could be a bit significant, depending on who is left and how many more bids they get over the next two weeks.” “They’re kind of riding the tail end of the wave,” he concluded. “Milk production is already in decline so this will piggyback on that but it’s certainly going to help bring things back into balance.”

Dairy Profit Weekly Editor Dave Natzke reported Friday that the California Superior Court for Los Angeles County awarded Dairy Farmers of America (DFA) $14.3 million in its breach of contract lawsuit against Cacique Incorporated, a California cheese maker.
DFA alleged the company unlawfully terminated a milk purchasing contract on short notice and the court awarded damages for lost milk sales and additional costs to market and transport milk.
From the courthouse to the statehouse, Natzke reported that the Alliance of Western Milk Producers petitioned the California Department of Food and Agriculture for an emergency hearing to consider increasing the state milk marketing order’s Class 1, 2 and 3 milk prices. The petition seeks a 50 cent per cwt. increase in the Class 1 price, and a 26 cent increase in Class 2 and 3 prices paid to farmers.

In filing the petition, the Alliance noted that California milk production has declined for 11 consecutive months, and the state’s dairy farmers continue to suffer from low milk prices and high feed costs.

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 them in care of this publication.

10/14/2009