john bunting's dairy journal

New Host

2011-05-15T12:40:00.000-07:00

I have a new host for the blog. The URL is: http://johnbuntingsjournal.com

There will be some time before I am familiar with the workings of Wordpress, but, that's life.

I will post something later today.

Pass the word and let me know what you think.

AWOL

2011-05-13T10:04:00.000-07:00

Google blogger was down for some time.

I will be changing host soon.

Money Talks

2011-05-11T18:16:00.000-07:00

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The stock market fell. Oil fell. Corn, wheat, soybean futures fell. The dollar is up. Is there a pattern?

No surprise that butter futures fell, the limit, a nickel. No surprise that Class III milk futures fell. But, look above at the Commodity Futures Trading Commission (CFTC) "Commitment of Traders" report. Look at how few players participate. Then ask why "non-commercial" players should even be there.

Don't worry though. These are really smart people who know more than the mere mortal.

Dean Defies Predictions

2011-05-10T16:39:00.000-07:00

Some insiders felt Dean would fall very short on first quarter earning. Instead, they pulled a rabbit out of the hat:

http://www.prnewswire.com/news-releases/dean-foods-reports-first-quarter-2011-results-121555323.html

In the first half hour of trading today Dean shares were up over 14%. At the closing bell Dean shares were up 11.48%.

Oddly enough, Dean saw sales volume for fluid drop and the Class I mover rise dramatically when compared with the first quarter of 2010. Greg Engles said on the conference call he expected farm milk price to remain steady for the rest of the year. But, what does he know?

As Yogi Berra once said, "It's tough to make predictions, especially about the future."

Crop Progress

2011-05-09T18:13:00.000-07:00

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Today, May 9, 2011 USDA's "Crop Progress" report was released. The full report is at: http://usda.mannlib.cornell.edu/usda/current/CropProg/CropProg-05-09-2011.pdf

The two snips above show planting is progressing. However, the amount emerged is way behind average. The temperature has not been conducive to corn within the corn growing states. Additionally, there are reports of 900,000 acres under water.

Just what this will all mean when the harvest season comes is anyone's guess. A study on various prediction models (not for the corn crop) indicates people are not very good. So, what will come of dairy ration price is yet to be known.

Weather

2011-05-08T18:12:00.000-07:00

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Although much of the focus of the news is on the Mississippi flooding there are still vast areas of the country experiencing drought (see above).

An interesting news story focuses on the extreme effects of La NinaL

http://news.yahoo.com/s/ap/20110508/ap_on_re_us/us_la_nina_s_extremes

The winter and early spring have been extreme across the West, with record snowpacks bringing joy to skiers and urban water managers but severe flood risks to northern Utah, Wyoming and Montana.

And despite all the wet weather in the Rockies and Sierra Nevada, parts of eastern Colorado, New Mexico and Arizona are in severe drought and gearing up for what is forecast as a bad fire season. In New Mexico, some 400 fires, driven by relentless winds, have already raced across 315,000 acres.

Credit — or blame — for the extreme weather goes mostly to a strong La Nina, which is associated with cooler than normal water temperatures in the Equatorial Pacific Ocean and an atmospheric flow that's causing drier than normal conditions in the Southwest and wetter than normal in the Northwest..

Tornado Victims

2011-05-07T18:26:00.000-07:00

I learned today of one dairy farmer in Alabama who just got his power back on ten days after the tornado.

A couple days ago I received this:

FYI:

Federation of Southern Cooperatives is taking donations to help the Alabama tornado victims.

Requested Items

* towels
* tooth paste
* canned foods
* can openers
* cooking utensils
* cleaning supplies
* socks
* washing powder
* soap
* underwear
* water
* toiletries
* bathroom tissue
* clothing
* cash donations are accepted (all donations are tax-deductable)
o Make all checks payable to the Federation of Southern Cooperatives

Please send all item donations via UPS to:

Debra Eatman
575 Federation Rd
Gainsville, Ala 35464

Commodities Drop Again

2011-05-06T16:39:00.000-07:00

Big money is running, looking for safe places. The U.S. dollar seems to be that place, which results, since commodities are denominated in dollars, in falling oil, corn and other commodities.

Yesterday a new study came out: http://www.economist.com/node/18648350?story_id=18648350

The study seems to explain, to some extent, the fall globally, in crop yields. However,we seemed to have missed, so far, negative impacts. The article concludes:

That might be keenly felt if patterns of warming shift. One of the reasons that the climate effects Dr Lobell and his colleagues have dug out of the data are not worse is that, although the planet as a whole has warmed up during the past 30 years, growing seasons in the parts of America which produce 40% of the world’s maize and soyabeans have failed to follow suit. No one is quite sure why this might be and no one knows if it will last. That climate change has not yet done very much harm may be cheering, but the past offers no firm guarantees for the future.

Commodities fall

2011-05-05T17:06:00.000-07:00

Commodities fell today. Oil fell, corn fell. It is too wet to plow and corn futures fell. So much for supply and demand and hooray for the Commodity Futures Modernization Act of 2000 which allow big money to hedge things like corn against speculating on the dollar.

Needless to say the dollar took off in an upward flight.

What all this will mean to dairy farmers is too soon to tell. But,all bets are off.

Dean Settlement Approved

2011-05-05T17:00:00.000-07:00

http://www.burlingtonfreepress.com/article/20110505/NEWS01/110505016/Burlington-judge-grants-preliminary-approval-revised-Dean-Foods-settlement?odyssey=mod|newswell|text|FRONTPAGE|s

U.S. District Court Judge Christina Reiss granted preliminary approval Wednesday to a revised Dean Foods settlement in the class action lawsuit being brought on behalf of Northeast dairy farmers, clearing the way for the plaintiffs to begin notifying farmers of the $30 million payment Dean has agreed to make to settle the case.

Attorneys for the plaintiffs, which include two Vermont dairy farmers, have estimated that about 8,000 farmers will be entitled to a share of the settlement. They have characterized the case as the first step in breaking Dean’s grip on the milk market, restoring competitoin to the marketplace. Dean is the largest milk processor in the country.

The two other defendants in the lawsuit, Dairy Farmers of America, and its marketing arm, Dairy Marketing Services, have refused to settle, and have said the lawsuit is pitting dairy farmer against dairy farmer. Dairy Farmers of America is the largest dairy farmer cooperative in the nation and includes hundreds of Vermont dairy farmers.

About two dozen farmers belonging to the Dairy Farmers of America coop attended an April 15 hearing on the case in Reiss’s court to show their opposition to the lawsuit. The farmers have said a provision of the lawsuit that would require Dean to buy at least 10 percent of its milk from a source other than Dairy Farmers of America would ultimately lead to lower milk prices and could put some of them out of business.

But as Judge Reiss noted in her decision Wednesday, that provision of the lawsuit was dropped in its revised version, clearing the way, in her opinion, for the $30 million settlement to go forward. Reiss noted in her opinion that the requirement to buy milk from sources other than Dairy Farmers of America "has been the sole source of objections to the Dean Settlement."

"We’re pleased with the Court’s decision and believe this is a very good outcome for the farmers represented in this case," said Benjamin Brown of Cohen Milstein Sellers Toll, PLLC, the Washington D.C. law firm bringing the lawsuit. "We are continuing to move the case forward against the remaining defendats, DFA and DMS, and expect to complete factual discovery in the case in the next month."

Attorneys for Dairy Farmers of America were still reviewing Reiss’s decision Thursday morning.

Essentially, Dean settled for what might have been its costs to defend itself in the case. Not bad. And, as things stand, we have learned nothing and nothing has changed.

Most everyone had hoped for more - much more.

Decling World Yields

2011-05-04T17:52:00.001-07:00

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http://greedgreengrains.blogspot.com/2011/05/declining-crop-yields.html

Declining crop yields

There are many reasons for high commodity prices. But recent data from FAO shows a pretty rapid slowdown in productivity growth. The price spike in 2008 occurred in a particularly bad year in which yields declined on a worldwide basis for three of the four largest food commodities. In 2009 all four of the majors saw yield declines, something that hasn't happened since 1974. 2010 couldn't have been much better and was probably worse, given how bad things were in the U.S, the world's largest producer and exporter (worldwide data for 2010 isn't available yet).

More at link.

Probably, there are several reasons but, obviously, Monsanto is not going to feed the world.

Corn & Money

2011-05-03T17:12:00.000-07:00

(click on image to enlarge)

Yesterday USDA's "Crop Progress" report was released: http://usda.mannlib.cornell.edu/usda/current/CropProg/CropProg-05-02-2011.pdf

Above shows the how little corn has been planted. Yesterday, the decision was made to flood thousands of acres of cropland. One might think corn prices might have skyrocketed today - not so.

Weather may be important. Supply and demand may be important. But, the almighty (or not so almighty) dollar seems to reign.

Dairy farmers will certainly face a stiffer grain bill.

Cheese

2011-05-02T18:00:00.000-07:00

Today, USDA released its "Dairy Products" report which covers March 2011. American type cheese production was up 0.3 % when compared with March 2010. USDA's "Commercial Disappearance" data came out recently which showed a 12% increase in sales of American type cheese. That is a huge change. Most of the increase came from exports.

Speaking with a cheese broker today, I learned there are hamburger price "war" currently. he felt that should bump up cheese consumption.

Altogether, the situation should provide a healthy price at the CME. But, do the traders really know what is happening in the real world?

New Checkoff Needed?

2011-05-01T18:09:00.000-07:00

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While dairy farmers pay into the dairy checkoff, dairy farmers seem to be using less milk on the farm. The USDA data only goes to 2004. Lately according to sources, dairy farmers are cutting milk replacer to save money.

The data shows, however, dairy farmers have been cutting farm milk use at a faster pace than the consumer.

Balancing Act

2011-04-30T18:37:00.001-07:00

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Milk leaves the farm and theoretically goes to the highest use, which has historically fluid milk. Eventually, when no other home can be found, the milk goes to a nonfat dry milk plant, which is considered the lowest value.

This process is called balancing. But, there is another aspect. The government stands ready willing and able to buy dairy products at the "support" price of $9.90 per hundredweight or for NFDM $.80 per pound.

A look at the graph above should be all the proof anyone needs that sales to the government is an act for reasons known to the big players. For the most part, the sales to the government correspond with low farm milk price and sales to the government are considered "surplus." Logically, the manufacturers warehouses should be filled to the brim. However, that seems to have not been the case.

Food Costs

2011-04-29T17:40:00.000-07:00

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ERS has new data on food inflation: http://www.ers.usda.gov/Briefing/CPIFoodAndExpenditures/Data/CPIForecasts.htm

Dairy shows some increase in costs but, not as much as meat. Anyone can practically live on dairy. However, George Orwell noted some time ago in The Road to Wigan Pier, regarding the life of the British working poor:

The basis of their diet, therefore, is white bread and margarine, corned beef, sugared tea and potatoes -- an appalling diet. Would it not be better if they spent more money on wholesome things like oranges and wholemeal bread or if they even, like the writer of the letter to the New Statesman, saved on fuel and ate their carrots ? Yes, it would, but the point is that no ordinary human being is ever going to do such a thing. The ordinary human being would sooner starve than live on brown bread and raw carrots. And the peculiar evil is this, that the less money you have, the less inclined you feel to spend it on wholesome food. A millionaire may enjoy breakfasting off orange juice and Ryvita biscuits; an unemployed man doesn't.… When you are unemployed … you don't want to eat dull wholesome food. You want something a little bit "tasty." There is always some cheaply pleasant to tempt you.

All of which leads to Coke's annual report: http://www.thecoca-colacompany.com/investors/pdfs/form_10K_2010.pdf

A snip can be seen above. Coke had a reduction of 3%, 2008 vs 2009.

then look at: http://usda.mannlib.cornell.edu/usda/current/MilkProdDi/MilkProdDi-04-27-2011.pdf

On page 6 you will find dairy farms lost 30% in the same 2008 - 2009 period.

Plates

2011-04-28T18:26:00.000-07:00

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There is an interesting site which focuses on the tectonic plate which produced the recent earthquakes in New Zealand: http://nzphoto.tripod.com/volcano/PlateMotion.htm

Equally important, is that the Pacific plate produced the massive earthquake and tsunami in Japan.

Japan is enduring rolling blackouts everyday as its electrical generation capacity is reduced from the tsunami and the nuclear disaster. Earlier this week, I spoke with someone who had just returned from Japan. he said Japanese dairy farmers had driven their cows into Tokyo as a protest. he also said it will be at least two months before Japan is able to evaluated with any certainty where things are headed. The Bank of Japan confirmed this in a report out today.

Fonterra has withdrawn all employees from Japan. Some think America will be exporting y more dairy products to Japan soon.

One more thing, the Pacific Plate touches the West coast of the U.S.

Framing the Discussion

2011-04-27T17:48:00.000-07:00

In recent days I have heard multiple time the concept of a "competitive" price. What exactly is a competitive price? who knows?

But, first a thought as to why terms like "competitive price" are used.

http://en.wikipedia.org/wiki/Framing_(social_sciences)

Framing, a term used in media studies, sociology and psychology, refers to the social construction of a social phenomenon by mass media sources or specific political or social movements or organizations. It is an inevitable process of selective influence over the individual's perception of the meanings attributed to words or phrases. A frame defines the packaging of an element of rhetoric in such a way as to encourage certain interpretations and to discourage others.

Framing is so effective because it is a heuristic, or mental shortcut. According to Susan T. Fiske and Shelley E. Taylor, human beings are by nature “cognitive misers”, meaning they prefer to do as little thinking as possible. Frames provide people a quick and easy way to process information. Hence, people will use the previously mentioned mental filters (a series of which is called a schema) to make sense of incoming messages. This gives the sender and framer of the information enormous power to use these schemas to influence how the receivers will interpret the message.[

Naturally, when one hears the term "competitive pricing" regarding farm milk, anyone is likely to think everyone is going to run the price up for my milk. Not likely. Everyone should make a list of all the dirty tricks used to drive down farm milk price and then double the number.

Careful of term which shortcut thinking.

Trucking

2011-04-26T14:54:00.000-07:00

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There is a great deal of talk about the wonderful opportunities for the U.S. in dairy trade. Who knows how much will filter to the farm gate?

However, all of this is not as simple as it seems. Fuel costs are rising and one might think since the fuel is denominated in dollars the costs would be higher getting dairy out of the U.S. Well, it seems, having a back haul of some sort for all those containers is a deal sweetener.

But wait, most of the cheese is coming from the upper Midwest, where there are no refrigerated containers. Now there has to be a haul to a port via truck, where the cargo is then loaded to a container.

Needless to say, no one can look at any one set of numbers and grasp the whole financial impact. Every deal is unique.

Predictions

2011-04-25T17:24:00.000-07:00

Everybody wants their future told. Go to any meeting on dairy and there will be no shortage of predictions about what the future of dairy prices will be.

However, just how good are the experts? While we may not know how good dairy experts are, no one has done any scientific study, there have been scientists study the accuracy of expert predictions. In the mid-1980s psychologist Philip Tetlock assembled a group of 284 political experts to make nearly 100 predictions each about a variety of possible future events. Twenty years later, he published the results. The experts did not perform any better then minimally sophisticated statistical model.

Other studies have come to the same conclusion. Experts are not very good at predictions, however, few people verify the predictions experts make.

Presently, there are so many balls in the air and any one of them or several of them might drop. Therefore, predictions about future dairy prices are virtually meaningless.

Mail Box Tells More

2011-04-24T20:04:00.001-07:00

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Above are "mailbox" prices courtesy of Dairy Market News. The "mailbox" is essentially the net check after charges.

Notice New York which has a high class one utilization and therefore should have a high mailbox price. What can explain the low price other than DFA/DMS?

Gaming the System

2011-04-23T17:56:00.000-07:00

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Having full supply contracts with major processors means all milk to those processors has to go through the holder of the contract.

If you look at the map above and if you ship milk in FMMO I you will not find any data as to where your milk was pooled. But, it is obvious whoever holds the keys to pooling hold the keys to the treasure chest. Since Federal Order reform of 2000, "paper pooling" has been allowed. That is the milk does not have to regularly go to a plant to be pooled on a plant. The truck driver knows where the milk goes but, who knows on what plant the milk was pooled.

If you look at the list above you will se that in June 2010 three farms from New Mexico were "pooled" on the federal order based in Atlanta, Georgia. Do those farmers benefit from that pooling. If you look at the "mailbox" price, it is very doubtful that the actual farms saw actual benefits to the pooling games.

It is all nasty business with "official" approval.

No Competition

2011-04-22T15:28:00.000-07:00

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The Vermont Attorney General has several items from the so-called Northeast case on its website.

One document is particularly interesting and is at the above link. The pages above are from that link.

Obviously, where there is no competition, prices to dairy farmers are depressed. this is what is known as a "horizontal agreement" and is illegal. Additionally, DFA/DMS is party to a long standing consent decree and this type of "deal" is a violation of that agreement with the U.S. Department of Justice.

This case results from government, particularly, the U.S. government not following their own laws:

The Code of Federal Regulations states:

608c(7)

(7) Terms common to all orders
In the case of the agricultural commodities and the products thereof specified in subsection (2) of this section orders shall contain one or more of the following terms and conditions:
(A) Prohibiting unfair methods of competition and unfair trade practices in the handling thereof.

Where is USDA? Where is DOJ? That's right, according to the so-called man on the street. the people want less government. Nobody wants an intrusive, oppressive government but, as the ancient Greeks said, "Who will guard us from the guards."

http://www.atg.state.vt.us/assets/files/DFOA%20Plaintiffs%20Reply%20Memo.pdfhttp://www.blogger.com/img/blank.gif

Presented For Your Consideration

2011-04-21T17:52:00.001-07:00

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http://www.youtube.com/watch?v=NzlG28B-R8Y

There is a fifth dimension, beyond that which is known to Man. It is a dimension as vast as space, and as timeless as infinity. It is the middleground between light and shadow, between science and superstition; and it lies between the pit of Man's fears, and the summit of his knowledge. This is the dimension of imagination. It is an area which we call...the Twilight Zone.
—Rod Serling, Opening Narration

There are some things more difficult to fathom than others. The above came as an email, along with a follow up call.

IDFA Policy

2011-04-20T16:47:00.000-07:00

International
Dairy Foods Association (IDFA), the processor's lobby has some new dairy policy thoughts at: http://www.keepdairystrong.com/files/IDFA%20Dairy%20Policy%20Recommendations%20April%202011.pdfhttp://www.blogger.com/img/blank.gif

On page 5 we find:

IDFA proposes that all end product price formula based minimum prices under
the FMMO system be eliminated. All dairy plants will pay whatever competitive
price is necessary to secure a supply of farm milk; there is no minimum Federal
order price that any plant must pay to independent dairy farmers or cooperatives.

In the sentence preceding the above, IDFA complains about the current system, "This program
keeps milk from moving to its highest-value use"

Dennis Wolff, who works for both IDFA and DPAC has been touting a bill from the 110th congress S1721, sponsored by former Pennsylvania senator Specter and Pennsylvania senator Casey.

S.1721
To amend the Farm Security and Rural Investment Act of 2002 to promote growth and opportunity for the dairy industry in the United States, and for other purposes. (Introduced in Senate - IS)
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SEC. 6. FEDERAL MILK MARKETING ORDERS.

(a) 2-Class System for Classifying Milk-

Of course S1722 the so-called "Specter-Casey" bill of the 110th congress which became S1645 in the next congress and called for for a two price system.

And then we have, Dairy Policy Action Coalition (DPAC) which has "Cornerstones For Change"
http://www.dpac.net/publication_files/cornerstones-summary.pdf

SOLUTIONS: Simplify the milk pricing system.
• 1) Simplify 4 milk classes to 2.
• 2) Establish competitive pay pricing and move away from end-product-pricing formulas that
“pigeon-hole” the milk.
• 3) Adopt a federal pricing system that encourages movement of milk to its highest value use.
• 4) Adopt federal dairy policies that encourage competition, product innovation, and market
development.

The words of IDFA and DPAC are virtually identical.

Well at least we know who the man (Wolff) is behind two curtains._

School Food

2011-04-19T17:58:00.000-07:00

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Just how important children are in America can be seen Here:

http://www.schoolfoodfocus.org/site/wp-content/uploads/2010/06/School-Food-101-Cost-of-School-Lunch.pdf

What you will find is that on average, in America, there is just one dollar per child for school lunch.

School Food Focus is try to improve the nutrition content of school food but, there is no way they can provide more money. More money only goes to banks and bankers.

The photo above should be titled "Do not try this at home." Look at the ingredients! Caution, the product contains wheat and soy. No need to have a caution about dairy.

Northeast Milk Supply/Dean Settlement

2011-04-18T18:10:00.000-07:00

To hear the DFA conditioned farmers tell it, there is so, so much milk in the Northeast that if they cannot get it into the Dean plants involved in the NE settlement, they will get less money.

Here are a couple stories:

http://www.uticaod.com/news/x1798429123/Chenango-Co-s-Chobani-yogurt-hopes-to-be-No-1-yogurt-soon

http://www.uticaod.com/news/x1274023574/Yogurt-plants-boost-state-s-dairy-industry

But Chobani has expanded so rapidly that dairy farmers haven’t been able to grow the size of their herds as fast as the company needs, Ulukaya said.

“The demand is so high that it comes from every corner of the state,” Ulukaya said, of the milk. “Yet, we need more.”

The need for milk is a major reason why Ulukaya doesn’t know whether he will expand in this state or another, he said. The Chenango County plant will stay in place either way, but he has been in discussion with state farmers about whether they can handle further expansion by Chobani, he said.

According to sources, DFA/DMS has a full supply agreement with Chobani. Obviously, they cannot supply the Chobani plant.

However, DFA's ploy really has nothing to do with supply, but rather, with trying to disrupt class certification in the class action lawsuit. Without class certification there is no suit.

Influence

2011-04-17T17:58:00.000-07:00

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images from Open Secrets

Two roads lead to profit for large food corporations. Both must be taken. First costs must be reduced. There are limits unless one chooses to substitute real food for fake food.

The second road leads to D.C. Years of effort went into making certain the public was not short changed. Now, it would seem, honesty in food is being seriously eroded.

Both consumers and dairy farmers are paying a price. You will notice that Kraft really seems to not care which party is in power - they pay to the powerful.

Cheese?

2011-04-16T17:42:00.001-07:00

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While there is much talk about supply management and constant talk about dairy farmers farmers over producing, the "problem" probably is not the real problem.

Consider the common blue box. Kraft claims cheese, but the ingredients show no cheese - none.

Several agencies have authority over labeling, including the Federal Trade Commission, none have seen fit to do anything.

So what does it take to make certain cheese really is cheese?

Dean News

2011-04-15T17:40:00.000-07:00

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In the northeast case Judge Reiss is considering a partial settlement:

http://www.burlingtonfreepress.com/article/20110415/NEWS01/110415033/0/BUSINESS03/Federal-judge-considers-severing-settlement-Dean-Foods-case-?odyssey=nav|headhttp://www.blogger.com/img/blank.gif

While she hasn't decided whether DFA or DMS have a standing to oppose the settlement, Reiss said farmers would have a chance to oppose it at a fairness hearing before she decides whether or not to give it final approval. If she gives the settlement preliminary approval, notices would go out to the farmers represented in the lawsuit in 10 states.

(more at link)

Forbes has a couple items on Dean Foods, the first is on Greg Engles compensation: http://www.forbes.com/lists/2011/12/ceo-compensation-11_Gregg-L-Engles_XU3T.html

Next is on bad management: http://blogs.forbes.com/frederickallen/2011/04/14/americas-best-and-worst-bosses-for-the-buck/

The least effective: Gregg L. Engles of Dean Foods. His paycheck has averaged $20 million a year over the past six years, while his company’s average return has been -11%.

Dean Settlement Hearing April 15th

2011-04-14T17:40:00.000-07:00

"Ignorance is preferable to error, and he is less remote from the truth who believes nothing than he who believes what is wrong.' Thomas Jefferson

So we come to the lot of dairy farmer believer: http://www.burlingtonfreepress.com/article/20110414/NEWS02/110413042/0/NEWS0213/Some-farmers-unhappy-Dean-Foods-settlement?odyssey=nav|headhttp://www.blogger.com/img/blank.gif

A quote from the article:

Yet Friday morning, as many as two dozen dairy farmers will converge on federal court in Burlington to show their objection to the Dean Foods settlement, saying it could put them out of business. These farmers say the settlement, far from restoring competition, would enable Dean Foods to start dictating even lower milk prices.

Obviously those farmer cannot remember before Suiza/Dean came on the scene and bonuses were actually paid.

There is a case in the Southeast where there was a hearing on January 20, 2011. On page 90 of the transcript: "NEXT WE COME TO PROMISE OF PREFERENTIAL PRICES. THESE ARE CONTEMPORANEOUS NOTES OF A 1998 ENGLES-HANMAN MEETING WHICH SHOWS THAT DFA AGREED TO USE CREDITS AND REBATES TO HELP SUIZA EXPAND. GARY HANMAN WROTE, QUOTE,NEED ACCESS TO MARKET, WILLING TO PRICE MILK SO YOU CAN BE COMPETITIVE, CAN GIVE CREDITS INTO AREAS AS YOU EXPAND,END QUOTE"

The Howrey law firm has invested $15 - 20 million in the southeast case and have box after box of discovery material.

On page 91 of the transcript: "SUIZA'S PLAN, I'M ON SLIDE 20, WAS HATCHED DURING A HUNTING TRIP HOSTED BY HANMAN, AND ATTENDED BY MR. ENGLES, MR. HANMAN, MR. BOS, MR. SCHENKEL, HOWARD DEAN AND SOME OTHER PEOPLE. OLD DEAN HAD A PRICE ADVANTAGES OVER BOTH SUIZA AND DFA IN BOTTLING BECAUSE OLD DEAN PROCURED LESS EXPENSIVE MILK FROM INDEPENDENT FARMERS. OLD DEAN HAD A PRICE ADVANTAGE OVER DFA IN MILK PROCUREMENT BECAUSE, BY ELIMINATING THE MIDDLEMAN, DFA, OLD DEAN PAID ITS INDEPENDENT FARMERS MORE THAN DFA PAID
ITS MEMBERS."

On page 118 of the transcript: "HANMAN ALSO HAD A MULTI-MILLION DOLLAR BONUS BASED ON INCREASES IN VALUE OR RETURNS ON EQUITY ON SUIZA/DEAN'S BOTTLING PLANTS AND DFA'S JOINT
VENTURE BOTTLING AFFILIATE DURING THE 1998-2004 PERIOD. MR. HANMAN RECEIVED NO BONUSES BASED ON INCREASING MILK PRICES. THE WHOLE POINT OF DFA IS TO GET THE BEST PRICES
FOR THEIR FARMERS. NONE OF HIS BONUSES WERE BASED ON THAT, THEY WERE BASED ON OTHER THINGS THAT MOTIVATED HIS ACTION."

While some DFA/DMS farmers may well believe they are getting the best possible deal now, the facts do not support that conclusion.

DFA is very good at managing herd behavior.

Dairy Lobby Money

2011-04-13T17:40:00.000-07:00

(click on image to enlarge)

The above list is depressing because, there is no one on the list which for certain has the best interest of the dairy farmer at heart.

With the exception of Dairylea, all the co-ops own processing plants and have an interest in maintaining low milk prices.

Dairylea is the so-called partner with DFA in Dairy Marketing Service (DMS). Essentially DMS is DFA and the point seems to be to obtain full supply agreements which increases DFA's market power, while vastly reducing premiums.

The fact that the government lets the shenanigans go unabated probably relates to the list above. The data source for the list is "Open Secrets."

Who is minding the store?

2011-04-12T17:59:00.000-07:00

Certainly the FDA is responsible for upholding "standards of identity" for dairy products. But, they seem to not care or think what ever the big guys want to do, is OK.

Here is a link to an article on yogurt I did for the latest Milkweed:

http://themilkweed.com/Feature_11_Apr.pdfhttp://www.blogger.com/img/blank.gif

Compare FDA's efforts to stop "cow share" programs or raw milk sales with their enforcement effort on dairy standards.

World Commodity Outlook

2011-04-11T17:31:00.000-07:00

The Reserve Bank of New Zealand has released an economic outlook: http://www.rbnz.govt.nz/research/econresearch/4363112.htmlhttp://www.blogger.com/img/blank.gif

The summary states:

This paper interprets recent events and thinking in commodity markets and evaluates what these mean for New Zealand and monetary policy.

We conclude demand is underpinning commodity prices, creating a structural shift in the terms of trade of commodity exporters like New Zealand. Against this backdrop, idiosyncratic events such as weather-related crop failures and changes to government policies have pushed prices to historical highs. Supply responses will be relatively slow, implying prices are likely to stay high over the short to medium term, if a little lower than current levels.

New Zealand’s agricultural export prices are likely to remain at elevated levels for some time. Demand is underpinned by urbanisation and wealth growth in developing countries, especially China. However, there is potential for near term price falls as supply becomes less weather disrupted.

The appropriate monetary policy response will focus on the inflationary pressure that arises, not the terms of trade shift in itself. Higher terms of trade will contribute to appreciation of the exchange rate, facilitating the necessary adjustment in the real exchange rate via the nominal exchange rate rather than via rising inflation.

Medium term inflation remains the Bank’s focus. The Bank needs to be cautious that a terms of trade increase does not lead to increases in inflation expectations. For example, households and firms might use the income boost from higher commodity prices and exchange rates to bring forward consumption and investment, or increase borrowing. Consequent pressure on resources within New Zealand would lead to more inflationary pressure and monetary policy would counteract any rise in inflation expectations.

However, large uncertainties surround the outlook and underlying drivers for prices. One thing we do know is that the outlook will remain uncertain. History shows it is fiendishly difficult to predict the future path of commodity prices.

The last paragraph is most interesting.

Free Markets?

2011-04-10T17:32:00.001-07:00

(click on image to enlarge)

The Economist magazine has an interesting chart (see above): http://www.economist.com/blogs/dailychart/2011/04/public_opinion_capitalism

People in China are considerably more enthusiastic about the "free market" than people in the USA. I suspect there are two problems here. First, I don't think people in this country, while having opinions, have much understanding about the term.

Some Americans think it is getting the government out of everything. Do they mean highways, schools and the Post Office?

China, while claiming free markets, is really about letting individuals fail. It is definitely not that the government has gotten out of business. All land, all land in China is owned by the government. Probably those asked in China were urban and think that what they have now is better than rural poverty.

People in the U.S. know that their children will not be doing better than they are. This is a first for America.

So, it probably relates in most countries to time. Just exactly what the question was might also be important is a second aspect.

Throwing the word "free" into the mix is also a problem. While we think we believe very much in freedom, most people in this country spend most of their day working working for a large corporation. That boils down to dong what you are told.

No freedom is absolute. No one can drive down a highway at 120 MPH legally. So, as the late philosopher Sir Isaiah Berlin said, it is important to ask, "by whom am I coerced and to what end"?

Freedom is not a commodity, even though many think they own freedom. Milk should not be a commodity either, it is food.

Price Takers?

2011-04-09T16:38:00.000-07:00

(click on image to enlarge)

http://www.google.com/url?sa=X&q=http://www.stuff.co.nz/waikato-times/news/4867659/Farmers-hit-back-at-suggestions-of-milk-rip-off&ct=ga&cad=CAEQAhgAIAAoATACOAJAna6A7QRIAVAAWABiAmVu&cd=BSPu7ZU_tvc&usg=AFQjCNGM4JFxd1VYa2e0xQlq9MPP83f3rw

"Consumers see Fonterra as the big evil but we're a price taker, we're not a price setter. The prices they see are dictated by what other countries have said they will pay for it. People don't want to hear that though," Mr Houghton says. ..."

(more at link)

Maybe Mr. Houghton is right, but, that is not to say Fonterra has no power.

One question which no one seems to ask is why NFDM is traded on the CME? In some years, although prices have risen and fallen for NFDM on the CME, no actual product has changed hands. An example of the year in which no product changed hands is 2006. In 2007 one load was traded.

Obviously, the world price is being determined by the CME even though no one thinks of going to the CME to buy NFDM.

The California NFDM price, in 2010 averaged about 10 cents less than the CME for 2010. California is where most of the milk powder exported from the U.S. originates. Fonterra handled most of the exports from California in 2010.

So, one might say, Fonterra has friends in the right places. American dairy farmers cannot say the same.

Maybe Better Than We Deserve?

2011-04-08T18:11:00.000-07:00

http://primary.washingtonpost.com/politics/27percent-of-communication-by-members-of-congress-is-taunting-professor-concludes/2011/04/06/AF1no2qC_story.html?wpisrc=nl_fedinsiderhttp://www.blogger.com/img/blank.gif

The headline reads: 27% of communication by members of Congress is taunting, professor concludes

Things are not good in D.C. But, 38% of native born Americans could not pass the test for citizenship.

We move closer to either brinksmanship or, maybe, showmanship. The FMMO offices will be open if the government shuts down because the money to operate the FMMOs comes from the milk pool money. However, NASS will not be collecting data.

We hold these truths to be self-evident, that all men are created equal

2011-04-07T16:58:00.000-07:00

(click on image to enlarge)

When Thomas Jefferson wrote the words in the title of this post, America was far from equal. We nevertheless believe we live in some kind of meritocracy where just deserts are doled out.

While dairy farmers chip in their $.15 per hundredweight checkoff money to get people to buy more dairy products, it is obvious from the above graph that those most capable of spending more are actually buying more dairy products.

So, why not use the millions of checkoff dollars to enable the bottom 20% of income earners to bring home more from the dairy section?

The distribution of wealth in this country is right up there with the banana republics. Popular opinion however, seems to hold that those on the bottom deserve less and who knows maybe all the rest will soon be above average, maybe even filthy rich.

Creative Destruction

2011-04-06T17:10:00.000-07:00

http://en.wikipedia.org/wiki/Joseph_Schumpeter

"Joseph Alois Schumpeter (8 February 1883 – 8 January 1950) was an Austrian-American economist and political scientist. He popularized the term "creative destruction" in economics."

For many years the concept when applied to dairy farms, meant driving the smaller family farm out of business to make room for the larger more "efficient" operations. The problem with most conventional economic thinking is a kind of mindlessness which sees humans and human communities as nothing more than cogs in a gear.

The truth is,and always shall be, "No man is an island, no man stands alone." That is to say, we will not make progress in dairy policy until we recognize the importance of the community in which dairy farms operate.

Elevator Music

2011-04-05T17:25:00.000-07:00

Elevator music is that horrible noise while the elevator moves up or down. Right now the CME elevator is headed down, or so it seems. Stick around and it will go back up sooner or later.

Rabo Bank is considered to have pretty good information. Here is what Rabo recently said about the dairy situation:

We therefore conclude that, while sentiment may play a dominant role in setting market direction through the balance of March and into early April, market fundamentals will reassert themselves and continue to provide strong support for prices,which will likely trade at close to the levels evident in mid March in international markets as we progress through Q2.

I think the point of elevator music is to numb your mind while you are trapped in a little box going up and down. There will be the usual chorus, humming a familiar tune to explain all you need to do is lock in some prices of something or other.

Dairy Imports From China

2011-04-04T17:06:00.000-07:00

Several recent stories have appeared regarding China's closing of dairy plants.

http://www.businessweek.com/ap/financialnews/D9MBDDKG2.htm

Government regulators say nearly half of all dairies in China are being denied new licenses and shut down after failing inspections to clean up the scandal-plagued dairy industry.

The quality inspection agency said Saturday that 533 of the country's 1,176 dairy producers have been ordered to cease operations. The agency says some 107 of them will have a chance to apply anew for licenses once they improve their quality controls.

(more at link)

Some think we do not import dairy proteins from China, which is not true. While we may not import HTS Chapter 04 dairy proteins from China, we do import varying amounts of chapter 35 dairy proteins from China. In January of this year we imported 95 metric tons. Who can say where it went?

Recent Surge in Global Commodity Prices

2011-04-03T17:27:00.000-07:00

While most of the news from Japan is about the earthquake and related events, there is a recent interesting report from the Bank of Japan:

http://www.boj.or.jp/en/research/wps_rev/rev_2011/rev11e02.htm/

Impact of financialization of commodities

Global commodity prices have been rising again since 2009, and particularly rapidly since the fall of 2010. While the strong increase in commodity prices has been driven by global economic growth propelled by emerging economies, speculative investment flows into commodity markets have amplified the intensity of the price surge. The dynamics of global commodity prices has been changing as well, in accordance with the growing presence of financial investors in commodity markets. The entry of new financial investors has paved the way for the "financialization of commodities". Consequently, global commodity markets have become more sensitive to portfolio rebalancing by financial investors, which has made commodity markets more correlated with other asset markets, including major equity markets. Furthermore, globally accommodative monetary conditions have played an important role in the surge in commodity prices, both by stimulating physical demand for commodities and driving more investment flows into financialized commodity markets.

In this country the groundwork was laid by former senator Phil Gramm who led the charge for deregulation. Of particular interest is the Commodity Futures Modernization Act of 2000 which allowed hedge funds to trade agricultural commodities.

More than ethanol, the money traders have driven up costs for dairy farmers.

IDFA PR Release

2011-04-02T17:10:00.000-07:00

International Dairy Foods Association (IDFA) has released a thinly disguised salvo over the bow of National Milk Producers Federation (NMPF)and its Foundation For The Future (FFTF).

http://www.prnewswire.com/news-releases/idfa-advocates-funding-for-usda-risk-management-insurance-program-119076749.html

Asks Ag Committee Chairs to Fund Program for Balance of 2011

Expresses opposition to so-called "Growth Management Programs"

WASHINGTON, April 1, 2011 /PRNewswire-USNewswire/ -- Connie Tipton, CEO of the International Dairy Foods Association, has called on Congress to maintain funding for a federal risk management insurance program for dairy farmers. In a letter to U.S. Sen. Debbie Stabenow (D-MI), chairwoman of the Senate Committee on Agriculture, and U.S. Sen. Pat Roberts (R-KS), ranking member of the committee, Tipton restated IDFA's opposition to any government program that would attempt to control milk price volatility, but affirmed support for the Livestock Gross Margin-Dairy program. Tipton pointed out the program's increased relevance, with more than 1400 contracts issued in FY 2011. Tipton cautioned that USDA has nearly reached its underwriting capacity for the program, and urged the senators to fund the program for the remainder of the year.

"Expanding this program is something that can be done now to help our nation's dairy farmers," wrote Tipton. "There is strong support among both producers and processors for the LGM-Dairy program. As it now stands, the program has insured about 2.4% of the U.S. milk production. Providing additional funding would make it available to more producers who may be just learning about the program for the first time."

The Livestock Gross Margin insurance policy provides protection against the loss of gross margin (market value of milk minus feed costs) on the milk produced from dairy cows. The LGM for Dairy Cattle insurance policy uses futures prices for corn, soybean meal, and milk to determine the expected gross margin and the actual gross margin. IDFA has consistently advocated for a safety net for dairy farmers, including margin insurance like that offered through the LGM-Dairy program.

"While we understand current budget pressures, we urge you to consider funding the LGM-Dairy program for the remainder of this year so that our nation's dairy farmers can be provided the tools available to others in production agriculture," Tipton wrote.

For more information on supply controls, and for the full content of the letter, please visit www.keepdairystrong.com.

NMPF, meanwhile is asking for people to sign on to its FFTF and they will let you know the details later

Political Frustration

2011-04-01T17:29:00.000-07:00

The number of times good decent dairy farmers think all that is necessary for change is a trip to Washington, D.C. where some eager representative of the people will listen to the "real" story and presto fix the problem cannot be counted.

As most learn, the task is more daunting. Martin Gilens, a researcher at Princeton University has assembled some shocking data.

http://www.princeton.edu/~mgilens/research.html

Inequality and Democratic Accountability

The ability of citizens to influence government policy is at the heart of democracy. But citizens are quite unequal in their ability to shape government policy to their liking. In this project I examine the association between what Americans say they want the federal government to do (based on national surveys) and what government does (based on detailed coding of public policy). I find a moderately strong relationship between public preferences and public policy, albeit with a strong bias toward the status quo. But I also find that when Americans with different income levels differ in their policy preferences, actual policy outcomes strongly reflect the preferences of the most affluent but bear virtually no relationship to the preferences of poor or middle income Americans. This vast discrepancy in government responsiveness to citizens with different incomes stands in stark contrast to the ideal of political equality that Americans hold dear. Although perfect political equality is an unrealistic goal, representational biases of this magnitude call into question the very democratic character of our society. I am currently working on a book manuscript based on this project.

Gilens concludes his research with:

There has never been a democratic society in which the citizens' influence over government policy was unrelated to their financial resources. In this sense, the difference between democracy and plutocracy is one of degree. But by the same token, a government that is democratic in form but is in practice only responsive to its most affluent citizens is a democracy in name only.

Most middle-income Americans think that public officials do not care much about the preferences of "people like me." Sadly, the results presented above suggest that they may be right. Whether or not elected officials and other decision-makers "care" about middle-class Americans," influence over actual policy outcomes appear to be reserved almost exclusively for those at the top of the income distribution.

The fact is Americans cannot simply give up on government, but, efforts to get behind some "silver bullet" piece of legislation must be judged under a strong light of reality. There is only so much energy left in the dairy community. That energy should not be spent spinning wheels.

Entrepreneurship

2011-03-31T17:31:00.001-07:00

http://www.blogger.com/img/blank.gif
(click on image to enlarge)

After WW II there was a massive amount of people who needed employment. The GI Bill provided many opportunities, including farm loans. So, many people went into farming, including dairy farming, a form of entrepreneurship.

There is a new report out from the Cleveland Federal Reserve Office: http://www.clevelandfed.org/research/commentary/2011/2011-04.cfm

Between December 2007 and June 2009, the United States suffered its biggest economic downturn since the Great Depression. Dubbed the Great Recession, this economic contraction saw gross domestic product decline 4 percent and the unemployment rate more than double from 4.9 percent to 10.1 percent.

While the media was full of reports about how the recession affected big business and consumers, it was largely silent on what happened to entrepreneurship. Economists are divided on the matter.

Some believe that recessions have no effect on entrepreneurial activity, arguing that the negative effects of reduced demand are offset by the increased motivation to have one’s own business as a protection against layoffs.

Others believe that the Great Recession actually brought about an upswing in entrepreneurship, as the downturn pushed laid-off workers to pursue their entrepreneurial dreams. A press release announcing a recent report from the Ewing Marion Kauffman Foundation, for example, went so far as to argue, “Rather than making history for its deep recession and record unemployment, 2009 might instead be remembered as the year business startups reached their highest level in 14 years—even exceeding the number of startups during the peak 1999–2000 technology boom.”

Unfortunately, a careful look at the data suggests otherwise. Multiple sources of government and private data show that the Great Recession was actually a time of considerable decline in entrepreneurial activity in the United States.

(full report at link)

The report concludes, "By most available measures, the Great Recession’s effect on entrepreneurship was negative."

Although the report offers no explanations, it would seem to be obvious that the climate favored big over small businesses.

Agricultural Prices

2011-03-30T17:41:00.000-07:00

http://www.blogger.com/img/blank.gif

(click on image to enlarge)

Today, March 30, 2011 USDA published its "Agricultural Prices" report: http://usda.mannlib.cornell.edu/usda/current/AgriPric/AgriPric-03-30-2011.pdf

Above is the all milk price for most states. Note, there appears to be quite a spread in butter fat test. California is mostly giving milk away. Note also, the hay prices on page 23. these seem to be lower than many reports but, California is not getting free hay.

On page 30 note, the "All Milk Price" for March 2011 is 46% of parity. Some say dairy farmers have received a signal to produce more milk, the signal never goes away.

Somewhat Less Than Exciting News

2011-03-29T17:56:00.000-07:00

(click on images to enlarge)

Today Dean Foods settled with the U.S. Department of Justice and State AG's regarding Dean Foods' purchase of Foremost Farms fluid milk plants.

Just who might be willing to purchase the plant is a riddle. Between the likes of Dean and Wal*Mart, there is not a lot of profit in fluid milk.

World Butter Trade

2011-03-28T17:25:00.001-07:00

e

(Click on image to enlarge)

Looking at the graph above could be misleading. While it is true world trade of butter has fallen, the U.S. export volume has grown. In 2009 the U.S exported 22,827 metric tons of actual butter (HTS 040510). In 2010, the U.S. exported 45,557 tons. In January of 2011, there was an increase of 35.4% in butter exports.

The lesson here is most legislation regarding dairy will have world trade and globalism leading the way. This will not necessarily be a winning ticket for U.S. dairy farmers.

Dire Warning

2011-03-27T17:30:00.000-07:00

(click on image to enlarge)

Word from New Zealand about future dairy price seems grim: http://www.stuff.co.nz/business/4814594/Futures-point-to-dairy-price-sag

"New Zealand's run of strong dairy prices could be ending with the price of contracts on the NZX's Dairy Futures market sagging as 2011 progresses.

Releasing its half-year results this past week, Fonterra announced 2011 was shaping up as one of the best ever in terms of returns to its farmer shareholders.

However, prices on the NZX's new futures market, which is starting to see solid growth in trading, ebbs from $US4205 ($5600) for contracts maturing in March to $US3885 from October onwards, a drop of nearly 8%."

(more at link)

So, what is NZX's "Dairy Futures" market: http://www.nzx.com/about-nzx/4224534/NZX-Dairy-Futures-record-first-trade

"NZX Dairy Futures traded for the first time today. Ten lots of the October 2010 Global Whole Milk Powder future traded at US$3,525/t. NZX Dairy Futures launched on 8 October.

During the first two days of operation there were up to 30 lots on offer in each of the front seven expiry months, which represented 210 lots total volume on offer with a US$792,000 notional value.

“We're confident that demand for NZX Dairy Futures will continue to build, and we look forward to welcoming additional participants to the market in the near term,” said NZX Head of Markets Fiona Mackenzie.

The NZX Dairy Futures market is an anonymous market and the firms making individual trades are not disclosed."

NZX has gone from 10 trades in October 2010 to 20 trades in February 2011 - pretty exciting (see above). OK 20 trades in February but, no indication as to the number of traders? Maybe there are five traders or maybe ten or maybe just the ruler of Oz.

We do need to firm up the meaning of market because at this point it seems to be just the will of those with power.

Ethanol Futures

2011-03-26T17:19:00.001-07:00

(click on image to enlarge)

Here is a story from Bloomberg on ethanol futures: http://www.bloomberg.com/news/2011-03-25/ethanol-futures-decline-as-corn-falls-on-global-demand-concern.html

The March 25, 2011 article begins:

Ethanol futures declined in Chicago as corn dropped on concern global demand for the grain may wane.

The grain-based additive followed corn lower on speculation consumption from Japan could suffer as the country battled to avoid a meltdown at its Fukushima plant and as unrest swept across the Middle East and Africa. Ethanol is made from corn in the U.S.

“Ethanol was hampered by the volatility in corn, particularly in the physical markets, with both sides of the market unable to stick to numbers as prices whipped around,” analysts at SCB & Associates LLC wrote in a note to clients.

Look above at the Commodity Futures Trading commission (CFTC) "Commitment of Traders" (COT)report has to say. Talk about a thin market? One can only infer those traders have a lot of pull in Washington D.C.

Food Costs

2011-03-25T17:05:00.000-07:00

USDA ERS has released projections on the rise of food costs: http://www.bloomberg.com/news/2011-03-25/usda-retail-food-inflation-forecasts-for-2011-text-.html

The article begins:

Following is the text detailing forecasts for percentage changes in annual food prices, according to the U.S. Department of Agriculture:

Food Price Outlook, 2011

In 2011, the Consumer Price Index (CPI) for all food is projected to increase 3 to 4 percent. Food-at-home (grocery store) prices are forecast to rise 3.5 to 4.5 percent, while food-away-from-home (restaurant) prices are forecast to increase 3 to 4 percent. Although food price inflation was relatively weak for most of 2009 and 2010, cost pressures on wholesale and retail food prices due to higher energy and food commodity prices, along with strengthening global food demand, have pushed inflation projections for 2011 upward.

(full text at link above)

There really is another important aspect to food costs which is rarely discussed. Writers tend to point out how food costs to Americans is less than 10% of income. Averages hide a lot of essential details.

If you divide incomes into 5 groups (quintiles)and then look at the data, the richest 20% spend about 4% of their income on energy and another 4% on food. For the bottom 20%, the picture is quite different. The poor spend 20.6% of their income on energy and a total of 23.5% on food.

To make matters worse, the poor buy from the middle of the store where all the carbs and filler foods are on display. Then there is the problem of further obesity.

There was a time when the poor, particularly the rural poor, could cook good meals from a few cheap ingredients, such as dry beans. But, cooking takes time and the working poor are working too many hours to spend a lot of time in food preparation.

We are becoming more of a two class nation and failing to examine underlying causes.

Dairy Boat to Japan

2011-03-24T17:49:00.000-07:00

(click on image to enlarge)

As noted in the last post, we import no dairy products from Japan. The boat going the other way is a different story, as seen above.

The above table shows dollar values, which makes exports of cheese appear much larger than exports of whey. Japan is a very large customer of whey products from the U.S. The total volume is more than twice the volume of cheese.

Japan is understood to be actively looking to more dairy products.

SAFE

2011-03-23T17:59:00.000-07:00

(click on image to enlarge)

While it makes good news to say we have cut off dairy imports from Japan, it all amounts to saying we have done something, when in fact, we have done nothing.

How Milk is Priced?

2011-03-23T17:24:00.000-07:00

http://www.3news.co.nz/Fonterra-rejects-calls-for-inquiry-into-milk-prices/tabid/421/articleID/203714/Default.aspx

Fonterra, oddly enough, is claiming they have nothing to do with milk - it is the "market." Sound familiar?

Fonterra is rejecting calls for an inquiry into how milk prices are set.
The company says prices are set as part of a normal commercial process and that New Zealanders have to get used to being part of the global market.

(complete story at link)

Here in the USA:

http://www.fsa.usda.gov/FSA/webapp?area=about&subject=landing&topic=dia

The purpose of the Dairy Industry Advisory Committee is to review the issues of farm milk price volatility and dairy farmer profitability and provide a report with recommendations to the secretary on how USDA can best address these issues to meet the dairy industry’s needs in the near and long term. The report also will provide feedback on the effectiveness of recent actions taken by USDA affecting the dairy industry. USDA’s Dairy Industry Advisory Committee brings the concerned public into a productive, information-gathering process to assist in developing recommendations for the development of national dairy industry and trade policies.

Aside from providing a cure for insomniacs, what was accomplished?

Pay no attention to the guy behind the curtain.

Cold Storage

2011-03-22T16:10:00.001-07:00

(click on images to enlarge)

Today the "Cold Storage" data was released: http://www.usda.gov/nass/PUBS/TODAYRPT/cost0311.pdf

On page four one can read that the total American Cheese at the end of February 2011 when compared end of January 2011 is 98%.

But, when you look at the individual areas, it looks more like 90%. See graph above.

Depooled Milk

2011-03-21T17:52:00.000-07:00

(click on image to enlarge)

Today was a really big day on the CME - 26 loads of blocks traded. No big changes in players. The charades do not end at the CME, however.

Note above the information from Dairy Market News. Note footnote 3 and the amount of milk depooled from four federal orders. That is another way of saying the dairy farmers in those orders did not see the full value of their milk which went into Class III.

Other Factors

2011-03-20T18:07:00.001-07:00

http://www.blogger.com/img/blank.gif

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Friday USDA released "Milk Production" data for February 2011: http://usda.mannlib.cornell.edu/usda/current/MilkProd/MilkProd-03-18-2011.pdf

For the entire U.S. production was up 2% over February 2010. There were five states with production increases more than five percent. That is where it starts to get odd.

Two states separated by one river Kansas and Missouri were worlds apart on production. Both received the same basic price signal. Both states must have had similar weather.

Could it be other factors?

Japan

2011-03-19T17:22:00.000-07:00

Dairy exports to Japan are, for the moment, in limbo. The key word is uncertainty about how much food was damaged, and for lack of a better term, how much "demand" has been lost.

Japan is a major importer of whey products, including de-proteinized whey, which is used as pig feed. Japan imports 60% of its food.

A story on Japan and its food supply is at:http://www.blogger.com/img/blank.gif

http://www.dtnprogressivefarmer.com/dtnag/common/link.do;jsessionid=6726D805ABD5C9E4469807467DCDC947.agfreejvm2?symbolicName=/free/news/template1&product=/ag/news/topstories&vendorReference=0353b2fa-34a2-481b-912d-1cb46058ad3a&paneContentId=70109&paneParentId=70043

Import assessment

2011-03-18T18:48:00.000-07:00

http://www.gpo.gov/fdsys/pkg/FR-2011-03-18/pdf/2011-6322.pdf

The core:

The 2002
Farm Bill mandates that the Order be
amended to implement an assessment
on imported dairy products to fund
promotion and research and to add
importer representation, initially two
members, to the National Dairy
Promotion and Research Board (Board).
The 2008 Farm Bill specifies a
mandatory assessment rate of 7.5 cents
per hundredweight of milk, or
equivalent thereof, on dairy products
imported into the United States.

The money is going to a good cause:

http://themilkweed.com/Feature_11_Mar_1.pdf

Cheese Production

2011-03-17T16:42:00.000-07:00

(click on image to enlarge)

A reader commented on yesterday's post:

I'm sure this was unintentional, but if you take only the milk going into Class III and then divide it by the cheese produced in the US, that number would have no relevance. Idaho and California are #2 and # 3 in cheese production in the US and are not in any Federal Order, so counting their cheese lbs in your calculation, but leaving out their milk lbs. wouldn't be a relevant way in which to determine the amount of cheese that should have been produced in the US. I'm sure it was an oversight, but if you do include ID/CA milk lbs. the number makes perfect sense. Cheese standards are enforced, and constantly questioning the quality of our cheese without any real basis will only cause the uniformed to decide not to consume our cheese, now that wouldn 't be good for cheese sales, would it???
Your more relevant comment above John, which you seem to ignore, is that "$1.65 cheese prices don't work with current input costs" Your right on that one, but it's not the cheese markets' fault, it's the feed price, directly caused by our nations Ethanol Policy, why don't you focus more on that, than on inaccurate and statistically flawed numbers, wouldn't that make more sense, and be more productive?

Actually I did consider national milk production. As can be seen above, official data from CDFA for Cheddar is very close to my estimate.

Hard cheese production in 2006 was 3,912, 670, 000 pounds in 2009 the amount was 4, 200, 500, 000 pounds. Data on the use of NFDM going into hard cheese is tracked by ADPI. In 2006 561 million pound went into hard cheese. In 2009, the last year of available data from ADPI, the amount of NFDM going to hard cheese was 398.9 million pounds.

So, it is reasonable to conclude cheese standards are "not" being enforced.

The real dirty tricks are done inn the "pizza cheese" vat.

Keeping quiet about all this is in no one's best interest.

I realize ethanol production raises costs to dairy farmers but, rather than complain about what other farmers are getting, dairy farmers might go a little easy on the grain scoop

But, we come back to the same thing. Under capitalism, selling price should equal costs plus profit. In dairy, capitalism has failed to follow its own dictates. Dairy needs a real market.

Once Again

2011-03-16T17:49:00.000-07:00

Today block cheddar fell $0.105 on the CME. One insider I spoke with today thinks the bottom will be $1.65 per pound.

Dairy farmers cannot make it on $1.65 block price, given current input costs.

If there is too much cheese, the answer is simple. If you take the amount of milk going to Class III in the federal orders and translate that to nation milk production. Then take that amount times ten pound per hundredweight yield, there is 36% more cheese made in the U.S. given the amount of milk going to cheese.

We need enforcement of cheese standards - plain and simple. The "problem"will then go away. that is, providing the "problem" is too much cheese.

Prices Fall Again

2011-03-15T18:07:00.000-07:00

Prices fell again today on the Chicago Mercantile Exchange, with no new information evident.

Prices also fell on Fonterra's globalDairy Trade internet auction. There is a bit more sense to that. Japans is New Zealand's fourth largest customer. Prices fell the most for the nearby sales.

On March 4, 2011 Dairy Market News stated:

... supply availability, or lack of, is now driving the market. Often, supplies have been
fully committed early on in the milk production season and manufacturers and handlers are now trying to meet those commitments with minimal volumes of spot availability being reported. International buyers are very active in the marketplace looking for
needed volumes and are having to reach beyond Oceania sources.

New Zealnad's climate authority stated today: "By the end of February soils were very dry in parts of the southern North Island and northern South Island."

Derry Brownfield

2011-03-15T18:05:00.000-07:00

Derry Brownfield passed on. He always called the shots as he saw them. He will be missed.

For those interested in sending a card to the family:

Verni Brownfield and Family

P. O. Box 79

Centertown, MO 65023

Market Fiction

2011-03-14T18:13:00.000-07:00

Can a market be defined. No, a market is more a notion than a fact. Many, maybe most, think they know exactly what a market is. Ten people will give you eleven opinions.

Today's spot dairy trading on the Chicago Mercantile Exchange (CME) is a case in point. Block Cheddar fell $0.135 to close at $1.88, a drop of 7 per cent. April Class III futures fell -$0.75.

If there was any evidence of new players running on the the trading floor with new breaking news, it would be one thing. But, it appears to be the usual gang of thugs.

Without significantly different players, what can be said, positively, about the quality of information the main players hold?

globalDairy Trade Auction Expanding

2011-03-13T18:32:00.000-07:00

http://www.globaldairytrade.info/public/english/090311%20MEDIA%20RELEASE%20-%20FONTERRA%20ANNOUNCES%20EXPANSION.pdf

Fonterra is expanding globalDairyTrade, the online dairy products trading platform, to include products from other companies.

At this point the rules governing trading are still being finalized. Arla Foods and FrieslandCampina from Europe; California Dairies and DairyAmerica from the West Coast of the USA; and Murray Goulburn from Australia have all had input to the rulemaking and will likely participate when the expanded auction commences.

World prices have tracked higher than U.S. powder prices. The real question is what will this do to the calculation of U.S. dairy farm price? For sure NASS will not survey the internet auction held by Fonterra.

The Product The World Wants?

2011-03-12T17:32:00.000-08:00

(click on image to enlarge)

Milk powders are essentially a protein product. For a number of years, dairy experts have complained about the price support system getting in the way of producing the product the whole worlds wants, milk protein concentrate (MPC). However, the data when distilled shows why there have been rumors of MPC plants losing money.

Canada

2011-03-11T17:09:00.000-08:00

Canada's Federal Court of Appeal, on February 28, 2011 rejected an appeal from cheesemaking giants Kraft Canada and Saputo against federal regulators' compositional standards for cheese. The court also required Kraft Canada and Saputo to pay court costs.

The Canadian Food Inspection Agency claimed the win for official Ottawa as per a ruling handed down by Justice Robert Mainville, who dismissed Kraft and Saputo's joint appeal and awarded costs to the government.
Specifically, the new regulations require that cheese imported into Canada or produced in Canada and marketed in international trade or enter provincial trade must have:

a. a certain percentage of casein content derived from liquid milks, and not from other milk products such as weight cream or milk powder (the "Casein Ratios"); and

b. a whey protein to casein ratio that does not exceed the ratio of whey protein to casein ratio of milk (the "Whey Ratio").

Kraft Canada and Saputo argued the essential or dominant purpose of the regulation amounted to an economic transfer in favor of dairy producers to the detriment of dairy processors by requiring the use of additional liquid milk in the production of cheese which would result in "substantial impact on milk supply cost for dairy processors."

The lead witness for the processors in testimony given in 2008 to the House of Commons Standing Committee on Agriculture and Agri-Food, stated, "so we've been able, through the use of technology, to reintroduce the whey protein concentrate into cheesemaking to the benefit of the industry. It reduces cost, and there are more efficiencies, and so on."

The courts factual findings “seriously undermine the appellant's assertions.” The court found that the regulations, "address consumer expectations and interest as to the composition of cheese."

In addressing consumer expectations the court relied on the testimony of a Mr.Wathier, and experience Master Cheese Maker and cheese Judge:
Mr. Wathier, a Master Cheese Maker at St. Albert with four decades of experience in the industry, including experience as a cheese Judge and as a consultant to the applicant Parlamat, gave evidence concerning the impact of using milk derivatives on cheese quality. His evidence was that even small quantities of milk derivatives (up to 5%) could affect the taste, texture, and consistency of cheese compared to cheese made with fresh milk. The process of converting fresh liquid milk into a powdered milk derivative has an immediate impact on the taste, which is one of the reasons why, for example, consumers gravitate away from skim milk powder."

Although America has cheesemaking standards which prohibit the addition of various yield enhancing technologies, America has steadily suffered from what can be described as regulatory drift.

Uncertain Times

2011-03-10T17:41:00.000-08:00

Anyone who thinks everything is just fine should look at the trading on the Chicago Mercantile Exchange (CME). And it is not just dairy.

http://cmegroup.mediaroom.com/index.php?s=43&item=3119

CME Group, the world's leading and most diverse derivatives marketplace, today announced February volume averaged 14.7 million contracts per day, up 17 percent from February 2010, and up 19 percent from January 2011. Total volume for February was 279 million contracts, of which 83 percent was traded electronically.

Class III milk future volume for February 2011 is up 82% when compared with February 2010. Makes the rest of the trading, on a percentage basis, look pretty slim.

NMPF's Elevator Down

2011-03-09T17:35:00.000-08:00

NMPF released a some news about its Foundations For the Future program on March 8, 2011. The headline reads:

"NMPF Board of Directors Approves Proposal to Improve Federal Milk Marketing Order System as Part of Foundation for the Future Program"

The first paragraph states:

The National Milk Producers Federation’s Board of Directors agreed today to support a series of major reforms in the Federal Milk Marketing Order program, intended to renovate the economic structure of the U.S. dairy sector. The changes will be packaged as part of the Foundation for the Future program that NMPF has been developing during the past 18 months.

"Renovation" by definition means an improvement. However,no one can say with a straight face the dairy farmer's situation will be improved by this plan. The details are sparse but...

http://www.futurefordairy.com/pdfs/NMPF-FFTF-Narrative.pdf

On page 22:

• Institute a new Class III price that would be a competitive pay price and no longer be maintained as a minimum price. The competitive pay price would be based on regional surveys of both regulated and unregulated proprietary cheese plants
processing a minimum of 500,000 pounds of milk a day and covering all varieties
of cheese

Scary. No minimum price?

Nice words though "competitive pay price." What a way to push buttons.

NMPF either does not understand economic organization or they hope no one else does.

World Food Situation

2011-03-08T17:37:00.000-08:00

United Nations Food and Agriculture Organization (FAO) tracks the world food situation at: http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/

The FAO Food Price Index is a measure of the monthly change in international prices of a basket of food commodities. It consists of the average of five commodity group price indices (representing 55 quotations), weighted with the average export shares of each of the groups for 2002-2004. In February, FAO revised the composition of the Meat Price Index. This resulted in adjustments to the historical values of the FFPI.

(more information at link)

Dairy is clearly rising to a greater extent than some other foods.

Howrey

2011-03-07T17:33:00.000-08:00

There are two large class action, on behalf of dairy farmers, lawsuits which the law firm Howrey (http://www.howrey.com/home.aspx) is a player.

The bigger one, is in Tennessee. Howery has, according to sources, some $15 - 20 million invested. Who would have thought a firm so big and so seemingly successful could fail?

The death knell for embattled BigLaw Howrey could ring as early as this week with firm partners reportedly set to vote on winding down its operations.

Howrey's troubles began last year as the firm witnessed the biggest job losses/layoffs - 159 - according to Law Shucks.

Read more: http://www.ibtimes.com/articles/119667/20110307/death-knell-for-biglaw-howrey-ringing.htm#ixzz1Fy5b8TmI

I have heard some diminished form of Howrey will continue for a while. I have also heard the law suits will continue with the same team of lawyers at another (unnamed) firm.

Double Agent?

2011-03-06T17:18:00.000-08:00

(click on images to enlarge)

Dennis Wolff is the former Pennsylvania commissioner of agriculture. Presently, he is a lobbyist and partner of Versant Strategies. http://www.versantstrategies.net/about/

Versant states:

“Versant” means "having good knowledge of,” and no word could better suit Pennsylvania’s premier public affairs firm specializing in agricultural and rural issues. Versant knows that today’s public policy questions are no longer cut-and-dried, but instead are interconnected and complex.

Versant's lists its clients, which includes "Dairy Policy Action Committee" DPAC.

http://www.versantstrategies.net/clients/

A number of people have had faith in DPAC but...another client not listed on Versant's site is International Dairy Foods Association (IDFA) the dairy processor's organization.

However, the Open Secrets site reveals the truth:

http://www.opensecrets.org/lobby/lobbyist.php?lname=Baker%2C+Meecee&id=Y00000000770&year=2010

The real question is "having good knowledge of,” what? This is not a case of full transparency. Too bad.

Constant Struggle for Price

2011-03-05T18:10:00.000-08:00

(click on image to enlarge)

Above is part of an article from the NY Times printed in 1882:

http://query.nytimes.com/mem/archive-free/pdf?res=FB0D17FB3D5511738DDDAF0994DB405B8384F0D3

There are now less than fifty dairy farms left in Orange County, NY. The Hudson Vally region lost 48% of its dairy farms between 2002 - 2007.

Another article which appeared in 1884 said the standard for milk from farms was 8% butter fat.

New York City was the first city in the country to mandate 1% or less milk in schools. I will guess obesity was not a problem among school children in the 1880s.

Myths Live Forever

2011-03-04T18:10:00.000-08:00

(click on image to enlarge)

http://www.fsa.usda.gov/Internet/FSA_File/diac_final_rpt_0302.pdf

In the DIAC report is a common myth"

"To offset surpluses generated by aggressive support price policies of the late 1970s, from 1981 21 to 1990, dairy markets were affected by a variety of significant government programs, including large 22 product purchases and two new, temporary supply management programs."

Page 14

So, if price drives production and government purchases, why did government purchases drop off after the price to farms fell to next to nothing?

DIAC Final Report to Vilsac

2011-03-03T17:56:00.000-08:00

The Dairy Industry Advisory Committee (DIAC) has sent its report to Vilsac. 23 Dairy Policy recommendations follow the summary. Votes are indicated for each.

Link to the entire 106-page report at: http://www.fsa.usda.gov/Internet/FSA_File/diac_final_rpt_0302.pdf

Information Age

2011-03-02T17:29:00.000-08:00

At Oxford University an exam is given every year which might result in a scholarship for three people, The test is described as the toughest test in the world.

Applicants take four examinations of three hours each, and in the two general subject tests must answer three questions from a list. Below is part of the list from the 2005 - 2010 exams:

What is war good for?
From where does a sense of community come?
Are there too many accountants and auditors? Is there anything to be said for astrology?
Why should I tolerate?
Is exile always a misfortune?
If there are millions of other planets capable of supporting advanced life-forms, why haven’t we seen or heard from them?
Is dark energy more interesting than dark matter? What do extremes in dress and personal adornment signify?
Do historical novels harm historical study?
Has there ever been a period that was not an information age?

Out of this partial list of what appear to be simple questions, the last one grabbed my attention.

The present time is often called the "information age." But, is it really information or just data?

One example might be if you back 150 years to a small village which is supplied with milk from one farm. The farm would never double the size of its herd because, they truly have information - full and complete.

Now when a farm decides to double the herd size, just exactly how much information is actually available? Does the farm have any understanding relative to the market in forming a decision?

Take the "Cold Storage" data, published by USDA. Is that simply data or information? You can pile the data quite high and not have real information. Or take the numbers from CME - just data.

We could have more information, real information, but, that would take leadership. As it is, the farm which is doubling is encouraged to expand by those with greater information because, the net result is a lower farm milk price.

Commodity Price and Inflation

2011-03-01T17:46:00.000-08:00

(click on image to enlarge)

Both corn and oil prices were up today. The New York Federal Reserve published a study in November 2008 on commodity prices and "Personal Consumption Expenditures" (PCE) :

http://www.newyorkfed.org/research/current_issues/ci14-8.pdf

This article evaluates the importance of commodity price
increases for PCE inflation over the June 2006-June 2008
period. Our analysis of the role of commodities in the production
process of personal consumption goods and services
shows that crops accounted for about 1.0 percent of the cost
of inputs needed to produce a dollar of total PCE in 2006; oil
and gas accounted for 2.8 percent.

I assume the Federal Reserve might take a different view if they were feeding dairy ration and hauling manure.

Now imagine how good a tool "risk management" is if March Class III milk futures were committed in December 2010 (see graph above). Today Class III closed at $19.47 per hundredweight.

Miserable

2011-02-28T17:48:00.000-08:00

(click on image to enlarge)

World attention has been directed to Wisconsin's Gov. Walkers "Budget Repair Bill." Most of the attention has focused on the Governor's effort to bust the public sector unions.

The fact is when unions were strong, middle class America was strong - all data supports that conclusion. In 1977 the ILGW (garment workers) had an ad which ended with, " So always look for the union label, it says we're able to make it in the U.S.A!" Pretty hard to find a lot of things made in the U.S.A.

Two other features of the bill have received less attention. One is the health care plan known as BadgerCare. Here is a news story which mentions BadgerCare and dairy farm milk price: http://www.wqow.com/Global/story.asp?S=14087832

According to statistics, 15% of those receiving BadgerCare are farmers. The reason is the driving down of farm prices at the same time jobs were being "outsourced."

Another part of the plan is to send more money to prisons. Wisconsin in 2008 spent 10% more than other states per inmate. The U.S.A which cannot make anything anymore, and cannot pay dairy farmers a fair price since parity was eliminated. The argument was the costs of government purchases were rising. Rising prison costs seems to not have been a problem. The U.S. has 5% of the worlds population and 25% of the worlds prisoners.

We have become a miserable nation since 1980. The idea of loving our neighbors seems to have vanished.

Low Fam Price Explained

2011-02-27T18:01:00.000-08:00

A REVISED AND EXPANDED FOOD DOLLAR SERIES: A BETTER UNDERSTANDING OF OUR FOOD COSTS

A new ERS food dollar series measures annual expenditures on domestically produced food by individuals living in the United States and provides a detailed answer to the question “For what do our food dollars pay?” This new data product replaces the old marketing bill series, which was discontinued due to measurement problems and limited scope. The new food dollar series is composed of three primary series, shedding light on different aspects of evolving supply chain relationships. The marketing bill series, like the old marketing bill series, identifies the distribution of the food dollar between farm and marketing shares. The industry group series identifies the distribution of the food dollar among 10 distinct food supply chain industry groups. The primary factor series identifies the distribution of the food dollar in terms of US. worker salaries and benefits, rents to food industry property owners, taxes, and imports. To provide even more information about modern food supply chains, each of the three primary series is further disaggregated by commodity groupings (food/food and beverage), expenditure categories (total food expenditures, food at home, food away from home), and two dollar denominations (nominal, real). The input-output methodology behind the new food dollar series and comparisons with the old marketing bill series are presented. Several key findings of the new series are highlighted and discussed.

The data behind the report--Food Dollar Series Data Set

Released Thursday, February 24, 2011

See http://www.ers.usda.gov/Publications/ERR114/

Unless I read it all wrong, farmers are getting less of the consumers food dollar because consumers are eating more meals away from home. So, now we know.

India

2011-02-26T17:07:00.000-08:00

http://online.wsj.com/article/SB10001424052748704150604576166063141208924.html#articleTabs%3Darticle

NEW DELHI – The Indian government's annual economic survey has warned that the country could become a milk importer by 2022 if local production doesn't keep pace with growing demand.

India is the world's largest producer of milk, and according to earlier estimates by the government, its output in the last fiscal year ended March 31 was 112.5 million metric tons. The government informed parliament last year that its target for the current fiscal year was 116.2 million tons.

The economic survey for fiscal 2011, released Friday, said India's milk production is rising by about 3.5 million tons a year, while demand is growing by an estimated 6.0 million tons.

In case the country is unable to raise its production to 180 million tons by 2021-22 to meet its local demand, "India may need to resort to imports from the world market," the survey said.

Last year, Rabobank said demand from India and China, which account for more than a third of the world's population, has been the engine for global dairy growth in recent years.

India's food inflation, which had shown signs of declining after remaining stubbornly high for most of 2010, accelerated to 11.49% in the week to Feb. 12 from 11.05% in the previous week, mainly driven by a rise in milk prices.

Demand for high protein sources like milk, egg, meat and fish has grown with higher income levels.

"Recent hikes in prices of milk and milk products have been a matter of concern," the economic survey said, adding that a gap between local demand and supply of milk has put "upward pressure on milk prices in the country."

There are,at present three comments which are interesting. The third,correctly recognizes India cannot feed high priced grains to produce milk. India also has been able to produce a great deal of milk because there have been no "opportunity costs" associated with milk production. Now, there are jobs in the cities and the labor is not going to be there to produce milk.

India has a GDP per capita of $3,290. A total of 37% live below poverty levels. Hard to figure how the U.S. can feed grain at the present rates, and then ship dairy products to India at a profit.

Dry Product Prices

2011-02-25T18:05:00.000-08:00

Click on image to enlarge)

Today's NASS price for nonfat dry milk (NFDM) is $1.3938 per pound - pitiful. Today's CME price for NFDM is $1.8325 (Grade A). The most recent, February 15, 2011, GlobalDairy Trade internet auction price for skim milk powder which is virtually interchangeable with NFDM was $1.78 per pound. Is there an explanation which relates to "market" economics. Probably not.

The good news is that all prices are heading upwardly, even whey.

New Zealand Milk Checks

2011-02-24T17:25:00.000-08:00

New Zealand dairy farmer are paid by kilograms of milk solids. The present forecasted price is $8/kg milk solids.

To convert to dollars per hundredweight:

1 kilogram = 2.2046 pounds. So, take the payout ($8) divided by 2.2046 ($3.63 per pound of milk solids). There are 8.4 pounds of solids per hundredweight of milk. Therefore, $3.63x8.4 equals $30.482 per hundredweight.

I see no reason to convert the New Zealand dollars to U.S. dollars, unless the milk check is being sent to the U.S. All costs are local and therefore all milk checks are local.

Virtually, all cows are milked seasonally in New Zealand. The season for this payout began in July 2010 and will end in June 2011. consequently, the payout is still subject to change.

New Zealand Payout

2011-02-23T17:49:00.000-08:00

Most of the dairy areas of New Zealand have not been affect by the recent earthquake. Fonterra is projecting an increase in dairy farm payout. See: http://www.nzherald.co.nz/economy/news/article.cfm?c_id=34&objectid=10708096

Dairy giant Fonterra has boosted its forecast payout to farmers to record levels as international prices keep rising.

The farmers co-operative yesterday raised its forecast payout for this season by 60c to $7.90-$8 per kg of milksolids before retentions.

With milk production expected to be broadly in line with last season an $8 payout could be worth about $10.3 billion.

Chairman Sir Henry van der Heyden said the increased forecast milk price reflected strengthening international dairy prices during recent months.

More at link.

Fonterra's payout is approximately 40% more than the U.S All Milk Price for 2010. More power to them.

At exactly what point in time are U.S. dairy farmers supposed to reap the benefits of the global economy?

Projection?

2011-02-22T18:12:00.000-08:00

(click on images to enlarge)

USDA recently released its "Agricultural Long Term Projections" which are available at: http://www.usda.gov/oce/commodity/ag_baseline.htm

The latest, released this month shows milk price projection through 2020. You can go back tho the report issued in February 2008 and see how they did projecting the "All Milk Price" for 2009. Or you can just look at the graphs above.

At the moment the Class III futures for 2011 are all above USDA's projected "All Milk Price."

My problem is not with USDA's attempts at a rational projection. The problem is, who knows what a relatively small number of players are going to do about farm milk price? Neither USDA nor the chosen few are really able to think in terms of complexities. That is too bad.

Heifers

2011-02-21T17:41:00.000-08:00

(click on image to enlarge)

Recently, I had a graph on the ratio of heifers to cows. I received the following comment:

Is this data ACTUAL cow numbers or is this just extropalated from the 23 state guesstimate? #2 how do the changes in line correspond with CWT removals? Being that cows were removed that would increase heifer/cow over normal culling. Sexed semen is always dragged into the discussion but does anyone have any REAL numbers as to how much effect it is having or is it all speculations? DWCovert

This appears to me to be a legitimate question. I have doubted all the hoopla la about sexed semen but, as the graph above shows heifers only, the only reason explanation for the growing numbers seems to be sexed semen.

Certainly, the large numbers of heifers will devalue the herd as an asset. Who will be the real winners, as usual, remains to be seen.

China & Milk - Again

2011-02-20T17:17:00.000-08:00

In recent years, when I have spoken with people from China about food, the word greed always pops up. Here is the latest from the government of China:

http://www.china.org.cn/china/2011-02/19/content_21957557.htm

Watchdog orders closer checks of dairy products

The General Administration of Quality Supervision, Inspection and Quarantine ordered its local branches on Friday to increase their scrutiny of fresh milk in response to public concerns.

The administration said in a statement posted on its website that it had paid closer attention to the quality of dairy products and increased the frequency of food inspections following a 2008 scandal in which the poisonous substance melamine was found in infant formula.

Since 2009, the administration has placed both melamine and hydrolyzed leather protein - substances that could make food appear to have a higher protein content - on a list of banned additives that must be tested for in fresh milk.

Later that year, the administration punished a company in Zhejiang province after finding the company had added hydrolyzed leather protein to its dairy products.

Even with those achievements suggesting the government has got closer to its goal, Friday's statement indicated that the supervision of fresh milk will be further strengthened in the future.

Li Yuanping, a spokesperson for the administration, said anyone who has concerns about the quality of a food product should call the General Administration of Quality Supervision, Inspection and Quarantine on the hotline number 12365.

The statement came a day after China's Ministry of Agriculture said that fresh milk on the Chinese market is "generally safe" and that no hydrolyzed leather protein or other prohibited materials had been detected in recent tests of that product.

In 2008, milk powder tainted by melamine killed at least six infants and sickened 300,000 children across the country.

Melamine and hydrolyzed leather protein are used as additives because they can make dairy products that have been watered down appear to contain normal amounts of protein.

In a notice posted to the website of the State Council, China's Cabinet, the Ministry of Agriculture said authorities will carry out 6,450 random checks of fresh milk this year - underscoring officials' concerns that dairy producers may still be trying to use illegal and dangerous methods to boost the protein content of milk.

All of the tests will be checks for melamine and 30 percent will be attempts to detect hydrolyzed leather protein.

The agriculture ministry said in a statement posted to its website on Thursday that spot checks performed on 7,406 batches of fresh milk last year yielded no evidence indicating the presence of melamine and signs of leather protein.

The main source of melamine contamination has been powdered milk, rather than the fresh variety. Last year, China seized 2,132 tons of melamine-tainted milk powder, all of it having been manufactured in 2008 or earlier.

Assets Rising

2011-02-19T17:02:00.000-08:00

http://agfax.com/Content/farm-lenders-sour-on-dairy-loans-02142011.aspx

Farm lenders "kept the walking dead alive" in the dairy industry the past two years, but that reprieve will end for many stressed operations as loans are renewed this spring, predicted Dick Gilmore, a financial consultant with 30 years experience in farm lending. The Charlton, Mass., consultant now works with some of the nation's largest ag lenders to appraise property and manage troubled farm accounts, including dairies.

"Lenders hesitated to shut down stressed livestock operations in 2009 and 2010 because the assets were worth only pennies on the dollar and were too far under water," Gilmore told a recent meeting of the Association of Agricultural Production Executives (AAPEX) here. Breathing room benefited pork and cattle producers as their margins rebounded last year, but during that same period, many dairies just narrowed their losses. Many drained their equity when the price of cows slipped from $2,500 at the peak of dairy profits to a mere $1,000 today.

When industry-wide calamity struck, a lot of the collateral securing loans just went "poof," Gilmore added.

One 3,000-cow Idaho dairyman in the audience said he averaged costs of $15 per hundredweight (cwt) in 2010, but Tier III prices have remained above that level for only a few months since mid-2008. "We've dug a very big hole the last few years," he said.

Full story at link.

Milk Production Increases - Naturally

2011-02-18T17:50:00.000-08:00

( click on image to enlarge )

Today, February 18, 2011, USDA NASS released it "Milk Production" report. Naturally, or perhaps not, milk production increased. See: http://www.usda.gov/nass/PUBS/TODAYRPT/mkpr0211.pdf

There were, according to the report, 14,000 more cows in January 2011 than in December 2010. Technology may not offer greater choices, if it is not so much a choice as coercion.

Supply?

2011-02-17T17:42:00.000-08:00

(click on image to enlarge)

The feature article in the latest Milkweed is available at: http://themilkweed.com/Feature_11_Feb_corrected.pdf

The article has a table covering milk supply and "commercial disappearances" as reported by USDA. Keep in mind the "commercial disappearance" numbers do not include imported dairy proteins such as MPCs and caseins. Those powdered dairy proteins would equal about 10% of domestic production.

So, I added the "All Milk" price for the time period of 20 years. Dairy farmers have not stood up for fairness and a decent price. Naturally, those in a position do do something positive for American dairy farmers have simply taken advantage of the meekness.

"Where there is no vision, the people perish."

Dean Foods 2010 Earnings

2011-02-16T17:25:00.000-08:00

AT: http://www.deanfoods.com/our-company/news/press-release.aspx?StoryID=1529517

The story begins:

Dean Foods Company (NYSE: DF) today announced that the Company earned $0.50 per diluted share for the full year 2010, as compared to $1.38 per diluted share for the full year 2009. On an adjusted basis (as defined below), the Company earned $0.80 per diluted share for the full year 2010, compared to $1.59 for the full year 2009.

For the fourth quarter 2010, the Company recorded a loss of $0.11 per diluted share, as compared to fourth quarter 2009 earnings of $0.27 per diluted share. The loss for the fourth quarter of 2010 includes a $20 million charge (net of tax) associated with an agreement in a previously disclosed legal matter, a $10.8 million write down of deferred tax assets, as well as $17 million (net of tax) of restructuring charges, and other one time or non-recurring items, as more fully described in the attached tables. On an adjusted basis, fourth quarter 2010 diluted earnings per share were $0.15, compared to $0.32 per diluted share earned in the prior year's fourth quarter.

"2010 was an exceptionally difficult year for Dean Foods, and our fourth quarter results reflect many of the same trends that have impacted the business all year," said Gregg Engles, Chairman and CEO. "At Fresh Dairy Direct-Morningstar, wholesale pricing for private label milk remained pressured during the quarter, and volume softened. As a consequence, Fresh Dairy Direct-Morningstar operating profit was little changed from the third quarter.

"We have, however, begun to see signs that the fluid milk category is stabilizing, albeit at historically low levels of profitability. Some retailers have taken early steps to reduce heavy private label promotions and our regional brand volume mix has begun to stabilize. Regional branded milk volumes outperformed private label on a year-over-year basis in the fourth quarter. Moreover, private label wholesale prices appear to have stopped declining, although we have not yet seen them rise. Volume, however, remains weak, which we believe will limit upward price mobility. The net result is an industry that appears to be stabilizing at a price and profit level meaningfully below historical norms. To move forward in such an environment means that we must continue to optimize our network to offset volume weakness and drive efficiency to rebuild profits, which is the path that we are on.

Cheese - No Apples

2011-02-16T16:51:00.001-08:00

(click on image to enlarge)

No one enjoys being told I am wrong more than I do. A commenter on the post for February 14, 2011, Dave, went to great trouble to accuse me of error.

His first comment stated:

"Numbers don't lie, please cite a source. Something smells real fishy with this one."

He then stated:

"Yes, I do. John's export price in comparison to CME Block prices is deceiving. His $/lb export price is for ALL CHEESES. Since CME Cheese is Fresh Only, why not compare Fresh Cheese Export Prices to CME BLocks?

The average Fresh Cheese Export Price for 2010 was $1.63/lb."

Next he stated:

"How does your export price (which includes COLBY, BLUE, PROCESSED, AND MIXT) compare to world CHEDDAR prices? It doesn't.

We're beating a dead horse. Careful with your numbers."

Dave's price of $1.63/pound for "fresh cheese" is correct for all kinds of fresh cheese, including some which may have more than 50% moisture. Cheddar has a moisture content of about 38%. The number is not exclusively limited to fresh Cheddar exports. Naturally then, the number for fresh cheese would be considerably lower than the number for fresh Cheddar cheese. The above graph shows that while there is some difference, it is not great. The statistical correlation between the "export" price and the "fresh Cheddar export price", is .72.

I used the "export" data for all cheese because I mentioned the Cooperatives Working Together (CWT) program which allows for a number of varieties. See:http://www.cwt.coop/sites/default/files/pdf/CWT-Export-Assistance-Application-Sept-2010.pdf

Most of the cheese exported under the CWT program is Cheddar. The fresh Cheddar export price is actually a nickel higher than world price for Cheddar, as report by USDA's Dairy Market News.

The data, and I don't really think it matters whether you use only the fresh Cheddar data or the total cheese export data, really calls into question, what exactly the dairy farmers who throw money into CWT are getting in return.

Global Dairy Trade Prices Up - Mostly

2011-02-15T17:48:00.000-08:00

(click on image to enlarge)

Today, Fonterra held another internet auction, the 38th. Prices were generally up with Whole Milk Powder up significantly, see above. Anhydrous Milk Fat was down but, not much.

On the CME butter, which is still short, is falling in price. The same outfit, Dairygold, which seemed to run butter up to $2.10 per pound is now dropping the price with offers. Rational, maybe, but not transparent.

Cheese Prices for 2010

2011-02-14T17:44:00.001-08:00

(click on image to enlarge)

There is all kinds of chatter about dairy exports in 2010. The real question is not whether or not exports rose but who really gained?

Obviously, looking at the graph above, the dairy farmers were not the winners. In the above graph, Class III milk price per hundredweight is divided by ten, which represent the normal cheese yield.

To make matters worse, the export prices from the U.S. were higher than world Cheddar prices. Since the Cooperatives Working Together (CWT) "export enhancement" began in March, 2010, and amounted to, according to CWT, 22 % of exports, one might think that the U.S. export price would be lower than world price. After all, why pay into the CWT program for no gain?

Food prices

2011-02-13T17:23:00.000-08:00

http://www.examiner.com/finance-examiner-in-national/food-prices-to-rise-as-sysco-invokes-act-of-god-clause-for-food-supply

Food prices to rise as Sysco invokes 'Act of God' clause for food supply

Americans can expect food prices to rise massively over the next few weeks to months as the harsh weather effectively destroyed the Mexican winter crops.

In a report from the USDA late last week, crated tomatoes alone have risen 3.5 times their normal cost, going from $6.95 per crate to $22.95.

On Feb. 8, the U.S. Department of Agriculture reported prices of $22.95-24.95 for two-layer cartons of 4×4, 5×5 and 5×6 vine-ripe field-grown tomatoes from Mexico, up from $6.95-9.95 the week before and $5.95-7.95 the year before.

Also in a report from February 4th, the publication The Packer.com reported that from 80 to 100% of produce in the Mexican fields was destroyed.

“The early reports are still coming in but most are showing losses of crops in the range of 80 to 100%. Even shade house product was hit by the extremely cold temps. It will take 7-10 days to have a clearer picture from growers and field supervisors, but these growing regions haven’t had cold like this in over half a century.”

Sysco, which is one of the largest companies that purchases and supplies Mexican winter produce to restaurants and grocery chains through the country, wrote a letter this last week specifying that suppliers are invoking the 'act of God' clause in their contracts, and will be raising the prices on whatever can be harvested from their fields.

The bottom line to all of this is, food supplies, as well as this year's harvests, will be down to critical levels, if not dire ones. Last week we discussed the destruction of sugar and banana crops in Australia due to the cyclone that tore through that continent, and previously we spoke on corn and cotton shortages. Less than a week later we got another act of God, or act of nature, which did the same to produce on the North American continent.

Corn futures skyrocket as supply dwindles and the UN reports shortages

Banana prices set to skyrocket as cyclone destroys Australian crops

Sugar shortage leads to renewal of GMO Beet planting in the US

The revolts we just saw in Tunisia and Egypt by starving people could occur quickly all around the world, including in the United States, as food becomes scarce, and harvests become meager. Prepare now in any way you can, otherwise the recent price hikes in the futures market and on your grocery shelves will simply be a prelude to the prices yet to come very soon.

Missing from most of the rising food prices is a discussion of the devastation occurring to farmers throughout the world.

Most dairy farmers in the U.S. as facing massive rises in input costs with little or no access to credit.

Backwards and Short on NFDM

2011-02-12T17:49:00.000-08:00

(click on images to enlarge)

According to theory, prices move forward in capitalism. That is just the exact opposite in pricing raw farm milk from manufactured dairy products.

However, if wholesale manufactured prices are going to be used then why should skim milk powder (SMP)not be included? Lets just say, there is no test which can distinguish NFDM from SMP.

SMP is primarily made for export and when you look at the export prices, the answer becomes apparent - SMP is priced higher. The raw milk going to SMP is priced as if it were going to NFDM.

The difference is $0.102 per pound, using CDFA prices. Adds up to millions of dollars.

Dairy & Health

2011-02-11T18:15:00.000-08:00

Interesting study:

http://www.nutraingredients.com/Research/Danish-study-finds-calcium-counteracts-effects-of-dairy-fat-uptake

Danish study finds calcium counteracts effects of dairy fat uptake
By Ben Bouckley, 08-Feb-2011

Related topics: Research, Dairy-based ingredients, Minerals, Cardiovascular health, Weight management

Calcium in dairy products could counteract the effect dairy fat has in raising total and LDL cholesterol levels, according to a new Danish study.

Despite intervention studies showing that saturated fat increases total and LDL-cholesterol concentrations – and resultant advice to avoid high-fat dairy product consumption – University of Copenhagen researchers Janne Lorenzen and Arne Astrup said that observational studies (such as Lin et al. 2000, Brooks et al. 2006) showed an inverse relationship between intake of high calcium dairy products and CVD (cardiovascular disease).

Several intervention studies also showed that dairy calcium, in particular, produces decreases in body weight and fat (Davies et al. 2000), and although others failed to discover an effect (Lorenzen et al. 2006), the current authors noted (Bendsen et al. 2008) that one mechanism by which calcium affects energy balance and thus “potentially body weight” is via increased faecal fat and energy excretion.

Does calcium content affect lipid profile?

Lorenzen and Astrup wrote:“There is a need for more studies that explore the potential role of calcium intake in lipid metabolism…the aim of the present study was to examine whether a concomitant intake of the calcium content of dairy products modifies the effect of dairy fat on the lipid profile.”

The study involved 9 male subjects, with a mean age of 32.8 years, allocated on a random basis to one of four isoenergetic (equal energy) 10-day diets in succession, with a break of at least one week and normal eating habits between each diet.

Approximate dietary values were as follows: (1) low calcium and low fat (700mg calcium per day, 25% fat) (2) high calcium and low fat (2,800mg calcium, 25% fat) (3) low calcium and high fat (700mg calcium, 49% fat) (4) high calcium and high fat (2,800mg calcium, 49% fat).

Dairy products were the main calcium source for participants, with dairy fat the main difference between low and high fat diets (90%). During the high calcium periods, subjects were given milk with each meal; the low calcium diet used a protein drink containing equivalent whey, casein powders and lactose to milk.

Dairy calcium decreased bad cholesterol

Blood variables were measured before and after each diet period, with lipid profiles in faeces and urine collected at the end of each diet period. The results showed that – independent of calcium intake – high fat diets increased LDL and HDL cholesterol concentrations by 9% and 13% against low fat diets.

But irrespective of fat intake, the high calcium diets decreased concentrations of total- (4%) and LDL-cholesterol (10%), although they did not affect HDL cholesterol concentrations, which the authors linked to a “protective effect” where CVD is concerned.

“The major finding is that dairy calcium attenuates the increase in total and LDL-cholesterol produced by increased dairy fat, without affecting the rise in HDL-cholesterol,” wrote Lorenzen and Astrup.

“This is probably, at least in part, due to an increased faecal excretion of fatty acids and bile acid excretion, and possibly also increased excretion of other hydrophobic components, including cholesterol. However, other unidentified mechanisms may also be involved.”

Calcium supplement warning

Calling for more research, Lorenzen and Astrup said the study’s limitations included variations between the diets (independent of calcium and fat content) that “may have confounded the outcome”, the trial’s short duration, and the possibility of adaption to long-term high calcium intake, which could reduce its effect on cholesterol concentration and faecal fat excretion.

They also cited Bolland et al. 2010, in warning that non-dairy calcium administered in supplements (without coadministered vitamin D, which was excluded from the trial), has "recently been shown to be associated with an increased risk of myocardial infarction [or heart attacks]”.

Source: British Journal of Nutrition, published online ahead of print, January 2011: 31:1-10

Title: Dairy Calcium Intake Modifies Responsiveness of Fat Metabolism and Blood Lipids to a High-Fat Diet.

Authors: Lorenzen, K. Astrup, A.

Senate Judiciary Committee?

2011-02-10T17:20:00.000-08:00

http://vtdigger.org/2011/02/09/leahy-grassley-press-doj-usda-for-follow-up-to-agriculture-competition-workshops/

Leahy, Grassley press DOJ, USDA for follow up to agriculture competition workshops

By Press Release on February 9, 2011

FOR IMMEDIATE RELEASE
February 9, 2011

CONTACT:
Erica Chabot (w/Leahy)
202-224-7703
Erica_Chabot@Judiciary-dem.senate.gov

WASHINGTON – Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) and Ranking Member Chuck Grassley (R-Iowa) sent a letter Wednesday to Attorney General Eric Holder and Agriculture Secretary Tom Vilsack, seeking follow up on a recent series of competition workshops held by the U.S. Department of Justice (DOJ) and the U.S. Department of Agriculture (USDA).

The conferences, which were held in locations across the country from March 2010 to December 2010, focused on vertical integration, buyer power, market transparency, competition and retail pricing in several agricultural industries, including dairy, seed and poultry. In 2009, Leahy chaired a Judiciary Committee field hearing in Vermont about competition in the dairy industry, one of several hearings held by the Committee in recent years to examine antitrust issues in the agriculture sector. Now Leahy and Grassley are seeking information about DOJ and USDA plans for further action to promote competition in agriculture.

“With the conclusion of the last workshop on December 8, 2010, we would appreciate an update as to what the DOJ and USDA plans for its next steps,” the Senators wrote. “As Chairman and Ranking Member of the Committee on Judiciary, please provide to us an outline of any plans or further action items that DOJ and USDA intend to take in this area.”

The full text of the letter follows. A PDF is available online.

So, here is the link to the subcommitte on antitrust:

http://judiciary.senate.gov/about/subcommittees/antitrust.cfm

Jurisdiction: (1) Oversight of antitrust law and competition policy, including the Sherman, Clayton and Federal Trade Commission Acts; (2) Oversight of antitrust enforcement and competition policy at the Justice Department; (3) Oversight of antitrust enforcement and competition policy at the Federal Trade Commission; (4) Oversight of competition policy at other federal agencies.

The only question is where does the buck stop, if indeed, there is a buck left?

Oh yes, Patrick J. Leahy, Vermont, is the Senate Judiciary Chairman

WASDE

2011-02-09T17:07:00.000-08:00

http://www.usda.gov/oce/commodity/wasde/latest.pdf

Today USDA released its latest World Agricultural Supply and Demand Estimates (WASDE)report.

WASDE stated: “Milk production is forecast higher for 2011 based on higher-than-expected January 1 dairy cow and dairy replacement heifer estimates."
This seems to be an inability to connect the dots in this report. For corn, a primary component of dairy grain mix, WASDE stated:

“U.S. corn ending stocks for 2010/11 are projected 70 million bushels lower this month with higher expected food, seed, and industrial use. Corn used for ethanol is projected 50 million bushels higher on a higher-than-expected November final ethanol production estimate and weekly ethanol data that indicate record output for December and January.”

Corn trading on the Chicago Board of Trade (CBOT) and near or over seven dollars a bushel for all three trading periods. The July 2011 corn price was $7.12 per bushel.
Ethanol futures soared to the highest price since July 2008, March 2011 ethanol futures closed at $2.457 a gallon. One bushel of corn is required to make about 2.75 gallons of ethanol. Recently, in America's cornbelt, the average ethanol distillery has been losing about nine cents per gallon.
So, with grain prices rising with apparently no end in sight, the prediction of increased milk production for 2011 is questionable.

Cold Storage Data

2011-02-08T18:20:00.000-08:00

From at least three different sources in the past ten days, I have heard there is no cheese to be had.

Apparently, all the cheese in inventory is either committed or aging.

Speaking with a friend this morning, he suggested the "Cold Storage" report would be much more useful if the report included data on committed and aging cheese inventories.

This seems like an excellent idea with only a slight change in forms required.
The entire dairy industry would probably welcome the improved data quality.

World Dairy

2011-02-07T17:39:00.001-08:00

(click on image to enlarge)

One thing for certain, NMPF will never be serious about supply management in its Foundations For The Future plan because as long as CWT is exporting how can NMPF talk about limiting imports?

Another thing, why is CWT giving out export bonuses? Here is what Dairy Market News most recent overview of the Oceania export situation:

Oceania suppliers are stating that the tone in many buyers comments is one of desperation. Most are very concerned about supply availability and are often willing to pay the prices if supply is available.

Not all the cards are on the table face up