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Weekly Digest: February dairy margins weaken but still strong

Progressive Dairy Editor Dave Natzke Published on 19 February 2020

Digest Highlights

February dairy margins weaken but still strong

Dairy margins weakened slightly during the first half of February but remain historically strong relative to the past decade, according to Commodity & Ingredient Hedging LLC. Declines in the milk market were mostly offset by corresponding weakness in feed input costs to mitigate the full impact on margins during the first two weeks of the month.

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Milk prices have been under pressure due to concerns over the spreading coronavirus in China and its potential impact on demand. The latest Global Dairy Trade (GDT) auction saw whole milk powder prices fall to a six-month low. The USDA’s latest Dairy Products report, reflecting December 2019 estimates, showed that nonfat dry milk/skim milk powder production was the highest since April 2018 and up 12.5% from the prior year. As a result, December manufacturers’ stocks were the largest since 2012.

December trade data also indicated that high U.S. cheese prices may have forced global buyers to shop elsewhere, pressuring U.S. cheese export volumes lower. The slowdown in export demand may continue through the first quarter of 2020.

DMC margins staying above $9.50

The USDA’s Dairy Margin Coverage (DMC) program Decision Tool estimates margin ranges and payment probabilities based on current milk and feed futures prices. The December DMC margin was $11.95 per hundredweight (cwt), but that’s forecast to decline about $2 per cwt by May-June 2020.

Based on market conditions as of Feb. 18, DMC margins were expected to fall to about $10.73 per cwt in January 2020 and then remain between $9.95-$10.50 per cwt through September 2020. DMC margins had a 31%-38% probability of falling below the top insurable level of $9.50 per cwt between April-October 2020.

The USDA will release January 2020 milk production estimates on Feb. 20. The next DMC margin report is set for Feb. 28. Check the Progressive Dairy website for updates.

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Global Dairy Trade index lower

The index of Global Dairy Trade (GDT) dairy product prices fell in the latest auction, held Feb. 18. Declines in most major product categories pushed the overall index 2.9%, even though the cheddar cheese price moved to the highest level since May 2019. Price comparisons to the previous GDT auction, held Feb. 3, follow:

  • Skim milk powder was down 2.6% to $2,840 per metric ton (MT).
  • Butter was down 3.9% to $4,090 per MT.
  • Whole milk powder was down 2.6% to $2,966 per MT.
  • Cheddar cheese was up 5.3% to $4,526 per MT.

The next GDT auction is March 3.

California quota program ‘sunset’ proposal hits a snag

The plan sunsetting California’s “quota” program by 2025 has run into a procedural snag.

The United Dairy Families of California (UDFC) had submitted the plan, Feb. 11, in a letter to the California Department of Food and Agriculture (CDFA). The letter was signed by 11 regional representatives of the UDFC.

However, on Feb. 14, Karen Ross, California ag secretary, notified the UDFC that the recommendation must be submitted in the form of a petition with the necessary signatures of at least 25% of California’s dairy producers.

The UDFC has now scheduled a series of regional meetings (Feb. 20-March 2) to discuss the proposal and collect the necessary signatures. Dates and locations are available on the UDFC website.

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On a separate legal and administrative track, the Stop QIP Dairy Tax Coalition filed a lawsuit last December, seeking to invalidate the QIP. A hearing is set for May 15 in the California Superior Court for Sacramento County. And in January, Stop QIP initiated a petition drive calling for suspension of a section of the California Food and Agriculture Code (Chapter 3.5), which would effectively terminate the QIP.

The UDFC recommendation followed months of study and meetings seeking ways to resolve how state milk quota payments are funded and distributed. The final recommendation was presented to dairy producers and others during World Ag Expo, Feb. 11, in Tulare, California.

Under the proposal, California’s Quota Implementation Plan (QIP), also called the Quota Administration Plan of QAP, sunsets on March 1, 2025. In the meantime, a Regional Quota Adjuster (RQA) will be modified to result in an equalized quota differential of $1.43 per cwt. The plan will give existing quota holders a cumulative payment of $300 per pound of solids quota distributed over the five-year period.

House members pressure FDA on ‘dairy’ labels

Nearly 60 U.S. House members sent a letter to FDA Commissioner Stephen Hahn, urging the agency to finish its examination of how to enforce regulations defining what may be labeled a dairy product.

“The deception caused by mislabeling of imitation products is both unfair to our hardworking dairy farmers and problematic for consumers, making it harder for Americans to make educated decisions about what they feed themselves and their families,” wrote the lawmakers in the bipartisan letter, which was led by Reps. Peter Welch (D-Vermont), Mike Simpson (R-Idaho), Anthony Brindisi (D-New York) and John Joyce (R-Pennsylvania).

Many letter signers are also co-sponsoring the Defending Against Imitations and Replacements of Yogurt, milk and cheese to Promote Regular Intake of Dairy Everyday (DAIRY PRIDE) Act, which would require the FDA to issue guidance for nationwide enforcement of mislabeled imitation dairy products within 90 days of its passage and require FDA to report to Congress two years after enactment to hold the agency accountable in its enforcement.

Jim Mulhern, president and CEO of the National Milk Producers Federation (NMPF), praised the House letter. “FDA knows this is a problem, and now is the time to solve it,” he said.

California dairies dramatically reducing carbon, water footprints

New research published in the Journal of Dairy Science finds the climate footprint of milk production in California has been significantly reduced.

Scientists at the University of California – Davis conducted a life cycle environmental assessment of California dairy farm production using scientific models and international research standards. The research, covering a 50-year period between 1964 to 2014, estimated the amount of greenhouse gas emissions produced per unit of milk was reduced by more than 45%.

The California Dairy Research Foundation (CDRF) supported the study. Among its key findings:

  • The amount of greenhouse gas emissions per each unit of milk (e.g., glass or gallon) produced has decreased more than 45% due to increased milk production efficiency, including improved reproductive efficiency, nutrition, comfort and overall management.

  • The amount of water used per unit of milk produced has decreased more than 88% primarily due to improved feed crop production and water use efficiency.

  • Dramatically improved feed crop production and utilization of agricultural byproducts have led to significant reductions in the amount of natural resources used to produce each unit of milk, including, land, water, fossil fuels and energy.

"The study shows we are producing milk more efficiently and sustainably, minimizing our climate footprint in the process," said Richard Wagner, a San Joaquin Valley dairy farmer and CDRF chair. "While there is always more work to be done, the findings show a significant overall improvement in environmental performance, producing more wholesome, nutritious milk and dairy products with fewer natural resources, less water, less energy and fewer fossil fuels."

The estimate of reduced greenhouse gas emissions is likely conservative, according to CDRF. The research does not factor in the installation of solar panel arrays on more than 150 dairy farms in California and the large number of dairy methane digesters projects initiated on dairies in the state.

Darigold expanding production of FIT

Darigold will invest $67 million in its milk processing facility in Boise, Idaho, to expand production of its ultrafiltered, high-protein, reduced-sugar fluid milk product, Darigold FIT.

Dairygold FIT was launched in the Pacific Northwest market last year. Sales and distribution have doubled in the past six months, and the company recently broadened the FIT product line to include whole milk, as well as offering 2% white and 2% chocolate milk.

In addition to expanding capacity, the Boise facility will also produce FIT in aseptic packaging, creating a shelf-stable product that can be shipped and stored without refrigeration. The first production run using the shelf-stable packaging is anticipated for fall of 2020.

Headquartered in Seattle, Washington, Darigold is the marketing and processing subsidiary of Northwest Dairy Association (NDA), which is owned by about 430 dairy farm families in Washington, Oregon, Idaho and Montana. Darigold handles approximately 10 billion pounds of milk annually, producing a full line of dairy-based products at 11 plants throughout the Northwest.

The co-op’s investment in Darigold FIT is part of an overall commitment of hundreds of millions of dollars under a five-year plan of transformation and modernization, according to Jim Werkhoven, who milks about 1,700 cows near Monroe, Washington. After serving 21 years, he retired from the Darigold board a couple of years ago.

‘Making More From Milk’ course planned in Wisconsin

Global Dairy Outreach and Global Cow will conduct a two-day “Making More From Milk” course, set for March 24-25 in Madison, Wisconsin. The course offers dairy producers an opportunity to explore various diversification options and a chance to think about the future of their businesses and their families.

The course agenda features individual and panel presentations by producers who have a found unique ways to add value to their dairy. Other highlights include “behind-the-scenes” visits to a retail specialty cheese store and a restaurant that specializes in local foods, and three farms incorporating “value-added” businesses: a family farm with an adjacent ice cream parlor, a farm with its own fluid milk and ice-cream processing and agritourism, and a farm that specializes in farm tours.

An optional add-on includes a full day of hands-on cheesemaking, March 26.

The course is being supported by the Wisconsin Farmers Union and Compeer. Cost is $300 per person or $180 for a single-day registration.  end mark

Dave Natzke
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