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14 CapitalPress.com Dairy Dairy price outlook not as rosy as futures market U.S. forecast quarterly dairy prices Capital Press (AMS announced, dollars per pound) Despite a recent rally in in- ternational dairy prices, dairy suppliers and milk producers ar- en’t out of the woods yet, Rabo- bank analysts reported in a we- binar accompanying Monday’s release of the bank’s quarterly dairy report. “The fundamentals are im- proving but not as fast as cur- rent pricing suggests,” said Tim Hunt, Rabobank global dairy strategists and author of the re- port. Dairy markets might have passed through the worst, he said, but things aren’t likely to be as tight through the middle of the year. A surprising rally in glob- al product prices starting in mid-February led to a 42 percent increase in whole milk powder Item Q3 2014 Q4 ’14 Q1 ’15 Q2 ’15 Q3 ’15 Q4 ’15 Q1 2016 Non fat dry milk AA butter Block cheddar Whey powder $1.76 2.50 2.08 0.69 1.20 2.01 1.92 0.66 1.04 1.65 1.53 0.56 0.99 1.53 1.49 0.41 1.07 1.51 1.51 0.44 0.23 1.57 1.58 0.45 1.33 1.63 1.65 0.48 Class III milk Class IV milk $22.82 23.42 21.22 18.89 15.65 13.42 15.52 15.09 16.47 16.17 (Dollars per hundredweight) 14.18 12.83 Sources: Rabobank; USDA 14.66 13.42 Capital Press graphic prices from mid-December, with butter and skim milk pow- der both up 20 percent, the bank reported. But the strength of the rally is hard to justify based on market fundamentals, Hunt said. Milk production growth in the big seven export regions has started to slow on largely lower milk prices and aided by a dry spell in New Zealand and heavy over-quota fines in EU in the lead up to the end of the quota year, he said. But U.S. farmers continue to expand milk production, up 2 percent year over year in Janu- ary, with little overall domestic demand growth and a 17 percent year-over-year loss in exports in the last quarter of 2014, he said. Globally, significant decreas- es in dairy imports by China and Russia are leading the first de- mand-driven contraction in in- ternational trade since the 2009 financial crisis. The significant trade contraction in 2013 was from running out of product, he said. “China is long on milk at the moment and slashing imports,” Hunt said. That, in addition to a need to work off accumulated in- ventory from earlier aggres- sive purchasing, has Chinese dairy imports down 50 per- cent to 60 percent, he said. “Russia is not a lot better off,” said Tom Bailey, Rabo- bank dairy analyst. Russia’s ban on EU imports and a 15 percent drop in the value of the ruble had Russian dairy imports down 30 percent year over year in the last quarter of 2014. If those bans remain, it will mean a 40 percent reduction in the country’s dairy imports in the first half of 2015, he said. Other buyers have stepped in to increase imports. Unfortu- nately it’s not enough to com- pletely offset losses to China and Russia, and global import volumes were down 2.5 percent in the fourth quarter, he said. Rebalancing dairy markets in China will take time, and exporters should prepare for a sharp year-over-year decline in China’s imports in the first half of 2015, Hunt said. Producer group: Dairymen must take control By CAROL RYAN DUMAS Capital Press The number of dairy oper- ations in the U.S. has declined from about 650,000 in 1970 to about 45,000 today, according to the USDA. A way to stop that trend is for dairymen to change their mindset, unite and take control of their industry before it’s too late, according to the National Dairy Producers Organization. “The main focus is sus- tainable profitability for dairy farmers so we can preserve” the dairy farmers that are left, said Bob Krucker, a Jerome, Idaho, dairyman and a director of NDPO. If not, the dairy landscape could shrink from 45,000 di- verse dairy operations and a na- tionwide infrastructure to small pockets of large production, he said. Krucker said dairymen need to balance supply with demand instead of producing so much Carol Ryan Dumas/Capital Press Bob Krucker, National Dairy Producers Organization board member, checks e-mail correspondence in his office at his Jerome, Idaho, dairy on Feb. 12. milk that its value falls below cost of production. Dairymen can’t keep in- creasing production 4 percent to 5 percent a year when de- mand increases only 1 percent to 2 percent, he said. That creates a situation where processors or co-ops can pay less for milk because there’s a lot out there. Just sta- bilizing production would im- mediately kick up the price of milk, he said. And that’s absolutely do- able, he added. “Any dairy farmer would accept a 2 percent reduction to be profitable,” he said. “That’s common sense.” Balancing supply with prof- itable demand will work, and dairy farmers have the power to do that, he said. “It’s not rocket science; it’s basic economics,” he said. The problem is a lack of unity and a total loss of control by dairy farmers over the man- agement of their farmer-owned processing co-ops, which con- trol 80 percent of the country’s milk production, he said. The demand for dairy products continues to increase long term, John kilson, Dairy Farmers of America senior vice president and chief fluid milk marketing officer said in an email response to Capital Press questions. However, for several de- cades milk production has also steadily increased — some- times at a rate higher than the increase in demand, he said. “This excess supply places stress and cost on the system. The market, and individual farmers, would benefit from better alignment on a long- term basis of supply and de- mand,” he said. But Krucker contends co-op bureaucracy is keeping dairy farmers poor by encouraging them to overproduce. Milk marketing cooper- atives have various types of membership and marketing agreements, kilson said. DFA markets all of the milk produced by its farmer-owners, which includes balancing their supplies with customer demand by selling the milk for its best economic return, he said. Dairy farmer-owners of co- ops receive the value of their milk marketed to processing customers each month, he said. Also, cooperatives that in- vest member capital in busi- nesses, such as processing plants, may distribute business earnings to farmer-owners through patronage payments, kilson said. Marketing all the milk that co-op members can produce doesn’t mean it’s profitable on the farm, Krucker said. Asia investing in Oceania dairy sector Asian dairy companies flock to Oceania RUSSIA MONGOLIA CHINA INDIA Bay of Bengal South China Sea China leads the way in a recent bid to secure external sources of milk in Australia and JAPAN New Zealand, according to a recent Rabobank report. PHILIPPINES Pacific Ocean Equator PAPUA NEW GUINEA INDONESIA Indian Ocean N Miles 0 600 1,200 Alan Kenaga/Capital Press Coral Sea AUSTRALIA NEW ZEALAND By CAROL RYAN DUMAS Capital Press Asian dairy companies — the majority in China — have been investing in Australia and New Zealand operations to pro- cure milk and other products, according to a new report by Rabobank. Investments in the Australia and New Zealand dairy sec- tors is not a new phenomenon. Most recent capital investments are in the form of strategic part- nerships to help build the sup- ply chain into Asia, Rabobank analysts Hayley Moynihan and Emma Higgins reported. Bilateral trade agreements giving New Zealand and Aus- tralia preferential access to key Asian countries complement Oceania’s other advantages of competitive production costs and geographic proximity, the analysts said. “These magnetic forces mean that Oceania will contin- ue to be a focal point for Asian dairy investment,” they said. As reliable dairy exporters, located on Asia’s doorstep, New Zealand and Australia represent a first port of call to secure exportable product. But Asia’s search for strategic part- nerships will need to contin- ue in other parts of the world, due to fewer opportunities and slowing milk-production growth in Oceania, Rabobank said. The desire to secure sup- plies outside Oceania is also driven by the need to mitigate the risk of relying on supply from New Zealand and Austra- 12-2/#4N lia, the analysts said. The EU and the U.S. have much larger milk pools to draw from and will provide the largest share of export supply growth globally over the me- dium term. Asia’s investments to secure supplies of dairy ingredients are likely to be in- creasingly directed toward the Northern Hemisphere, the an- alysts said. China’s Inner Mongolia Yili Industrial Group recently aligned with Dairy Farmers of America to build a milk powder plant in the U.S. “This deal marks the first time a Chinese company has invested within the borders of the U.S. dairy sector,” the ana- lysts said. There is definitely opportu- nity for U.S. dairy in China and Southeast Asia, said Alan Lev- itt, vice president of communi- cations for U.S. Dairy Export Council. New Zealand is a small country with limited capac- ity to grow milk production and everyone keeps saying milk production there will top out, although it hasn’t yet, he said,adding that Australia suf- fers from drought every couple of years and has no appetite to expand production. Dairy Markets Lee Mielke Cash cheese steady to higher, butter down By LEE MIELKE For the Capital Press Cash block Cheddar cheese closed Friday the 13th at $1.57 per pound, up a penny on the week and 79 1/4-cents below a year ago but is at the highest lev- el since Jan. 13. They were un- changed Monday and Tuesday. The Cheddar barrels finished Friday at $1.5450, up a nickel on the week and 71 3/4-cents be- low a year ago. They were also unchanged Monday but ticked up a penny and a half Tuesday, to $1.56. Seven cars of block traded hands last week and five of barrel. Butter headed south last week, closing at $1.6950 per pound, 5 1/2-cents below the previous week and 18 1/2-cents below that week a year ago. The spot gave up a penny and a half Monday but was unchanged Tuesday. Ten cars traded hands last week. Cash Grade A nonfat dry milk fell below $1 per pound for the first time since Jan. 27, closing Friday at 99 1/4-cents per pound, down 3 1/4-cents on the week, and that after dropping 13 cents the previous week. The powder lost a quar- ter-cent Monday and a half-cent Tuesday, slipping to 98 1/2-cent per pound, lowest spot price since Jan. 23. Ten cars found new homes last week in the spot market. Global auction plunges 8.8 percent Tuesday’s Global Dairy Trade auction reversed six ses- sions of gain as the weighted average for all products plunged 8.8 percent, following a 1.1 per- cent increase on March 3 and 10.1 percent jump on Feb. 17. All products offered were down. The losses were led by ren- net casein, down 15.2 percent, following a 0.7 percent drop last time. Buttermilk powder was next, down 11.6 percent after jumping 6.8 percent last time. khole milk powder was down 9.6 percent, following a 1.0 per- cent loss last time. Butter took a 9.4 percent hit after a 2.5 percent jump last time. Anhydrous milkfat was down 8.4 percent, following a 2.2 percent loss last time. Cheddar cheese was down 7.4 percent af- ter increasing 10.8 percent in the last event, and skim milk pow- der was down 5.5 percent, after gaining 5.9 percent last time. No winning price was published on sweet whey powder. FC Stone reports the aver- age GDT butter price equated to about $1.6126 per pound U.S., down from $1.7744 in the March 3 event. Contrast that to CME butter which closed Tuesday at $1.68 per pound. The GDT Cheddar cheese av- erage was $1.4198 per pound U.S., down from $1.5318. The U.S. block Cheddar CME price closed Tuesday at $1.57. GDT skim milk powder, at $1.2390 per pound U.S., is down from $1.3314, and the whole milk powder average at $1.3280 per pound U.S., is down from $1.4702 in the last event. 12-4/#4 Subscribe to our weekly dairy or livestock email newsletter at CapitalPress.com/newsletters By CAROL RYAN DUMAS March 20, 2015