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Feed Costs Nip At Dairy Margins; Processors Wary Of Government

The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."

USDA's weekly update reports that farm milk production continues along seasonal trends in most areas, with processors noting that fluid demand is mostly level except for intermittent small spikes as customers shop before snow storms.

Dairy farmers are watching milk futures and noting the trend toward lower prices.

"The cost of feed continues to nip at profit margins for dairies using purchased feed and the prospect of lower milk prices may push dairy farmers to reevaluate herd sizes and other possible changes in operations," reported Dairy Market News.

Looking "back to the futures, first half 2013 Class III contracts portended an $18.39 per hundredweight average on Dec. 28, $18.40 on Jan. 4, $18.02 on Jan. 11, $17.98 on Jan. 18, $17.60 Jan. 25, and was trading around $17.63 late morning Feb. 1, with the announced January Class III price.

In dairy politics, dairy processors met in Orlando last week for their 28th annual Dairy Forum. Connie Tipton, president and CEO of the International Dairy Foods Assn., said the dairy industry "stands on the verge of a new era filled with enormous opportunity and unlimited potential." Saying that future success hinges on all stakeholders taking steps together, Tipton called for industry collaboration on renewed efforts to phase out federal milk pricing regulations and new legislation that would change the federal standards of identity for dairy products.

She warned that changes in administration policy are unlikely and told attendees to expect more regulations for the food industry, more rules for school meals, more labeling requirements and possibly restrictions on marketing to children.

Tipton called innovation the industry's "lifeblood" and warned that, for innovation and growth to continue, the industry needs an abundant supply of farm milk. She warned, however, that the combination of volatile dairy feed costs, farm milk prices, the U.S. biofuel policy and a major drought have caused a "quadruple whammy."

"Going forward, one thing is for sure. The conventional thinking that milk will always be there when we want it has to change," she said.

Another area requiring change, according to Tipton, is government regulations that "continue to hinder industry's efforts to innovate and grow." She said, "Federal milk pricing regulations, food standards and other laws, some of which date back to the 1930s, have not kept pace with the times." She proposed "working together as an industry to provide greater product flexibility and innovation and collaborating on ways to remove 'the shackles' of milk pricing regulation."

Dairy Business Update's Dave Natzke said in his Feb. 1 DairyLine report that USDA's Farm Service Agency announced additional details regarding the so-called "start month relief period" for larger dairy producers. He said that those producers, as well as any new dairy farmers who wish to enroll in the MILC, should contact their local FSA office before Feb. 28 to do the appropriate paperwork. FSA also announced that retroactive MILC payments for September 2012 milk marketings, at approximately 59 cents per hundredweight, will be sent to dairy farmers beginning about Feb. 5.

Back on the national scene, "U.S. milk production in 2012 was marked by distinct growth and contraction periods and regional differences," said Daily Dairy Report editor Mary Ledman. Ledman wrote about it in her Jan. 25 issue and reported details on her web site's Daily Dairy Discussion.

She said DDR analysts used national and state income-over-feed calculations to "shed light on the trends seen this past year and what may come in 2013." She pointed to the income-over-feed calculation, based on USDA's milk-feed price ratio, subtracting the per hundredweight value of a feed ration that consists of 51 percent corn, 41 percent alfalfa and 8 percent soybeans from the All Milk Price. Based on USDA's Agricultural Prices, which reflect prices received by farmers for corn, soybeans and alfalfa, second quarter 2012 was the lowest income-over-feed period of the year at $4.47 per hundredweight, followed by third quarter at $5.44.

Correspondingly, the greatest contraction in the U.S. dairy herd occurred between March and September, when cow numbers fell 71,000. In retrospect, fourth quarter 2012 provided the most favorable income-over-feed level at $8.90 per hundredweight, with each of the surveyed states also having their best showing.

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