Wednesday, March 31, 2010

Membrane Bubble

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Well, here's a picture of the bubble, actually four bubbles, trouble in Indiana filled with methane from the manure lagoon. Between the house and the bubbles is a semi-truck for scale.

Word has it, the bubbles will be deflated tomorrow.

Numbers Indicate Increase in Consumption

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The Bureau of Economic Analysis (BEA) publishes Personal Consumption Expenditures (PCE)monthly. BEA has two lines for dairy - fluid and processed - which I have combined.

As can be seen form the graphs above, consumers spent a lot more after the initial shock in 2008.

The Bureau of Labor Statistics (BLS) publishes the Consumer Price Index (CPI) which indicates prices for dairy dairy products.

Put the information together and clearly, a lot more dairy product has been sold.

Tuesday, March 30, 2010

Milk Feed

USDA's "Agricultural Price" report is out today and available at:

On page 33 is the milk feed ratio number, which has dropped (not good) from February.

In foot note 4 USDA states, "The price of commercial prepared dairy feed is based on current U.S. prices received for corn, soybeans, and alfalfa. The modeled feed uses
51 percent corn, 8 percent soybeans, and 41 percent alfalfa."

USDA continues to avoid pricing farm milk based on costs. So, how is this number conjured up? This is really not a real number. The number is "weighted." So this means, probably corn and soy, fob Iowa and Alfalfa fob Nebraska, maybe.

So, as trucking costs go up, this number has no way of tracking reality.

Monday, March 29, 2010

Co-ops Worried

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As seen above, Land O Lakes is worried about the Capper Volstead "protection."

In Batavia today, the co-ops were well represented and voicing their concerns about the DOJ investigations. See:

Batavia Hearing

More or less minute by minute.

New Food Web Site

There is a new food web site which starts with dairy issues:

Take a look. We need more urban/rural connections.

Sunday, March 28, 2010

Things Go Wrong

The de facto, unwritten, dairy policy has been to push for big as the wave of the future. Here is the story of several things going wrong with that picture simultaneously. The question is, are there any winners?


WINCHESTER, Ind.—Like many of his neighbors, farmer Tony Goltstein has to deal with the aftermath of the dairy bubble.

But besides his mounting financial troubles, Mr. Goltstein also must contend with bubbles the size of small houses that have sprouted from the pool of manure at his Union Go Dairy Farm. Some are 20 feet tall, inflated with the gas released by 21 million gallons of decomposing cow manure.

But he has a plan. It requires a gas mask, a small boat and a Swiss Army knife.

The saga of Mr. Goltstein’s bubbles, which are big enough to be seen in satellite photos, began about seven years ago and traces the recent boom and bust of U.S. dairy farmers.

Mr. Goltstein, 43 years old, had moved his wife and their three children from the Netherlands to Winchester, population 4,600, about 90 miles east of Indianapolis. They planned to build a dairy farm with 1,650 cows on 180 acres.

He had installed a black plastic liner to keep the manure from seeping into the ground during the flush days of the dairy business, when prices and demand were growing.

The plastic liner has since detached from the floor of the stinky, open-air pool, and Mr. Goltstein says he can’t afford to repair the liner properly. But he says he’s game to pop the bubbles before the manure pool overflows and causes an even bigger stink.

His neighbors aren’t happy with the plan.

“If that thing back there blows, God help us all for miles,” said Allen Hutchison, whose corn and soybean farm is next door. He and other neighbors worry that puncturing the bubbles could cause an explosion of manure and toxic gases.

Not to worry, said Mr. Goltstein as he stood at the edge of the manure pit, puffing on a cigarette and gazing at the bubbles glistening in the sun. “I have no fear popping them.”

When the neighboring Hutchison family first learned the Goltsteins were planning a dairy farm right next door, they worried the operation’s manure pool would foul the air or groundwater. Mr. Hutchison petitioned state environmental officials to deny the Goltsteins an operating permit.

It’s normal in farm country to see vast brown pools filled with manure slurry from dairy cows or hogs. These lagoons, as they’re commonly called, are supposed to safely store animal waste until the manure is sprayed on fields as fertilizer. Federal and state laws govern how the pools are maintained.

Some struggling farmers in the recession have neglected lagoon maintenance while others have abandoned their farms altogether, leaving states to clean up the mess.

Barbara Sha Cox, who has a farm six miles from the Goltstein farm, recently wrote to Indiana Gov. Mitch Daniels, asking him to support rules that would require farmers to put up money so the state wouldn’t be liable if a lagoon spilled manure or was abandoned. A spokeswoman for Mr. Daniels said, “on the rare occasions that there has been a need for a cleanup, the state has the ability and does seek cost recovery and that approach is working.”

The Goltsteins agreed to install a plastic liner and received their permit. These liners often are used in landfills, but Mr. Goltstein said his was among the first to be used on an Indiana farm. It cost $150,000.

The first small bubbles began poking up in the fall of 2006. “I thought, ‘This doesn’t look right,’ ” he said.

In July 2008, about the time milk prices plummeted amid weak global demand, one of the bubbles ripped open and revealed solid matter inside. A state environmental inspector visited, and the state fined Mr. Goltstein $2,125 for failing to properly maintain the lagoon.

The Goltsteins filed for Chapter 11 bankruptcy protection last month; their bank began foreclosure proceedings. Mr. Goltstein said repairing or replacing the lagoon liner could cost him more than $200,000—money, he said, he doesn’t have.

Indiana’s Department of Environmental Management said there was no sign that manure from Mr. Goltstein’s lagoon was contaminating the local groundwater.

But Mr. Goltstein said he loses sleep worrying that his lagoon will overflow. Warmer weather appears to have made the bubbles grow, he said, and the pool has been inching higher. To prevent a spill, the Goltsteins have been paying to have manure pumped into tanker trucks and dumped at another farm.

This month, Mr. Goltstein asked state regulators to let him pop the bubbles. He said he and his 19-year-old son would slice them open with a knife from a paddleboat.

Bruce Palin, assistant commissioner for the office of land quality at the state environmental agency, said officials were considering the idea. But, he added, “not knowing how much volume of gas is there and how much pressure is on it, we’re concerned with just cutting a hole.”

Last year, a hog farmer in Hayfield, Minn., was launched 40 feet into the air in an explosion caused by methane gas from a manure pit on his farm. He sustained burns and singed hair.

Mr. Goltstein’s attorney, Glenn D. Bowman, acknowledged that the potential existed for an explosion: “We’re aware of that sort of common physics issue,” he said.

If and when the bubbles are deflated, state officials said, they will be there to keep watch.

That’s little consolation to many of Mr. Goltstein’s neighbors.

“If they don’t do it right...” Mr. Hutchison said, shaking his head as his voice trailed off.

Mr. Palin, the state official, said, “Obviously you don’t want to be smoking a cigarette when you open this thing up.”

Saturday, March 27, 2010

Costs of Production

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Whenever the idea of dairy farmers receiving costs of production, the leading chorus of experts say that can't be done. Or maybe the argument hinges on what do you mean costs of production.

Dairy farmers, as a whole did, in fact, receive costs of production through 1987.

The problem today, I think, is that costs of production, like the snake in the well, has been "drunk up."

However, the trend cannot continue. At some point the problem must be faced and dealt with.

Friday, March 26, 2010

Dairy Industry Advisory Committee Meeting Notice

Today's (March 26, 2010 Federal Register has a notice about the Dairy Industry Advisory Meeting:

SUMMARY: As required by the Federal Advisory Committee Act, as amended,the Farm Service Agency (FSA)announces a public meeting of the newly established Dairy Industry Advisory Committee (Dairy Committee)to review the current state of the dairy
industry, discuss current dairy programs of the U.S. Department of Agriculture
(USDA) and Federal dairy policy, hear proposals from the dairy industry, and
hear public comments. The Dairy Committee is responsible for advising the Secretary on these issues.
DATES: Public meeting: April 13 through
April 15, 2010.

(more at link)

This is a link to submit a comment:

Thursday, March 25, 2010

What Is It Powder?

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Leave it to the Chicago Mercantile Exchange (CME)to promote a "lets pretend" attitude. Maybe people will think it is more or less a market or close enough.

CME's latest "money maker" is what they call Skim Milk Powder (SMP). Here is what they say, "The product is made using Ultra High Filtration with all proteins and minerals filtered out and then blended back in to meet a set protein standard of 34 percent." What? You can have Ultra High Temperature (UHT)pasteurized milk. Or you can Ultra Filtered (UF)milk but, I don't think you can have this silly combination.

SMP is really NFDM (which is made to a USDA moisture standard) adjusted, usually by adding lactose, to bring the product to a (codex)protein standard.

In any event, welcome to the casino.

Wednesday, March 24, 2010

Shoe Is On The Other Foot

New Zealand has been upset about America's reluctance to go along with a new trade treaty which might have negative affects on American dairy farmers.

So, a reader sent this link:

The bid by a Chinese-owned Hong Kong-listed company to invest $NZ1.5 billion in New Zealand's dairy industry has triggered a call by farmers for the government to put together a coherent strategy on food production and investment in that sector.

"New Zealand has not got a strategy for food production and agriculture," Federated Farmers' dairy section chairman Lachlan McKenzie said.

"We haven't got a clear vision of what we're trying to achieve ... the Government needs to start a serious discussion on a food production policy for New Zealand.

"Maybe time has come for us to look at a Ministry of Food Production."

Natural Dairy NZ Holdings Ltd, which changed its name from China Jin Hui Mining Corp in December, told the Hong Kong Stock Exchange on Tuesday that on February 11 it signed a deal with two parties to acquire assets including farms, livestock and milkpowder production plants, with the deal to be settled partly in cash and partly through an issue of convertible bonds.

The company is registered in the Cayman Islands, and its share price jumped nearly sixfold in the year to February 11, and trading in the stock has been suspended since then.

The proposed purchase is reported to include 30 farms, including the Crafar family's 22 dairy farms valued at $206.9 million when four Reporoa-based companies were put into receivership last October. Other farms involved have been owned by Allan Crafar's son, Robert.

Receiver Michael Stiassny, of KordaMentha, said on Wednesday that talks to sell Crafar assets were continuing.

Green Party co-leader Russel Norman said the Natural Dairy announcement showed the nation's overseas investment laws were weak, and the Overseas Investment Office had in the past rubber-stamped applications to buy farmland.

"We actually need much stronger rules around overseas ownership of productive New Zealand assets, otherwise we could lose a lot of our productive land to foreign governments and foreign companies," he said. It was important New Zealand held on to what it had.

"The Chinese government and other governments are very concerned about food security, and so there is an increasing problem of foreign governments buying productive land in other countries."

McKenzie said some of the difference between the $200m value of the Crafar farms and the total proposed deal could be accounted for if the company had contracted to have a new $500m milkpowder plant built - but that still left a lot of money to be spent on other farms and livestock.

"We've got a free trade agreement with China, and this shows that the gate swing both ways," he said.

"The Chinese want a secure food supply, and they're coming into New Zealand to do that, by the look of it.

"The ball is very much in the Government's court - a purchase of New Zealand farms will be tested in the Overseas Investment Office.

"This would be the largest investment since Canadians tried to buy the Auckland Airport - and they were stymied by the previous government".

The 2008 block on the sale of shares in Auckland International Airport to Canada's state pension fund provoked a debate over what was a "strategic asset" and what was "sensitive", even though it also involved assets which could not be physically removed from the country.

Tuesday, March 23, 2010

No World Surplus

There appears to be no great supply of milk in the world. Europe is mostly down and Oceania has nothing extra. Here's the latest from Dairy Market News:


MADISON, WI. March 18, 2010 (REPORT 11)


The milk production season in the Oceania region
continues to wind down. In New Zealand, milk volumes are
trailing projections, but milk handlers continue to project an
overall milk volume increase of 2% over last season at seasons
end. During the down side of the production season, some
areas were quite limited on moisture which negatively impacted
pasture growth and milk production. In recent days, some
moisture has fallen which will help pasture growth, but will
have minimal impact on milk output recovery. Milk handlers
state that the downward trend in milk output may level
somewhat. This is the time of the season when milk volumes
are shifted from one location to another if logistically and
financially feasible. In some instances, this is not possible
and plants continue to operate on reduced schedules. Casein
production has basically ceased for the season, although one
plant is still in operation due to logistic constraints. In
Australia, milk output is on the down side, although the
decline will hopefully not be as sharp as in some years and
some of the seasonal declines thus far can be recovered. Milk
producers and handlers are stating that rainfall during the
second half of the production season has been more favorable
than in recent years, thus pasture growth is being maintained
better by rainfall versus low irrigation water levels. Many
traders and handlers are stating that buyer interest appears
to be improving. In many instances, Oceania suppliers have
minimal, if any, product available for this buyer interest.
Many do indicate that their projected volume needs will not be
attained this season, but also state that they are comfortable
with their supply/demand situation at this time.

Monday, March 22, 2010

Melimine Standard

Fonterra was a "partner" in the Chinese dairy Sanlu. Sanlu is now defunct because of melimine contamination. Now NZ wants to set a standard for melimine contamination - nice.


Here's the bottom line:

In February 2009, tests for Fonterra showed melamine contamination in imported raw ferric pyrophosphate compound used in making milkpowder. NZFSA waited until it had the results of the testing commissioned by Fonterra before alerting the public, when it said the levels were too low to cause health problems.

Dr Reeve said today testing methods are now so sophisticated, melamine can be detected at tiny levels where contamination was not deliberate.

"A zero limit for the compound would not be practical and could be used as a technical barrier to trade," he said in a statement.

Sunday, March 21, 2010

Oil Prices

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Adding to everyone's problems is the rising costs of crude. The above graph shows daily crude oil prices since January 2009. Last planting season was tough on most farms. This spring looks to be worse.

Obviously, the net result is accumulating toward chaos with no leadership in sight.

Saturday, March 20, 2010

Pulling Back Curtains

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Here is some important information:

TRYING TO MAKE SENSE OF WHAT’S HAPPENING ON THE CME (AGAIN): (By J. Kaczor) In addition to its many other services and programs, the Chicago Mercantile Exchange (CME) provides a daily spot market for cheddar cheese, butter, and nonfat dry milk for any person or company who wishes to buy or sell a carload of these products on short notice. The prices that result from these trades (or offers or bids) are used directly or indirectly in formulas that determine levels of milk prices throughout the country. (Basically, $.01 per lb of cheese equals $.10 per cwt of Federal Order Class III milk (or Class 4b for California.)) The CME also offers a market for monthly Class III milk futures contracts which reflect a collective opinion on where Federal Order Class III milk prices could be over the next twenty-four months. Futures contracts are mostly used for hedging purposes, and are not used in a direct way to set milk prices. A carload of cheese is specified to be 40 to 44 thousand lbs; two Class III futures contracts represent 400,000 lbs of milk, enough to produce 40,000 lbs of cheese. In the sense that changes in the price of cheese affects opinions of future milk prices, the two markets are related.

In 2007, the U.S. Government Accountability Office (GAO) was asked by a number of U.S. Senators to look into complaints about possible manipulation of the CME spot cheese prices. The main reason for those complaints was the fact that cheese prices on the CME spot market are used by almost all participants in the cheese industry to determine their selling prices, but is a “thin” market, susceptible to manipulation. Typically, less than one percent of the total amount of cheese produced in the U.S. is traded on the CME, and only a small number of traders participate. The GAO completed its study and concluded that the oversight provided by CME and the Commodity Futures Trading Commission (CFTC) had improved to the point where it was believed they were capable of detecting and deterring manipulation. The CFTC is authorized by sections 6(c) and 6(d) of the Commodity Exchange Act to investigate actual or attempted price manipulation and to prosecute those who are found to have done so.

Because of the relationship between the CME cash market for cheese and the Class III futures market (“The price paid for a Class III milk futures contract is based on the monthly Class III milk price released by USDA, which is heavily influenced by the price of cheese at the CME spot cheese market.” GAO Report, page 14), CME’s market surveillance analysts look for activity on the cash market that may not reflect true market conditions and which would benefit a trader’s futures contracts. The example given by GAO was “trading activity on the CME spot cheese market that might directly benefit a trader’s futures positions, such as selling cheese in order to lower prices and benefit a short position in Class III milk futures.” The possibility of that happening recently came to mind, based upon a distinctive sequence of activity reported for a single trader on the CME over a period of twenty-one weeks.

The period referred to runs from late October 2009 through the present. (Trading data from earlier weeks was not available for this article.) The sequence of trading for this company was from that of a heavy buyer to a heavy seller. The chart on the right shows the daily prices for blocks and barrels on the CME from September 1, 2009, through March 18, 2010, and the daily trading activity reported for a Division of Davisco International, Inc. Davisco operates three cheese manufacturing plants, the largest of which is located in Jerome, Idaho. Together, these three plants produce an estimated 750,000 lbs of cheddar cheese daily.

Block cheddar prices had risen from $1.0875 per lb on July 14, 2009, to $1.27 per lb on September 4th where it leveled out for a time, and then proceeded to rise fairly steadily to a peak of $1.72 per lb on December 2nd, and then leveled out at $1.70 per lb for the next three weeks. Following is a recap of trading activity reported for Davisco from October 29th through December 22nd.

• No trades were reported in October for Davisco until the 29th, at which time 37 buys or bids were reported on their behalf over twelve trading days, which represented 44% of all such activity during that period. The block price rose $.07 per lb during that period.

• Following a two week period of inactivity, 70 buys or bids were reported for Davisco over seventeen trading days, which represented 61% of all such activity during that period. During this period, the block price reached a high of $1.72 and held no lower than $1.70 per lb.

The block price began to fall on December 23rd. No trading activity was reported for Davisco from December 23rd through January 5th. Following is a recap of trading activity reported on their behalf from January 6th to March 18th:

• Davisco became a seller, selling cheese or offering prices which lowered the daily price at the end of the day’s trading. A total of 39 sales were reported for Davisco over sixteen trading days, which represented 48% of all such activity during that period. The block price initially fell, but ultimately rose by $.075 per lb during that period.

• Following a two week period of inactivity, a total of 165 sales and 9 offers to sell were reported for Davisco over twenty-three trading days, representing 93% of all such activity during that period. The block price fell by $.2475 during this period.

Those 165 carloads sold during this 31-day period totaled 6.6 million lbs of cheddar cheese. According to information provided on Davisco’s website, that amounts to about one quarter of all the cheddar believed to have been produced in their three plants during that time. That’s consistent with a report that buyers of cheese on the CME are saying the cheese they’ve gotten last week is “quite fresh, with most of the ages ranging from 5 to 10 days old.” Last week Davisco was reported to have sold 56 of the 60 carloads of cheddar that were traded.

A broker commented on Wednesday’s trading: “Even with increased interest from eight different traders on the CME spot market yesterday, a lone seller was able to keep prices unchanged with 5 blocks and 11 barrels exchanging hands. Class III milk futures responded in kind by removing additional premium from the market…” So, what’s going on? It looks like Davisco’s buys and bids in December provided significant support for cheese prices at that time, and Davisco’s sales and offers to sell since the middle of February have had significant affect on moving cheese prices lower.

So what? Some who have commented on recent CME cheese price movements point out a number of overreactions for block prices in the past fifteen months: a low of $1.04 per lb in January 2009, a sharp rise to $1.33 a month later, a drop to $1.0875 in July, the rise to $1.72 in December, and finally back to about where the prices were last September. Prices have been volatile. They result from bids and offers made in an open exchange monitored by interested participants. As mentioned earlier, the job of determining if trades on the CME reflect true market conditions (supply, demand, extraordinary conditions, expectations, etc.) rests with CME market surveillance analysts. According to what GAO found, that determination includes possible direct benefit to traders’ futures positions, which could imply manipulation. GAO explains manipulation this way: “Generally, price manipulation is any planned operation, transaction, or practice that intends to and causes or maintains an artificial price – that is, a price that is higher or lower than it would have been if it had reflected the forces of supply and demand.”

The relationship between CME spot cheese prices and Class III futures prices is clear but not precise. When cheese prices rise, prices for Class III futures rise; when cheese prices fall, prices for Class III futures fall. The chart of Futures Contracts (on the right) shows the daily changes in the values of the March, April, and May Class III milk futures contracts on the CME from September 2009 through this March. As you can see when comparing this chart to the chart earlier in the article, as the cash price for block and barrel cheese on the CME trended up and down, the value of futures contracts throughout 2010 also trended up and down.

The vast majority of futures contracts are purchased by hedgers who hold them until the final price for the month is determined, at which time they close their positions (long or short) with offsetting sales or purchases. Another very important segment of futures activity is that of speculators who provide essential market liquidity by accepting the risk of losses by selling and buying contracts to and from anyone for any month at whatever price then prevails.

The rise and fall of cheese prices along with the rise and fall of futures prices shows the possible amount of risk and reward for speculation. Has the example given by GAO of what CME and CFTC analysts look for as evidence of price manipulation occurred anytime in the past six months: selling cheese in order to lower prices and benefit a short position in Class III milk futures – or the reverse, buying cheese in order to raise prices and benefit a long position in Class III milk futures? That’s a question worth considering.

Friday, March 19, 2010

Class I Floor

Hard not to be cynical - does anyone remember the Northeast Compact? The same people who fought the Compact will be opposed to this. Bob wellington from Agri-Mark is throwing some numbers together. Well, good luck and by the way notice that NY Ag and Markets cannot even afford a spell checker.

Department of Agriculture & Markets News
Friday, March 05, 2010
Contact: Jessica Ziehm
De-Coupling Fluid Milk from Manufactured Products Could Help Strengthen, Stabilize Prices for New Yo

New York State Agriculture Commissioner Patrick Hooker recently wrote to USDA Secretary Thomas Vilsack encouraging him to consider the benefits of establishing a national floor for the Class I prices. By doing so, Class I prices for fluid milk would ultimately be de-coupled from manufactured classes of milk, which are typically lower and drive down the price farmers receive for their product as a whole.

“I am writing to add our voice to those you heard in New England in saying our current system is outdated,” the Commissioner said. “In fact, the current system devalues fresh, locally produced milk by directly connecting its price to the value of manufactured products, which primarily compete in a national and international market.”

If implemented immediately and at the suggested level of $18.50, establishing a Class I floor could help ensure farmers a reasonable and more stable milk price that more fairly reflects the higher costs of production and distribution of fluid milk. In New York, that could mean an extra $15.5 million per month for dairy farmers and the potential of $465 million annually for the upstate economy when one includes the economic multiplier effect of milk production in New York State.

The Commissioner added, “While it may be challenging to sift through the many options and diverse opinions from the dairy industry, the fact remains that doing nothing is in fact a choice – and one that will have potentially disastrous consequences on the nation’s dairy farmers. I ask you to consider establishing a floor for the price of fluid milk immediately in order to ensure a fresh local food supply for our consumers at home, and appropriately compensate those farmers who produce it.”

Class I fluid milk is the most perishable of all dairy products and one that is usually consumed within a couple hundred miles of where it was produced and within several days of when it was processed. As an essential staple for most households, it is one of the least price sensitive dairy products on the market and offers the greatest potential for a stable pricing base for milk.

New York belongs to a region that produces more than 20 percent of the nation’s total milk supply. The northeast, consisting of New England, New York, New Jersey and Pennsylvania, also has the highest Class I utilization by volume and, outside of the southeast region of the country, the highest rate of Class I utilization. This means northeast farmers are subject to greater production, balancing and transportation costs to fulfill urban fluid markets than farmers in other parts of the country whose milk primarily goes directly to manufacturing plants.

The dairy price collapse of 2009 was one of the worst in decades, resulting in unprecedented losses for producers. In New York, the average blend price for the year was $12.26 per hundredweight, down from $17.87 in 2008, and well below the cost of production. As a result, many dairy farmers incurred losses of around $5.50 per hundredweight which translates into about $100 per cow per month. For an average size dairy farm in New York, approximately 100 cows, the monthly loss was $10,000 per month.

Based on our analysis for the January – September 2009 period, flooring the Class I mover at $18.50 per hundredweight, would have resulted in a blend price of about $14.91. This would have increased the price paid to producers $3.34 per hundredweight during this period. While not enough to break even, it would have dramatically lessened the impact of the overall milk price decline and consumers would have avoided price fluctuations experienced at the marketplace.

The economic impact of New York’s dairy industry is over $10 billion in New York State, and $50 billion regionally. New York has 6,200 dairy farmers with an average herd size of about 100 cows. Studies have shown that one dairy cow generates around $15,000 in economic activity that is typically spent locally benefiting feed suppliers, equipment dealers, and small businesses in upstate, rural communities.

Thursday, March 18, 2010

Free Trade Questioned

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Hopefully the above letter will carry some weight. Any and all of those who signed should be supported.

Wednesday, March 17, 2010

Lobbying for 2009

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After poor dairy farm milk prices for longer than anyone could imagine, most people might wonder why nothing much happened in DC. Money talks in DC. Too many with dollars think everything is just fine - the system is working just fine.

However, this is not just an attack on dairy farm income, this is essentially an attack on what we believe.

Cow Prices Falling - Again

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Cow prices falling again and that should surprise no one. New Holland is one of the largest sale barns for replacements. While the price might be falling, so too, is the quantity.

Tuesday, March 16, 2010

Letter to Co-op

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You can try this in your own home. Write a similar letter(s). If you belong to another co-op - write them.

Kraft Lobby Effort

The Associated Press March 15, 2010, 3:00PM ET
Kraft Foods spent $1M lobbying government in 4Q


Kraft Foods Inc. spent $1 million in the fourth quarter to lobby on food safety, nutrition standards and other business matters, according to a recent disclosure report.

The maker of Oreo cookies and Oscar Mayer hot dogs also lobbied on tax reform, trade, advertising, transportation and other issues in the October-December period.

Besides Congress, Kraft, based in Northfield, Ill., lobbied the Food and Drug Administration, Departments of Agriculture and Health and Human Services and the Environmental Protection Agency, according to the report filed Jan. 20 with the House clerk's office.

Abigail Blunt, wife of Rep. Roy Blunt, R-Mo., is among those registered to lobby for Kraft, though she does not lobby the House.

Monday, March 15, 2010

Dean Lobby Effort

The Associated Press March 15, 2010, 3:42PM ET
Dean Foods spent $170,000 lobbying in 4Q

By The Associated Press
Story Tools

Dean Foods Co. spent $170,000 in the fourth quarter to lobby the federal government, according to a recent disclosure report.

The dairy producer lobbied on labor, transportation, import tariffs on milk and food-safety issues in the October-December period, according to the report filed Jan. 26 with the House clerk's office.

In addition to Congress, the company, based in Dallas, lobbied the U.S. Department of Agriculture.

Sunday, March 14, 2010

Money Makers

In the latest issue:

Trade Talks

For a bit of history on tariffs:

Now, "we" throw in words like "free" and "partnership." Maybe we could trade health care systems with the Kiwis and if they like ours and we like theirs we could talk further.

Trade talks that could pave the way to a trade deal with the United States will begin in Australia on Monday.

New Zealand will open trade talks in Melbourne for a Trans-Pacific Partnership (TPP) with the United States, Brunei, Chile, and Singapore.

The TPP would build on the previously negotiated P4 trade agreement between New Zealand, Brunei, Chile, and Singapore with the first round of talks to expand the agreement with the inclusion of the US, Australia, Peru and Vietnam.

The first round of negotiations to expand the TPP to was to take place a year ago, but the US postponed the first set of talks at the last minute, in the wake of the Obama inauguration.

Now the US is ready to start five days of talks in Melbourne next week.

Prime Minister John Key has described the TPP as "our most important trade negotiation, working towards a free-trade agreement with the United States".

The government has already appointed former prime minister and World Trade Organisation (WTO) boss Mike Moore as ambassador to Washington, with instructions that a US free trade deal is a priority.

Free access to the US market has long been a holy grail for New Zealand exporters of meat and milk, but they have already run into warning shots from their rivals in the US, concerned about a potential surge of NZ produce onto their domestic market.

US dairy farmers are already pleading for protection from Fonterra.

The US uses tariffs and quotas to keep out foreign dairy products - NZ has a quota of only 151 tonnes of butter a year - but Fonterra has built a profitable trade in milkpowders, including milk protein concentrates which sell for high prices.

US dairy farmers are just beginning to recover from nearly two years of severe losses and commodity-price swings, with the help of taxpayer-funded subsidies last year.

US farmers fear Fonterra's cooperative structure and control of about 88 percent of New Zealand's milkflows would help it undercut them on price.

Saturday, March 13, 2010

World Market?

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In the U.S. dairy farm assets have taken a tumble because of falling dairy cow prices. As can be seen in the above graph, we may live in a global economy but, U.S. farms seem to have taken a more severe hit financially.

Friday, March 12, 2010

Yogurt from China

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I recently posted Senator Gillibrand's effort to promote a Country of Origin Labeling (COOL) for dairy, which is presently exempt from COOL. Turns out Senator Franken introduced the bill (S1783)last fall, Gillibrand is a cosponsor and the bill will likely wither and die in the Senate Ag committee.

However, let me draw your attention to the fact that we have over the years imported yogurt from China, as shown in the table above.

Yogurt must meet certain standards:

There is no USDA certified dairy plant in China - all of the above yogurt is illegal.

While it is too soon to know, for certain, the outcome of the dairy COOL bill. The laws we already have on the books are being ignored.

Thursday, March 11, 2010

Another WASDE

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Yesterday another World Agricultural Supply Demand Estimate (WASDE)was released:

Of particular interest are the numbers on pages 33 & 34. Page 33 shows higher - not lower - commercial disappearances in 2009 than in 2008.

Page 34 show the all milk price for 2009 of $12.81 per hundredweight. The projected price for 2010 is $15.55 - 16.15 per hundredweight. Taking some numbers from a reliable source, covering mostly large farms, shows a loss in 2009 of $4.05 per hundredweight. Add that number to $12.81 and you have a minimum price of $16.86.

Some farms will need more and some less but, $15.55 for 2010, just wont make it.

Wednesday, March 10, 2010


(click on Image to Enlarge)

The GAO has recently released a report titled "FDA Should Strengthen Its Oversight of Food Ingredients Determined to Be Generally Recognized
as Safe (GRAS)." The report is available at:

Of particular interest is the list on the above page which clearly indicates, in the lead position, MPCs are not GRAS and should not be in food.

Tuesday, March 9, 2010


Cheese prices moved down again today on the CME. Jerome Cheese and Kraft Foods where the sellers.

Dairy pundits have had to revise several times where the supposed the floor for cheese pricing would be found. However, the aspect to watch is probably the volume of futures. Would it be possible for a large company to drive down the cash market and then take positions on the futures market which will then cover their needs for 2010? I think so.

On the other hand butter is rising, probably in anticipation of a higher selling price to build market needs for the Easter season. Butter then may moved down when the seasons needs are sold.

In the meantime just imagine that you are a bank. Just when you thought farm milk prices were going to rise they start to fall again. Will the banks see the shenanigans on the CME as a signal to cut their losses?

Monday, March 8, 2010

Retail and Farm Milk Price

There is an interesting publication by NY's Comptroller:

Data which shows something of the problems facing both dairy farmers and dairy communities. The data generally applies to any region of the country.

I am however disturbed by:

There have been claims made that supermarket
prices were not coming down as fast as the price
to farmers, leading to accusations of price fixing.
However, the most recent data appear to show
average retail prices dropping fairly symmetrically
with the price paid to farmers.

The average consumer price index for fluid milk in the U.S. from January 09 through January 2010 was 183.67. The corresponding number for farm milk price is 97.75. The indexes are based upon the period 1982-84 = 100. So those numbers mean that the CPI has nearly doubled - in fact in 2008 it had doubled - from the base time, while dairy farm prices are less than the base period.

Those p[utting together the data probably were well aware of the misleading aspect of their data or the would have had the retail price and the farm price begin at the same time.

Sunday, March 7, 2010

Farm Share of the Jug

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I have been looking at some numbers for fluid milk for the next issue.

The above graph indicates something, the trend, which could not have occurred by chance.

Saturday, March 6, 2010

Revisit of Parity

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A while back, I posted a graph which showed milk production was unaffected by the end of parity. The USDA Economic Research Service (ERS) publishes data on food availability. The above graph shows the food availability for dairy annually after accounting for processing and storage losses in the time period in which parity was ended.

Most experts try to keep your eyes focused on the fact of government purchases of dairy products. I maintain those purchases were for the sole purposes of driving down input costs to processors.

From 1982,at:

Last December it seemed a safe enough observation that the dairy lobby was the biggest loser when the Agriculture and Food Act of 1981 was approved by two votes in the House after earlier passing the Senate by the far more comfortable margin of 65-31.[1]

It is not uncommon, however, for a legislative victory to dissolve before the victor has a chance to savor it. The Reagan administration discovered this anew in May 1982 when it admitted that despite its successful efforts in the 1981 Farm Bill to keep dairy price support levels from rising, the continuing overproduction of dairy products for 1982 was expected to cost the government a record high $1.94 billion. Or as Agriculture Secretary John Block put it in his press conference in May, American taxpayers were being charged at the rate of $250,000 an hour to pay for surplus dairy products which American consumers were unwilling to purchase voluntarily.

Naturally, the Cato Institute and their ilk continue, to this day, to keep us informed about the greed of those who actually work and produce something in this country. Cato claims their goal is, "to achieve greater involvement of the intelligent, lay public in questions of (public) policy and the proper role of government."

So, here we are today with, if we can follow Cato's logic, the government's role is to do nothing while dairy farmers bleed.

Friday, March 5, 2010

California NFDM

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Looking over time at the relationship of volume and price for California's NFDM survey, there is none. The correlation in the above graph is -0.072. One (1) would be a perfect correlation and zero (0)no correlation.

There is a lot of NFDM in the California survey, which sets prices for California dairy farmers. California uses the CME prices for everything else but, not for NFDM. One might say, there is virtually no NFDM actually traded at the CME, although the price moves up and down. The total absence of any semblance of a market for NFDM at the CME would be obvious. There have been several years in a row where no NFDM is traded at the CME.

However, this is not to say the CME NFDM and the California NFDM have no relationship. The correlation between California NFDM and the CME NFDM price since the beginning of 2008 is 0.9603 - a near perfect correlation.

The real shame here is that governments, both state and federal go along. As President Wilson said, "If monopoly persists, monopoly will always sit at the helm of government. I do not expect monopoly to restrain itself. If there are men in this country big enough to own the government of the United States, they are going to own it." And there is your problem.


As a commenter pointed out, Kroger does indeed process cheese. I had asked several people and also checked their site:

At the very top there is a list of dairies. At the very bottom is "Grocery Products", which does cover cheese. however, there is no indication of the exact plants which the writer mentioned.

If you go to:

You will see that Kroger is complaining about profits:

We calculate First-In, First-Out (“FIFO”) Gross Margin as sales minus merchandise costs, including advertising, warehousing and transportation, but excluding the Last-In, First-Out (“LIFO”) charge. Merchandise costs exclude depreciation and rent expense. FIFO gross margin is an important measure used by management to evaluate merchandising and operational effectiveness.

Our FIFO gross margin rate decreased 79 basis points to 22.71% for the third quarter of 2009 from 23.50% for the third quarter of 2008. Retail fuel sales lower our FIFO gross margin rate due to the very low FIFO gross margin on retail fuel sales as compared to non-fuel sales. Excluding the effect of retail fuel operations, our FIFO gross margin rate decreased 88 basis points for the third quarter of 2009 compared to the third quarter of 2008 due to higher than anticipated investments in our Customer 1st strategy, heightened competitive activity and produce, meat, and dairy deflation, slightly offset by improvements in advertising and warehousing and transportation expenses, as a percent of sales.

Our FIFO gross margin rate increased 45 basis points to 23.48% for the first three quarters of 2009 from 23.03% for the first three quarters of 2008. Excluding the effect of retail fuel operations, our FIFO gross margin rate decreased 42 basis points for the first three quarters of 2009 compared to the first three quarters of 2008, due to higher than anticipated investments in our Customer 1st strategy, heightened competitive activity and deflation, partially offset by improvements in shrink, advertising, warehousing and transportation expenses, as a percent of sales.

There is no doubt that Kroger is a participant in driving down farm milk prices.

Thursday, March 4, 2010

Who done it?

Only recently, pundits were saying the price of cheese would not go below $1.50. Today,blocks slipped further (down 1.5 cents) and barrels slipped even more ( down 3.25 cents) on the Chicago Mercantile Exchange (CME).

For those who are wondering, the main seller has been the same as last year - Jerome Cheese. Kraft has become quite active as a seller of barrels.

There are stories circulating as to why Kraft is dumping cheese. I find them unconvincing. No one goes to the CME to buy and sell dairy products, there are plenty of brokers who can take care of that. Players go to the CME to set price - which is going down.

Interestingly, Kroger (supermarkets) has been buying barrel cheese. While Kroger has processing facilities, they do not include cheese processing. In Kroger's last SEC filing, Kroger complains about lack of profitability and specifically mentions, dairy deflation hurting profits. That is, retail prices had been falling in the third quarter of 2009. Who knows what Kroger is doing buying barrel cheese on the CME, but, it is obvious from the positions they are taking on the spot market, Kroger is helping to drive down price.

Daisy Brands drove down NFDM today. Daisy Brands produces Sour Cream and Cottage Cheese. According to the Code of Federal Regulations (21CFR) Sec. 131.160 Sour cream and Sec. 133.128 Cottage cheese, neither product uses NFDM.

There is an ancient Chinese expression, "The beginning of wisdom is to call things by their real names." The CME is not a market and the games played there are not fun.

Wednesday, March 3, 2010

FAO Stat

The Food and Agriculture Organization (FAO) of the UN produces some interesting statistics.

The graph above clearly shows the importance of dairy to rural America. Furthermore, the loss since 2007 to rural America is monumental.

Dairy COOL

Kirsten Gillibrand, U.S. Senator from NY has an interesting press release which begins:

March 3, 2010

Washington, DC – Responding to yet another recall of milk from China, U.S. Senator Kirsten Gillibrand today announced her push for legislation that would require country of origin labeling (COOL) on all dairy products. Just last month, the Chinese government recalled 170 tons of milk powder that had been tainted with melamine. In 2008, milk tainted with melamine killed at least six infants and sickened more than 300,000 in China. According to the U.S. Department of Agriculture (USDA), during the past five years, U.S. dairy imports averaged around $2.7 billion annually.

If the U.S. cedes production of food to the lowest-cost producer, it leads to consolidation and eventually outsourcing. Senator Gillibrand believes it is a national security imperative that there is food production in every part of this country. In addition to Dairy COOL, Senator Gillibrand announced legislation to ensure stable farm milk pricing by requiring cold storage facilities to report their inventories to the USDA.

The entire release is at the above link.

Tuesday, March 2, 2010

Dairy Products Report

Today, the latest "Dairy Products" report was released by USDA:

This is a most interesting report covering January 2010 and comparative months. Total cheese is much lower than milk production in January on a percentage basis. What happened to the milk? NFDM production was down 17.3% compared with January 2009. And stocks were down held by processors were down 32.3%.

For the very first time, the report lists information about milk protein concentrates. We actually exported more MPCs in December 09 than were made in this country, according to USITC. Also, the USITC data suggests, the selling price for exports is not a money maker.

Fonterra SMP Price

Today Fonterra held the first internet dairy trading auction which included skim milk powder. The price averaged $1.33 per pound.

Today, also, the price of NFDM "Extra Grade" came down 12 cents on an offer from Clofine Dairy products. No powder traded hands, naturally.

Last Friday the NASS "Dairy Product Price" survey listed NFDM at $1.07 per pound.

By all appearances, those who actually want milk powder are willing to pay more than those cooperatives in this country who claim to represent the interest of dairy farmers.

Monday, March 1, 2010

New Leprino Patent

A new patent has been issued to Leprino:

United States Patent 7,666,458
Merrill , et al. February 23, 2010
Methods for making soft or firm/semi-hard ripened and unripened cheese and cheeses prepared by such methods


Methods and systems for preparing soft or firm/semi-hard cheese are provided, as well as soft or firm/semi-hard cheese prepared by the methods. The methods typically involve the formation of a slurry that contains blended or molten cheese curd. A variety of ingredients can be introduced into the curd used to prepare the slurry, the slurry that is formed, or at other stages along the manufacturing process to tailor the performance and nutritional characteristics of the final cheese product. The slurry in some methods is directly processed to form a final cheese product. In other methods, the slurry undergoes various types of processing to achieve certain desired composition or performance requirements.

Further on:

Dairy Solids. A dairy solid can be added to improve various characteristics of the final cheese products such as: firming the cheese, improving water binding capacity, improving the melt appearance of the cooked cheese, and/or increasing the blistering of the cooked cheese. Dairy solids that can be utilized include, but are not limited to, whey protein concentrate, casein hydrolyzate, milk fat, lactalbumin, cream, milk protein concentrate, milk protein isolate, lactose, casein, whey protein isolate, hydrolyzed whey protein, denatured whey protein, skim cheese powder, natural casein isolate and nonfat dry milk. In general, dairy solids can be incorporated into the final product from about 0.5-25 wt. %.

Then we have the "new" essential cheese ingredient - starch:

Starches. Incorporating starches into the heated slurry is also beneficial in some instances because the functionality of some starches is increased when heated, hydrated and/or subjected to high shear conditions. Once functionalized in this manner, the starch can thicken or gel to bind to proteins in the cheese (e.g., casein). In general, starch can be incorporated into the final product in the range of about 0.5-20 wt. %.

Some methods add starch such that the starch concentration in the final cheese product is at least 0.1, 1, 4, 10, 11, 12, 13 or 20 wt. %. Thus, in some instances, the starch concentration can range from about 4-20 wt.% or from about 5-16 wt. % in the final cheese product.

A number of different types of starches can be incorporated into the final cheese product. Suitable starches include vegetable starches (e.g., potato starch, pea starch, and tapioca) and grain starches (e.g., corn starch, wheat starch, and rice starch). Specific examples of suitable corn starches include dent corn starch, waxy corn starch, and high amylose corn starch. The starches can be used individually or in combination.

Hard to believe!