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April 2010 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

Will A Billion Pounds of Cheese Stink Up Markets?

Apr 26, 2010

by Jim Dickrell, editor, Dairy Today

 

A billion pounds of cheese in storage is one heckuva lot of cheese.

 

Last Thursday, USDA released its March Cold Storage reportsaying there are 601 million pounds of American cheese, 27 million pounds of Swiss cheese and 373 million pounds of other types of cheeses now sitting in warehouses across the country. The grand total: 1,000,778,000 pounds.

 

The last time cheese stocks hit 1 billion pounds was in 1984—back in the depths of another dairy recession/depression. With a billion pounds of cheese sitting in warehouses and Kansas City caves, manufacturing milk prices collapsed below $12 for a stretch of 18 months through 1985 and 1986. Like now, it was an ugly time for U.S. dairy farmers.

 

So now we’re back to a billion pounds of cheese in storage. “It’s troublesome to have this large of an inventory at this time of year,” says Bob Cropp, a University of Wisconsin dairy economist. “It’s one reason we don’t have $1.60 cheese right now.”

 

Traditionally, cheese production increases seasonally in May and June with the spring flush. But having stocks so large already doesn’t bode well for late spring and early summer as milk production builds and schools let out. “Cheese stocks are going to stay high, and that is a cloud over strengthening milk prices,” says Cropp.

 

But a slightly contrarian view comes from Jerry Dryer, editor of Dairy and Food Market Analyst and chief market analyst for Rice Dairy, LLC. While a billion pounds of cheese is a stinking lot of cheese, it represents just four to five days more usage than our normal, more accustomed 48-day inventory. “I’m not sure how horrible it really is to have these kinds of inventory numbers,” he says.

 

Dryer cites three reasons why things are different now than in 1984:

 

• We’re importing significantly less cheese than we have in the past (and our cheese exports are up). Instead, U.S. processors are making these specialty cheeses, many of them hard Italian and many of them aged. Because they have to be aged for months, they show up in inventory reports but are not necessarily burdensome to the market.

 

• U.S. consumers are eating more American-made aged cheddar. “This is an increasing percentage of our cheese utilization, and aged cheddar must be stored for one to two months and even longer,” he says. Again, they’re inventory numbers—but can’t be considered surplus.

 

• U.S. processors are learning to manage their inventories. Last fall, cheese buyers laid in cheese stocks at $1.15/lb. Carrying costs are low, interest rates almost nil. “A lot of the guys who put cheese away last fall are greedy. They bought the cheese to make money, and they’re not going to bring it back on the market at $1.40/lb. They’ll bring it back at $1.70, $1.80/lb.,” Dryer says.

 

Dryer sees other positives as well. McDonald’s sales are up 4% in the first few months of 2010; Starbucks is up 10%. Higher-end sandwich chains like Subway and Panera Bread also report stronger 2010 sales, and pizza sales have also increased in the last six months.

 

There’s one more factor to consider. Back in 1984, the U.S. population stood at 236 million. Today, it exceeds 300 million. That’s 65 million more cheese eaters running around buying turkey and Swiss subs, cheese burgers and pizzas. As the economy continues to improve, this bodes well for cheese sales.

 

There is one thing both Cropp and Dryer agree on: More milk keeps coming to market. That, more than anything, will be a drag on cheese prices.

 

With so much milk flowing into vats, cheese buyers know they have a ready supply. They’ll have little reason to bid up prices any time soon.  

EU Pushes U.S. to 400,000 SCC Limit

Apr 26, 2010

by Jim Dickrell, editor, Dairy Today

Beginning Oct. 1, 2010, any dairy processor exporting to the European Union will need to certify that each farm that supplies milk for those exports must be below 400,000 somatic cell count.

 

In the past, processors were required to meet the 400,000 SCC level with co-mingled milk from multiple dairies, but not on an individual farm basis. Now, each farm which supplies milk must meet the 400,000 SCC level. Three consecutive months above 400,000 on a geometric means are slightly lower than arithmetic averages.

 

The new rules will be extremely disruptive to milk processors, says a source with a national co-op. From 15% to 25% of milk volume will not be in compliance at certain times of the year in the Northeast and Midwest, this source says. The Midwest, with the largest number of small farms, will face the greater challenge.

 

Even if processors segregate the higher cell count milk, process it separately and sell it domestically, by-products of those dairy products (cream from fluid, whey from cheese) will have to stay out of export streams.

 

The European Union established the 400,000 SCC requirement in the late 1990s, but allowed the U.S. to meet it with co-mingled milk in tankers and silos. This new individual farm requirement was added several years ago. However, EU trade representatives recently notified their U.S. counterparts that they were going to start enforcing the requirement July 1, 2010. Further negotiations were able to push that deadline back to Oct. 1.

 

Dairy exports to the EU account for less than 5% of the value of annual total exports. “But looking at just the dairy trade data underestimates the problem,” says Shawna Morris, VP of Trade Policy for the National Milk Producers Federation (NMPF) and the U.S. Dairy Export Council (USDEC).

 

Nearly a third of the Export Certificates USDA verifies for all EU food exports contain dairy ingredients, she says. And while dairy must make up more than 50% of a food product to be subject to the 400,000 SCC requirement, millions upon millions of export dollars are at stake.

 

“Most concerning for a dairy processor is the ability to trace back farm SCC data for products using multiple dairy ingredients,” says John Umhoefer, Executive Director of the Wisconsin Cheese Makers Association.

 

 “On one hand, a natural cheese may use fresh milk and concentrated or dried milk powder. Presumably both sources may need to be traced [back to the farm]…. The task borders on impossible for storage dairy ingredients.”

 

The 400,000 SCC debate has been going on for years. When I was president of the National Mastitis Council in 1999, NMC proposed lowering the SCC limit from 750,000 to 400,000. The proposal was rejected by the National Conference for Interstate Milk Shipments, though it had the support of the Food and Drug Administration.

 

The proposal has been made several more times, and, every two years, NMPF and Dairy Farmers of America have blocked passage. The excuse: A 400,000 limit is not a human health issue. But the real reason is that a contingent of dairy producers doesn’t want to clean up its act.

 

The U.S. industry can complain all it wants whether the EU’s new requirement is a new trade barrier. But the longer the U.S. delays meeting world milk quality standards, the more barriers it imposes on itself.

 

We’ve argued about the 400,000 SCC level for the past decade. Now we have six months to solve it. 

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