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Wickham brings ‘in-our-dreams’ forecast

Special for Farmshine

EPHRATA, Pa. – When the Dairylea and Dairy Marketing Services (DMS) boards set out to look at a milk price forecast for the coming year last October, they looked at worst case, middle case, and ‘in-our-dreams’ scenarios. “What we are seeing materialize is the green line -- the ‘in-our-dreams’ scenario,” said DMS chief executive officer Greg Wickham at the meeting of Dairylea-affiliated Mount Joy Farmers Cooperative Association on Monday, Jan. 20 here at the Martindale Reception Center.

“The dairy market is seeing robust recovery and our farmers are seeing a decline in feed prices,” Wickham stated. “Our topline scenario is now our forecast for the rest of the year.”

Showing November and December payouts of $21.90 and $22.42 per hundredweight, Wickham forecast first quarter 2014 gross milk prices in the Northeast through DMS to range $23.24 to $24.25. For the whole year, the gross milk price Wickham forecasted as of Jan. 17 looks to range between $22.25 and $25.50.

This is a gross, not net of all costs, price.

“China is drawing on world milk product supplies,” Wickham observed. “They are seeing improved economic status and are turning a little more toward the U.S. for dairy products – seeing the U.S. as a high quality producer.”

After the 2007 melamine tragedy with China’s own milk supply, the market there is sensitive to quality, according to Wickham. “In general, we are also seeing more interest from China because the world is short on dairy supplies overall,” he added. “This is one reason our price forecasts keep escalating.”

Wickham was quick to add that Dairy Farmers of America (DFA) has “seized upon this trend.” He explained that Walmart has asked DFA to bring fluid milk supplies from the U.S. to China – to essentially follow Walmart into China.

“Extended shelf life fluid bottled milk has been loaded in California on the seas, and on its way to China -- as we speak,” said Wickham. “This is a good sign for us.”

Closer to home, Wickham’s comment were not quite as positive, as he acknowledged demand for raw milk in the Northeast will diminish in the 2014-15 “short term.” He attributed this regional demand decline to the closure of Farmland’s large fluid milk bottling plant in New Jersey and to underlying reasons for some of New York’s yogurt production to shift out-of-state.

“The yogurt category is still growing, but not as steeply as before,” Wickham added.

Wickham said the Northeast will find itself in an unusual situation this year where the U.S. and World supply of milk will be tight, “but our region will have a relaxed demand, and we will have to work harder to sell the last few loads of milk this year, into early 2015, as there will be more milk in the Northeast than demand for it. But this situation will sort itself out as it always does.”

He indicated that milk from the Northeast region will be traveling to Ohio and points south a little more this year. This would mean higher transportation and marketing costs.

David White, vice president of the Dairylea board, brought a message of enthusiasm for the pending merger between Dairylea and DFA (see sidebar story). As he did last year, White stressed that the Dairylea / Mount Joy relationship is “a great one of farmers working together to find a way to market milk.”

White said Dairylea’s goal in implementing the merger – provided the Dairylea membership votes to agree with the board decision February 5 – is to make the transition a “non-event” for affiliated cooperatives like Mount Joy. Incidentally, Mount Joy has one vote on this merger. The 325 members of Mount Joy co-op do not get to individually vote. The individual farm members of Dairylea are in the process of returning their ballots – with half already received.

White said members of Mount Joy co-op “will not notice anything different. That is the goal of the Dairylea board, and we are laying the groundwork for that,” said White. “We do not want to disrupt this partnership. You have the influence of your president Don Risser and general manager Gib Martin in this process.”

Both Alan Zepp, risk management coordinator with the Center for Dairy Excellence, and Karen Hawkins, member services director with Dairy Marketing Services (DMS), talked about risk management options available to dairy producers. “I think it will become more commonplace for producers to contract their milk,” said Hawkins. “Just be sure to know your cost of production first to effectively determine a contract price.” She explained the many different fixed price or minimum price – even blend price -- contracts offered by DMS to Dairylea and Mount Joy Farmers Cooperative producers.

Even if farmers are not using these tools, Hawkins stressed the importance of becoming educated about them.

Zepp stressed the importance of recognizing when a profit is offered by the markets and using tools to lock some of that in to guard against lower prices down the road when the calendar gets there.

“We’re hearing about the silos and bunkers being full of good or decent quality forage and cows milking ‘okay.’ 2013 was a good year with improved balance sheets bringing optimism and enthusiasm back to our dairy industry,” Zepp observed. “There are opportunities now to protect a historically high milk price or margin.”

He encouraged producers to talk to their co-ops or contact the Center for Dairy Excellence to learn more about risk management.

Patty Purcell brought a positive message from Mid-Atlantic Dairy Association. Not only did she share the cool new McDonalds television commercial touting its respect and pride in partnering with dairy farmers to sell more dairy products – she also told attendees their checkoff dollars have helped increase overall dairy consumption by a milk-equivalent of 80 pounds per person per year since the mid-80s when the checkoff program started.

The additional per capita consumption comes mainly via products like cheese and yogurt because fluid milk consumption as a beverage is dwindling.

On the beverage milk scene, Purcell stressed Mid-Atlantic’s focus on schools. “7% of our milk is sold in schools but 100% of our future resides in what happens in these schools,” she said. “It’s important to capture this audience.” She said of the 32 fluid milk processors in the Mid-Atlantic region, 19 have invested the money to switch from paper cartons to single-serve plastic. Their studies show children prefer drinking from plastic chugs and will more often choose the milk that is packaged this way.

She also told producers about the breakfast program Mid-Atlantic brings to the 12,400 schools and 3.5 million students in the region.

In addition to the relationship with McDonalds, Mid-Atlantic Dairy, through Dairy Management Inc (DMI), has partnered with Domino’s, Quaker and Taco Bell to increase sales of dairy products. “We bring the healthy halo to their business and we need them to communicate with millions of consumers,” she said.

On the export side, the dairy checkoff helped create the U.S. Dairy Export Council (DEC). Back in the 1980s, just 1 to 3% of U.S. milk was exported. Today it’s almost 17%. “That’s 3.8 million pounds and $7 billion dollars of exports and the equivalent of 1 in 7 milk tankers going overseas.”