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Hurricane Sandy Impacts Dairy Industry Along U.S. East Coast

by Lee Mielke

Published: Friday, November 9, 2012

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

Hurricane Sandy dominated the news last week as it wreaked havoc on the Eastern Seaboard. New York and the New York stock exchange were shut down for the first time since 1888 due to weather, according to FC Stone's Oct. 30 eDairy Insider Opening Bell. Market analyst Ryan Cox warned that "Dairy will be affected by the storm. The upstate New York dairy shed is an issue but we don't know how badly it will be affected yet."

Their Nov. 1 issue reported that millions of homes and business remain without power. FC Stone dairy economist Bill Brooks said "For dairy companies in New York City and New Jersey, it could be awhile before they get back on line. While those plants might not be able to process milk, demand from consumers who are unable to leave their homes has also come to a near standstill."

The Oct. 29 Daily Dairy Report pointed out that almost 20 percent of U.S. milk production is located along the East Coast and more than 45 percent is consumed in the fluid bottle. It added that "a storm of this magnitude could wreak havoc on the milk supply chain. Areas hardest hit by damaging winds and floodwaters are likely to struggle to pick-up farm milk, and power outages could prevent dairy processors from running plants at capacity. The net impact is a lot of dumped milk and stronger milk and dairy product prices in the near-term."

The Agriculture Department announced the October Federal order benchmark Class III milk price this week at $21.02 per hundredweight, up $2.02 from September and $2.99 above October 2011. That is the highest it has been since August 2011 and equates to about $1.81 per gallon. The 2012 Class III average now stands at $16.98, down $1.27 from this time a year ago but $2.62 above 2010 and $6.26 above the disastrous 2009 average.

The AMS-surveyed cheese price averaged $2.0479 per pound, up 18.3 cents from September. Butter averaged $1.9168, up 9 cents. Nonfat dry milk averaged $1.4636, up 8.7 cents, and dry whey averaged 62.05 cents, up 3.6 cents.

California's comparable 4b cheese milk price is $19.43, up $1.93 from September, $3.65 above a year ago, the highest since November 2007, but $1.59 below the FO Class III price. Its 2012 average now stands at $15.16, down from $16.41 at this time a year ago and compares to $13.26 in 2010.

Cash block cheese closed the first Friday of November at $2.11 per pound, down a penny on the week but 23 cents above that week a year ago. Barrel fell to $2 but rallied 8 cents on an unfilled bid Friday to close at $2.08, unchanged on the week but 16 cents above a year ago. Only two cars of block traded hands on the week and four of barrel. The AMS-surveyed U.S. average block price fell 1.7 cents, to $2.0715, while the barrels rolled 3.7 cents lower, to $2.0274.

Cheese plants would like to increase production, but are wary of paying premiums for additional milk, according to USDA's Dairy Market News.

Butter closed at $1.8875, down a quarter-cent on the week but 55-cents above a year ago. Fourteen cars found new homes on the week. AMS butter averaged $1.8948, down 3.6 cents.

Cash Grade A nonfat dry milk inched a penny higher to $1.57. Extra Grade held at $1.56. AMS powder averaged $1.4861, up 1.4 cents. Dry whey averaged 62.98 cents, up a half-cent.

Churning schedules across the country remain generally active and dependent on cream availability and price, according to DMN. Producers and handlers report good butter orders have been placed and continue to be placed.

Exports continue aided by the Cooperatives Working Together program which accepted 26 requests for export assistance this week to sell 4.3 million pounds of cheese, 2.5 million pounds of butter, and 85,980 pounds of whole milk powder to customers in Asia, the Middle East, North Africa and South America. The sales raised CWT's 2012 cheese exports to 106.3 million pounds plus 61.2 million of butter, 127,868 pounds of anhydrous milkfat, and 85,980 pounds of whole milk powder to 35 countries.

September butter production totaled 136 million pounds, according to USDA's latest Dairy Products report, up 5.3 percent from August, but 1.1 percent below September 2011. Nonfat dry milk output totaled 84.4 million pounds, down 20.5 percent from August and 18.7 percent below a year ago.

American cheese, at 346 million pounds, was down 2.1 percent from August but 2.3 percent above a year ago. Italian type, at 370 million pounds, was down slightly from August and .3 percent above a year ago. Total cheese amounted to 871 million, down 1.9 percent from August but .3 percent above a year ago.

USDA monthly Milk Cost of Production data for September shows total dairy farm production costs were likely the highest on record, according to Dairy Profit Weekly editor Dave Natzke in Friday's DairyLine broadcast.

The index, which covers everything from feed and labor to overhead costs, estimated total costs to run a dairy farm averaged more than $28 per hundred pounds of milk sold in September. Operating costs, such as feed, supplies and services, averaged nearly $20 per hundredweight, slightly higher than the national average price farmers received for milk in September.

USDA also released its monthly milk-feed price ratio, an index based on the current milk price in relationship to feed costs. Natzke reported that the data showed economic conditions improved somewhat last month, with higher milk prices offsetting slightly higher corn and alfalfa hay prices. At 1.68, the October index was the highest since January, but still below a year ago, and the 19th consecutive month below 2.0.

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