Happy Thanksgiving! While there is much we might wish was different in the dairy industry, we still have much to be thankful for. One thing is the strength in cheese prices. Market analyst Alan Levitt, editor of the CME’s Daily Dairy Report, said we’re at the point of the year where holiday demand is kicking in and demand has reportedly been very good, so “cheese users are trying to get what they can” and “we should enjoy a little stretch perhaps.”

He believes a few more cents may be added but he’s not convinced this is the start of a trend that will break out of the range and keep climbing. He warned that Friday’s October Milk Production report may not keep the rally going. He expects output to be up 2.5 to 3 percent from a year ago because “we still haven’t turned the corner on production but it’s that time of year when things get a little tight.”

The December Federal order Class I base milk price was announced Friday by the USDA at $12.43 per hundredweight (cwt.), up 3 cents from November, but $1.14 below December 2005, and triggers a 42.8-cent MILC payment. The Class I base averaged $11.88 in 2006, down from $14.40 in 2005.

The NASS butter price averaged $1.2625 pound, down 2 cents from November. Cheese averaged $1.2745, down a penny. Nonfat dry milk averaged 96.91 cents, up 8 cents, and dry whey averaged 37.4 cents, up 2.4 cents from November.

California’s December Class I milk price is $13.34 per cwt. for the north and $13.61 for the south. Both are up 26 cents from November but $1.65 below December 2005. The northern price averaged $13.30 in 2006, down from $15.74 in 2005. The southern price averaged $13.30, down from $16.01 a year ago.

The cash cheese price continued to climb the second week of November, driven primarily by demand for fresh cheese. The NASS U.S. average block price hit $1.2532, up 2.3 cents. Barrel averaged $1.2874, up 2.8 cents.

Good export and domestic demand for dry whey has strengthened the market. The CME’s Daily Dairy Report said May to September whey exports were up 33 percent from a year ago and accounted for more than half of U.S. production. A penny increase on whey equates to about 6 cents on the Class III milk price.

Strong prices on nonfat dry milk is pulling milk away from the cheese vat, as is the good demand from Class I and Class II products but, as more milk goes into powder, butter output also rises and may be the reason butter prices are weaker.

The new broom in Washington will write a new farm bill rather than extending the current bill but there won’t be sweeping changes. National Milk’s Chris Galen on Thursday said that was the message from the incoming chairmen of the House and Senate Agriculture Committees, Collin Peterson of Minnesota in the House, and Tom Harkin of Iowa in the Senate.

“That means that commodity groups, like National Milk, need to seriously think about what changes they are willing to support,” Galen said, “And, even without a direct threat to current farm programs from a WTO, a good case can still be made for considering changes to the dairy portion of the farm bill.”

The Federation will continue to discuss with its members, he said, and may result in “some tweaks” to the price support program as well as future direct payment programs like the MILC. The combination of budgetary pressures and pressure from the USDA will mean, “The status quo is probably not something that can be sustainable long term,” Galen said.

It’s not so much the level of price support, according to Galen, but the amount of support considered “trade distorting,” and “gets into the complicated issue of colored boxes and how it counts against our farm program spending overall.”

Existing programs can be “tweaked” he said, and “not throw the baby out with the bath water, and make some changes that will still provide a safety net to farmers because, at the end of the day, National Milk clearly will not support any kind of a farm bill that doesn’t maintain an economic safety net, but it may mean some changes in the exact structure of that safety net.”

When asked about the Dairy Export Incentive Program, Galen said that will have to be considered along with all of the other export subsidy programs used by WTO members. The DEIP pales in comparison to that of the European Union, for example, he said, “So that’s certainly not something we would give up unless all export subsidies would be eliminated.” That was on the table at the WTO, he said, but if there is no agreement, “It’s not a relevant issue.”

The CWT program accepted a bid on 77,000 pounds of anhydrous milk fat from Dairy Farmers of America for export to Mexico. Two bids were accepted from Land O Lakes - one for 88,000 pounds of Mozzarella cheese to South Korea, and one for 44,000 pounds of Mozzarella to Japan. Total CWT cheese exports now stands at 11.7 million pounds.

Meanwhile, the collapse of WTO talks and overwhelming victories by Democrats in the November elections have many predicting a slowdown in the move toward free trade agreements. But, a new USDA report says government policies will take a back seat to market forces when it comes to steering future dairy trade.

The report, “U.S. Dairy at a Global Crossroads,” points to competitive forces facing the U.S. dairy industry, according to Dairy Profit Weekly editor, Dave Natzke, in Friday’s broadcast. Those forces include demand for new products in industrialized countries, changes in technology, rapid economic growth in emerging developing countries, particularly Asia, and the increasing role of multinational firms in domestic and global dairy markets.

The report notes dairy product consumption is on the rise globally, from about 2 percent per year in most high-income countries, to over 10 percent annually in lower-income countries, and at about 15 percent per year in China.

“With increased dairy consumption,” Natzke said, “There are more opportunities for dairy trade and greater financial investment in dairy industries worldwide, enhancing the importance of market flexibility and innovation.”

The report goes on to say that government policies that support prices and protect markets will diminish, describing benefits of those policies as modest and, in the long run, discouraging new opportunities in a global market.

By the way, preliminary estimates of U.S. dairy exports and imports for Fiscal Year 2006, which ended Sept. 30, indicate U.S. dairy trade is on the rise, both in and out of the country, according to Natzke.

U.S. dairy exports for the year were valued at a record $1.82 billion dollars and 4 percent more than FY 2005. Fiscal Year 2006 imports were also up 4 percent, however, to $2.7 billion dollars. So, even though exports rose, the U.S. dairy trade deficit grew by about $32 million dollars compared to the year before.

The value of both U.S. dairy exports and imports decreased in September, the final month of FY 2006, compared to a month earlier. September dairy exports were estimated at $152 million, down about 11 percent from August 2006, but $18 million more than September 2005. U.S. dairy imports decreased to $219 million, down 6 percent from August, but $7 million more than September 2005.

This farm news was published in the Nov. 22, 2006 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.