Cheese remains above $2; butter in stratosphere

Columnist Lee Mielke wraps up the week's dairy news.

By Lee Mielke

For the Capital Press

Published on July 22, 2014 11:55AM

Lee Mielke

Lee Mielke

Cheese prices at the Chicago Mercantile Exchange remained above $2 a pound last week as traders awaited Friday afternoon’s June Milk Production report. The Cheddar blocks closed Friday at $2.0275 per pound, up 5 3/4-cents on the week and 28 cents above a year ago. They were unchanged Monday and inched up a quarter-cent Tuesday, to $2.03.

Ever see a barrel roll uphill? They did it again last week. The Cheddar barrels closed Friday at $2.07 per pound, up 8 1/4-cents on the week and 33 cents above a year ago. They were unchanged Monday and Tuesday, remaining at $2.07, 4 cents above the blocks, which characteristically are 3-5 cents above the barrels. Nineteen cars of block traded hands last week and 20 of barrel.

Cash butter closed the week in the stratosphere at $2.48 per pound, up 10 3/4-cents on the week, 99 cents above a year ago, and the highest it has been since June 30. It gained 3 cents Monday and pole vaulted 7 cents Tuesday, hitting $2.58 per pound, 23 cents shy of the September 1998 record high. Twenty four cars traded hands last week.

Cash Grade A nonfat dry milk closed Friday at $1.6950 per pound, down 4 cents on the week and the lowest level since June 12, 2013. It lost 2 more on Monday and was unchanged Tuesday, holding at $1.6750 per pound. Two cars were sold in the cash market last week.

June milk production up 2 percent

The Agriculture Department’s preliminary data issued Friday in its latest Milk Production report, shows June Dairy Month milk output in the top 23 producing states at 16.177 billion pounds, up 2 percent from June 2013. The 50-state total, at 17.265 billion pounds, was up 1.9 percent from a year ago.

Revisions added 25 million pounds to the original May 23-state estimate, now reported at 16.9 billion pounds, up 1.6 percent from a year ago.

June cow numbers in the 23 states, at 8.57 million head, were up 11,000 from May. Year ago data were not available due to the federal budget sequestration.

June output per cow in the 23 states averaged 1,888 pounds, down from 1,976 pounds in May, but is the highest production per cow for the month of June since the 23 State series began in 2003. Again, year ago data was not available due to the Sequester.

The second quarter, April to June period, saw U.S. milk output hit 52.8 billion pounds, up 1.6 percent from the same period in 2013. The average number of milk cows during the quarter totaled 9.25 million head, up 39,000 from the first quarter, January to March, 2014.

California’s June output was up 1.7 percent from a year ago. Wisconsin was up 0.6 percent, Idaho up 2.1 percent, New York up 0.3 percent, Pennsylvania up 0.2 percent, and Minnesota was up just 0.1 percent.

The biggest increase was in Colorado, up 9.7 percent, Texas, up 8.3 percent, Kansas, up 7.4 percent, and South Dakota, up 5.4 percent. Ohio was the only state showing a decline, down 1.5 percent.

Checking a few other states of interest, Michigan was up 3.2 percent, New Mexico, up 1.3 percent, and Washington state was up 3.9 percent.

Global Dairy Trade average plunges

The July 15 Global Dairy Trade auction saw the weighted average for all products drop 8.9 percent, following the 4.9 percent decline in the last session. The price index has pretty much seen declines since reaching its high on Feb. 4. The next event is Aug. 5.

The downfall was led by a 10.9 percent plunge in whole milk powder, which was down 5.4 percent in the last event. Anhydrous milkfat was down 10 percent, following a 7.4 percent decline last time. Skim milk powder was down 7.1 percent, after a slippage last time of 0.9 percent. Rennet casein was down 8.9 percent, following a 2.1 percent drop in the last event. Cheddar cheese was down 1.6 percent after a 2.9 percent drop in the last session. GDT butter was down 1.1 percent, following the 13.6 percent plunge in the last event. Buttermilk powder was down 4.6 percent, after being up 4 percent last time.

FC Stone reports the average GDT butter price equated to about $1.4261 per pound U.S., down from $1.4427 per pound in the July 1 event ($1.3913 per pound on 80 percent butterfat, down from $1.4075 per pound). Contrast that to CME butter which closed Tuesday at $2.58 per pound. The GDT Cheddar cheese average was $1.8887 per pound U.S., down from $1.9170. The U.S. block Cheddar CME price Tuesday was at $2.03 per pound. GDT skim milk powder, at $1.5947 per pound U.S., was down from $1.7283, and the whole milk powder average at $1.4009 U.S., was down from $1.5690 in the last event. The CME Grade A nonfat dry milk price Tuesday stood at $1.6750 per pound.

We’re ‘kinda divorced’

U.S. dairy product prices appear to amaze traders but clouds are appearing on the “price horizon.” Jerry Dryer’s recent Dairy and Food Market Analyst warned that global milk production will overwhelm demand for the next five years, according to a recent analysis by Goldman Sachs.

We talked about those clouds in Friday’s DairyLine with FC Stone dairy broker, Dave Kurzawski. Kurzawski attributed the jump in butter to a “tight market” and said cheese was “acquiescing to that.” He explained that cream is very tight in the country as ice cream sales are good.

“We’re pretty much divorced from the world market,” Kurzawski stated, “But we are still alive and well on the butter market and probably aiming at that $2.50 (per pound) mark.”

Regarding the prediction on milk production, Kurzawski argued that it’s hard enough to look three or four months ahead as to what will happen to milk supply and demand but “they’re (Goldman Sachs) probably not too far off in the fact that we should expect more milk production in 2015 and probably more still in 2016. Without question, that’s the trend that we’re going to be on,” he said, “But right now I still think we’re going to be hovering around 1 1/2 percent for the balance of the year.”

Kurzawski doesn’t see any big moves in the U.S. milk supply but globally New Zealand is coming back strong and will come back strong in the new season “so we have to expect that but more than that is the demand out of China.”

“It’s hard to believe when you see butter over $2.40 per pound and cheese over $2, at sustaining levels, so it’s easy to become complacent but reality is that China is currently overstocked on powder and anhydrous milkfat and that will eventually make its way through the global market chain and it’s going to come back to roost here in the U.S. with probably lower prices some time by the fourth quarter,” Kurzawski said.


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