Cheese prices continue to slide
By LEE MIELKE
For the Capital Press
New Zealand cooperative raises prices to its farmers, signaling potential upturn for U.S. farmers.
By LEE MIELKE
For the Capital Press
The last week of September saw cash cheese continue the previous week’s downturn. The Cheddar blocks closed Friday at $1.75 per pound, down 4 1/2-cents on the week and 32 1/2-cents below a year ago when they were at $2.0750.
The barrels were down 4 3/4-cents on the week, to $1.72, 31 1/2-cents below a year ago. Twelve cars of block sold on the week and nine of barrel. The AMS-surveyed block price averaged $1.7798, up 3.3 cents, and barrels averaged $1.8203, up 2.9 cents.
Cheese production is also lower as milk supplies across much of the country are described as tight, according to USDA’s Dairy Market News (DMN). Increased Class I usage along with seasonally reduced milk volumes have cheese makers reporting a harder time finding milk. Good retail demand is moving cheese from storage and reducing stocks. Export demand is adding to the pull of cheese from storage. Cheese manufacturers would like to increase production, but are having to choose where to best use available milk supplies, according to DMN.
Butter saw a third week of gain this week, closing Friday at $1.61, up a penny on the week and up 18 cents in the last three weeks but is 34 cents below a year ago when the spot price hit $1.95. Twenty-eight cars traded hands on the week. AMS butter averaged $1.4304, up 3.1 cents.
Demand increased both domestically and in the export market, forcing butter manufacturers to decide which market to sell to. Manufacturers have been taking advantage of the greater profits in the export market, according to DMN. Several butter manufacturers are facing tight cream supplies due to declining milk production and lower butterfat levels. Retail buyers are trying to place orders to stay ahead of the recent upswing in butter prices but are finding it difficult.
Cash Grade A nonfat dry milk closed Friday at $1.83, down 1 1/2-cents on the week, while Extra Grade remained at $1.78. AMS powder averaged $1.8149, up 1.1 cent. Dry whey averaged 58.23 cents per pound, up 0.7 cent.
Preliminary data in this week’s Cold Storage report shows August 31 butter stocks at 268.5 million pounds, down 9 percent, or 27.3 million from July, 2013 but up a healthy 34 percent, or 67.4 million pounds from August 2012.
American cheese, at 670.4 million pounds was down 4 percent from July and 3 percent above a year ago. The Daily Dairy Report says this is the strongest July-to-August drop in American cheese since 2004. The total cheese inventory stood at 1.1 billion pounds, down 4 percent from July and 5 percent above a year ago.
Butter stocks ballooned to over 300 million pounds this spring, the first time since June 2003, according to FC Stone risk management advisor Ron O’Brien.
“That’s what pressured the butter market lows to $1.36 this year,” O’Brien said. “We’ve been rallying since the middle of August.” He said that butter prices were only around $1.10 in June of 2003 when stocks were over 300 million pounds, but then rallied to $2.3725 the following spring.
“Markets can rally despite heavy stocks and we really have to turn our attention to demand. The first seven months of this year we have exported 15.1 percent of our total milk solids. January-July exports of butter are up almost 30 percent from a year ago. Demand is the big variable moving forward,” according to O’Brien. “Adding an uptick in butter prices could bring record setting Class IV prices.”
Cheese consumption increases
Meanwhile, DairyBusiness Update (DBU) reports that U.S. per capita cheese consumption totaled 33.51 pounds in 2012, up about one-quarter pound from 2012 and surpassing the previous high of 33.50 pounds in 2007, according to preliminary figures released this week by USDA’s Economic Research Service. Annual U.S. per capita cheese consumption has increased in eight of the past 10 years, and is now about 2.9 pounds higher than 2002. About 82 percent (27.43 pounds) of all cheese consumed in 2012 was “natural,” with the remainder (6.08 pounds) consumed as a processed cheese in other food products.
Mozzarella and cheddar continue to be the favorites among U.S. consumers in 2012, at 11.51 pounds and 9.43 pounds, respectively. Mozzarella consumption rose slightly in 2012, pushing total Italian cheese consumption to 14.93 pounds per person. In contrast, cheddar consumption declined slightly in 2012, but a small increase in “other” American cheese consumption pushed the total American category to 13.22 pounds, according to DBU.
Fonterra increases milk prices
New Zealand’s Fonterra Cooperative provided some food for thought to the market this week by increasing its forecast farm gate milk price for the 2014 season, the third time in two months. Chairman John Wilson said the cooperative announced that it has increased its forecast by 50 cents to $8.30 per kilogram of milk solids. The increase, along with an estimated dividend of 32 cents per share, amounts to a forecast cash payout for 2014 of $8.62.
That’s equivalent to a $21-$21.55 per hundredweight U.S. All milk price, after converting currency differences and fat and protein content of the milk, according to High Ground Dairy’s Eric Meyer. He said this would be a record high, if realized, and could have a bullish impact across the entire global dairy complex and “mean good things for U.S. dairy farmers.”
He credits solid demand and pointed to New Zealand’s close relationship with China. Chinese demand has been fairly insatiable throughout the course of this year, he said, with whole milk imports up over 40 percent from a year ago.
A Fonterra press release stated that “The record forecast farm gate milk price reflected continuing strong international prices for dairy, particularly Whole Milk Powder driven by robust demand from Asia, especially China. We are still facing high levels of volatility around the world.”
Speaking of the world market, Cooperatives Working Together (CWT) accepted 18 requests for export assistance this week to sell 4.041 million pounds of Cheddar, Gouda and Monterey Jack cheese and 992,080 pounds of butter to customers in Asia, Europe, the Middle East and North Africa. The product will be delivered through February 2014 and brought CWT’s 2013 cheese exports to 100.97 million pounds plus 71.54 million pounds of butter, 44,092 pounds of anhydrous milk fat and 218,258 pounds of whole milk powder to 37 countries.
Milk supplies across much of the country continue to be described as tight. The Northeast and Mid-Atlantic states are sending milk to the Southeast for increased Class I demand. Florida imported over 200 loads of milk the week of Sept. 16 from outside the state. Milk production in the Central region bounced back some from the recent hot weather, but remains tight for manufacturing needs.
California milk production was mostly flat with recent weeks. Arizona production also recovered some from recent unfavorable weather conditions. Northwest milk supplies are seasonally tight and production is steady to fractionally lower. Milk supplies are sufficient for Class I needs, but manufacturing milk supplies are tight with many plants working on reduced schedules. Cream demand is good as production of products using cream increases for the fall.
Farm bill update
In dairy politics, International Dairy Foods Association (IDFA) senior vice president Jerry Slominski says USDA should not move quickly to enforce the 1949 law that will come into effect Jan. 1, 2014 if the Farm Bill is not extended or updated before the end of the year. His comments came in response to U.S. Rep. Collin Peterson, D-Minn., ranking Democrat on the House Ag Committee, who called on USDA to pressure Congress to pass a new Farm Bill.
Slominski said early implementation of the “outdated law” would “dramatically and artificially” raise consumer prices of dairy products and harm the dairy industry.”
Some members of Congress are again using scare tactics on consumers in an attempt to obtain a new Farm Bill, according to Arden Tewksbury, manager, Pro-Ag. In addition, dairy farmers are being used as pawns by the same congressmen as an example to what the consequences could be to consumers if a new Farm Bill is not passed. These same congressmen are saying that prices to consumers could double in price if a new Farm Bill is not passed by Oct. 1. The assertion is that if a new Farm Bill is not passed, then the 1949 Ag Act would be implemented.”
An IDFA press release charges that food manufacturer, restaurant and retailer groups recently voiced strong support for the dairy provisions as included in the House-passed Farm Bill. In a letter to Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., and Ranking Member Thad Cochran, R-Miss., the groups urged the senators to reject “any new government dairy ‘supply management’ program.” A new program to impose quotas on milk supplies, called the Dairy Market Stabilization Program, was included in the Farm Bill as passed by the Senate in June.
In July, the House rejected the controversial Dairy Market Stabilization Program by more than a 2-to-1 margin, 291-135. Ninety-five Democrats joined 196 Republicans in support of compromise dairy language that calls for a strong safety net for dairy farmers without also imposing limits on the amount of milk they can sell.
“The House bill has accepted and incorporated over 75 percent of what was approved by the Senate,” the letter continued. “It establishes an effective and expanded revenue insurance program for dairy farmers that will help them endure tough economic times, while removing an unnecessary regulatory burden on dairy businesses and providing opportunity for market expansion, new jobs and economic growth.”
National Milk sees it differently and called on lawmakers to get to work. A National Milk Producers Federation (NMPF) press release stated, “Now that the House has passed its nutrition policy portion of the farm bill, the NMPF urges House leaders to quickly appoint conferees who should, with their counterparts in the Senate, finish work on a new farm bill and get it passed into law.
NMPF charged that “For the nation’s dairy farmers, it is critical for agriculture leaders in the House and Senate to include in the 2013 farm bill the provisions of the Dairy Security Act, which has already been approved this year by both the House and Senate Agriculture committees.
The Dairy Security Act will provide dairy farmers with a cost-effective safety net, while protecting consumers and taxpayers at the same time. Dairy producers have been waiting two years to know the details of the federal dairy safety net. They need this information to make business decisions. Along with the rest of American agriculture, milk producers nationwide urge lawmakers to take this critical last step in the evolution of a better farm program.”
Looking back to the futures, the Fourth Quarter 2013 pack average was at $17.35 per cwt. on Sept. 6, down 24 cents from the previous week. It averaged $17.67 on September 13, $17.62 on Sept. 20, and was averaging around $17.64 late morning Sept. 27.