November Class III benchmark price increases

Lee Mielke's weekly round-up of dairy developments.


For the Capital Press

Published on December 6, 2013 1:30PM

Lee Mielke

Lee Mielke

The November Federal order Class III benchmark milk price is $18.83 per hundredweight (cwt.), up 61 cents from October, $2 below November 2012, but the highest it has been since December 2012 and $1.53 above California’s comparable 4b cheese milk price.

It equates to about $1.62 per gallon and brought the 2013 Class III average to $17.90, up from $17.33 at this time a year ago and compares to $18.33 in 2011, $14.46 in 2010, and $11.03 in 2009.

The December Class III futures contract was trading Dec. 6 at around $19.10. January was at $18.60; February, $18.05; and March at $17.70 per cwt.

The November Class IV price is $20.52, up 35 cents from October and $1.86 above a year ago. The Class IV average now stands at $18.83, up from $15.84 a year ago and compares to $19.24 in 2011, $15.10 in 2010, and $10.51 in 2009.

The Agricultural Marketing Service-surveyed cheese price used in calculating the prices was $1.8612 per pound, up 5.9 cents from October. Butter averaged $1.5205, down 2.5 cents. Nonfat dry milk averaged $1.8892, up 5.3 cents, and dry whey averaged 58.31 cents per pound, up a penny.

California’s November 4b cheese milk price is $17.30 per cwt., up 48 cents from October but $1.18 below November 2012. The 2013 4b average now stands at $16.28, up from $15.47 at this time a year ago and compares to $16.48 in 2011.

The Class 4a butter-powder price is $20.63, up 63 cents from October and $2.36 above a year ago. The 2013 average now stands at $18.64, up from $15.46 a year ago and compares to $19.02 in 2011. The prices include the temporary state mandated increases which will be in effect until June 2014.

October 2013 U.S. milk production was up 1.2 percent compared to a year ago, and more of that milk found its way into the cheese vat and butter churn, according to USDA’s latest Dairy Products report issued this week.

American type cheese production, at 368 million pounds, was up 6.4 percent from September but 0.6 percent below October 2012. Italian type, at 411 million pounds, was up 6.9 percent from September and 5.7 percent above a year ago. Total cheese output amounted to 950 million pounds, up 6.7 percent from September and 2.1 percent above a year ago.

October butter churns cranked out 146 million pounds, up 10.2 percent from September and 1.2 percent above a year ago. Nonfat dry milk totaled 85.5 million pounds, up 15.5 percent from September but 10.1 percent below a year ago.

The Thanksgiving Week cheese price rally appeared to continue the first week of December as the Cheddar blocks hit $1.9475 on Dec. 4, but the roller coaster headed down and closed Dec. 6 at $1.8725 per pound, down three-quarter cents on the week but still 11 1/4-cents above a year ago. The barrels jumped 11 1/4-cents, to $1.8850 by Dec. 4, then relapsed and finished at $1.8325, up 5 1/2-cents on the week, 17 1/4-cents above a year ago, and a typical 4 cents below the blocks. Four cars of block traded hands on the week and none of barrel. The lagging AMS-surveyed U.S. average block price lost 2.4 cents, slipping to $1.8456. Barrel averaged $1.8114, down 2.5 cents.

The market tone for cheese in the Midwest is mixed, according to USDA’s Dairy Market News (DMN) Manufacturers are seeing steady to strong interest in retail orders, filling last minute gift boxes. Milk supplies have been hard to come by, with premiums being paid to secure loads to meet holiday obligations. Cheese production is steady and near or at capacity for most cheese makers. Cheese stocks are shrinking for many plants as orders are being shipped out.

Jerry Dryer wrote in his Dec. 1 Dairy and Food Market Analyst newsletter that a big price spread is “very painful for barrel cheese manufacturers.” He said that “barrels are too long much more often than too short,” and pointed out that the processed cheese business (home to much of the barrel cheese produced) is “on a slippery slope, has been for years. Consumers and food service businesses are shifting to natural slices. The ingredient label on “processed” cheese is just too scary; reminds folks of margarine.” I have more on that ahead.

Cash butter saw a second week of decline, closing Dec. 6 at $1.6450, down a half-cent on the week but 5 1/2-cents above a year ago. Twenty-three cars traded hands on the week. AMS butter averaged $1.6045, up 6.3 cents.

DMN reports that Western butter prices are mixed with a steady to weak undertone and butter production is limited by tight cream supplies. Demand following the Thanksgiving holiday is good as retailers look to resupply and build stocks for year-end holidays. Export demand is also good and manufacturers must balance export orders with domestic demand, says DMN. Butter stocks are tightening in response to the good demand.

Cash powder seems headed for record high prices. Grade A nonfat dry milk closed Friday at $2.0575 per pound, up 5 3/4-cents on the week. Extra Grade closed at $2.0225, up 4 3/4-cents. Seven cars of Grade A were sold on the week and one of Extra Grade. AMS powder averaged $1.9092, up 0.7 cents. Dry whey averaged 59.3 cents per pound, down 0.1 cent.

Global trade strong

Speaking of export, this week’s Global Dairy Trade was “very strong,” according to FC Stone risk management consultant Chris Hildebrand. Reporting in the Dec. 3 Insider Closing Bell, Hildebrand said the weighted average price for all contracts rose 3.9 percent and all products, except cheese, logged gains.

For example, skim milk powder (SMP) rose 5.6 percent, to $2.1732 per pound. Butter rose 4.5 percent, $1.7010 ($1.6595 per pound adjusted for 80 percent fat); whole milk powder (WMP) increased 3.4 percent, to $2.2838 per pound, and anhydrous milk fat rose 2.7 percent, to $2.4471 per pound. Cheddar cheese fell 1.5 percent, to $2.0416 per pound.

A teleconference this week by the U.S. Dairy Export Council (USDEC) gave the 950-plus participants in some 60 countries a preview of 2014. USDEC’s Alan Levitt stated that, while the world milk supply is recovering, pent up demand will hold off the tipping point for awhile. He said the U.S. has been in an excellent position to build market share as all our competitors saw supply declines, world prices have been above U.S. prices, and global demand has remained solid. But, the big gains have been in nonfat dry milk and skim milk powder.

Levitt sees significantly lower feed costs in 2014 for dairy producers for the first time in three years and said “China’s buying, both the quantity they’re buying and the prices they’re willing to pay will remain the key demand driver.” He said that China now accounts for about 11 percent of world dairy trade, 18 percent of WMP, and 9 percent of SMP.

He adds that China milk production is nowhere near what its import needs are. Their cost of production is very high due to feed and rising land costs, higher salaries, and stronger currencies and says the relaxing of its one child policy should spur even more imports.

Levitt doesn’t see U.S. supply overwhelming demand for at least six months, possibly more, and predicts prices will remain within 5 percent of current levels for the first six months of 2014 but still sees possible short-term volatility. He pointed out that the U.S. is wrapping up its ninth record year out of the last 10 and that U.S. exports are on track to be up 29 percent by value and 16 percent by volume from last year. He added the caution that increased competition may make it hard to repeat 2013 in 2014.

October U.S. dairy product exports were equivalent to 16.3 percent of U.S. milk solids production, the sixth straight month above 16 percent. In the first 10 months of 2013, exports were equivalent to 15.6 percent of U.S. milk solids. Imports as a percent of milk solids production were 3.4 percent in October 2013.

DairyBusiness Update reports that strong milk prices should help U.S. dairy producers increase gross income levels in 2013. USDA’s “2013 Farm Sector Income Forecast” estimates 2013 U.S. dairy producer cash receipts from milk marketings at $40.05 billion, up from $37.00 billion in 2012, and surpassing the previous high of $39.51 billion in 2011. The 2011-13 period would yield the three highest annual gross income years for milk marketings on record.

Based on last month’s USDA Dairy Outlook report, the 2013 all milk price will average about $19.85 per cwt., up from $18.53 in 2012. Milk marketings were forecast to total 200.7 billion pounds in 2013, up from 199.4 billion in 2012.

Positive news

Also included in the USDA report are direct government payments under the Milk Income Loss Contract (MILC) program. USDA estimates MILC payments will total $285 million in 2013, down from $446.6 million in 2012.

The USDA report does not separate production costs by commodity. In general terms, “livestock” producers are expected to pay about 1.8 percent more for all inputs in 2013 compared to 2012. Feed prices were slightly below December 2012 levels through the first eight months of 2013, and were projected to decline through the fourth quarter of 2013 due to lower corn and soybean prices.

DBU also reports that the U.S. average milk-feed price ratio is returning to levels not seen in three years. The preliminary November 2013 ratio is 2.25, the highest since October 2010, and first time it’s been above 2.0 in consecutive months since February-March 2011.

At $21.30 per cwt., November’s U.S. average milk price is the highest since November 2012. The corn price, at $4.29 per bushel, is the lowest since September 2010; the alfalfa hay price ($188/ton) is the lowest since June 2011.

Butter gains ground

A headline in the Nov. 25 issue of the Daily Dairy Report (DDR) caught my attention. “Margarine’s Demise Good for Butter.” I recalled how a few years ago, butter was so maligned. The DDR’s Sara Dorland pointed out that, while butter is heavy in saturated fats, it does not have the transfats that the Food and Drug Administration (FDA) is currently looking at.

Transfats have been linked to an increased risk of coronary heart disease due to plaque buildup in the arteries, according to the FDA she said, and is the reason an outright ban is being considered.

One of the largest groups that would be affected by such a ban would be margarine, according to Dorland, which leaves butter, soy butter, and almond butter as alternatives, or vegetable fats if not hydrogenated. “It’s primarily the soy oils that are hydrogenated that raised the transfat concern,” she said.

Consumers, meanwhile, are coming back to butter, she said, and U.S. butter consumption has risen gradually the past decade. Per capita butter consumption reached 5.6 pounds in 2012, up 2.6 percent from 2011 and the highest level since 1975, according to USDA data.

The FDA started to increase consumer awareness of trans fats in processed foods in 2001, according to Dorland, and in 2005, U.S. butter consumption began to rise at a faster pace. The following year, FDA trans-fat labeling requirements were mandated and manufacturers had to disclose the grams of trans-fats contained in a food product on its nutrition label.

People cooking at home prefer the taste of butter as do chefs, according to Dorland, who quickly added that the Food Network has “done a lot for butter.”

The DDR points out that U.S. per capita consumption of margarine in 2000 was 8.2 pounds, nearly double butter consumption at 4.6 pounds, according to USDA’s Agricultural Fact Book. Ten years later, per capita margarine consumption had dropped 56 percent to 3.6 pounds, while butter consumption climbed 10.5 percent to 5 pounds. USDA has not published margarine consumption since 2010 due to the limited number of companies reporting.


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