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Federal Class III milk price sets record

Columnist Lee Mielke reviews the week's dairy news.

By Lee Mielke

For the Capital Press

Published on March 7, 2014 12:28PM

Lee Mielke

Lee Mielke

The Agriculture Department announced the February federal order Class III milk price this week at $23.35 per hundredweight, up $2.20 from January, $6.10 above February 2013, $2.21 above the California 4b cheese milk price, and equates to $2.01 per gallon.

It tops the previous high of $21.67 in August 2011. The two month 2014 Class III average stands at $22.25, up from $17.70 at this time a year ago and compares to $16.56 in 2012 and $15.24 in 2011.

Looking ahead, the March Class III futures contract was trading late Friday morning at $22.77; April, $21.37; May, $20.40; and June, $20.08 per cwt.

The February Class IV price is a record high $23.46, up $1.17 from January and $5.71 above a year ago. The Class IV average is now at $22.88, up from $17.69 a year ago, $16.24 in 2012, and $17.41 in 2011.

The four-week National Dairy Products Sales Report-surveyed cheese price averaged $2.2864 per pound, up 20.3 cents from January. Butter averaged $1.8320, up 18.5 cents. Nonfat dry milk averaged $2.0783, up 4.5 cents, and dry whey averaged 63.14 cents per pound, up 2.9 cents from January.

California’s February 4b cheese milk price is a record high $21.14 per cwt., up 83 cents from January, and $5.73 above February 2013. That put the two-month 4b average at $20.73, up from $15.63 in 2013, $13.83 in 2012, and $14.71 in 2011.

The 4a butter-powder milk price is $23.08 per cwt., up 95 cents from January, $5.07 above a year ago, and the highest price since September 2007. The 4a two-month average stands at $22.61, up from $17.55 a year ago, $15.85 in 2012, and $17.19 in 2011.

Cheese prices rally

Cash cheese prices strengthened the first week of March on the block side, slumped on the barrels, but then rallied. The 40-pound block Cheddar closed Friday at $2.2925 per pound, up 7 cents on the week and 69 1/4-cents above a year ago. The 500-pound barrels, after dipping to $2.1275, rebounded and closed at $2.25, up 5 cents on the week and 67 cents above a year ago. Only three cars of barrel traded hands on the week in the cash market. The lagging NDPSR-surveyed U.S. average block price fell 2.5 cents, to $2.2303, while the barrels averaged $2.2069, down 4.4 cents.

Jerry Dryer, editor of the Dairy and Food Market Analyst, said cheese demand is strong here and around the world and supply is a little bit snug. He believes $2 cheese will be around through the end of March and said it’s looking more likely to be here well into the Second Quarter.

He explained that international buyers took a lot of cheese out of the U.S. last year, and in October and November, before the markets starting advancing. They hedged their purchases through the first half of the year, Dryer said, and he speculates that it sold in the $1.85 per pound range “so that’s what they’re paying for the cheese despite these higher prices at the exchange.”

The lower cheese prices a couple weeks ago cleared inventories and returned the market to a firming undertone, according to USDA’s Dairy Market News, but demand remains good with buyers looking to purchase on signs of price weakness. Buyers who held off on purchases and were looking to increase inventories, were having a harder time sourcing spot cheese. DMN adds that export demand is good though the high prices had market participants unsure about the price direction and some were showing resistance.

Butter held all week at $1.88 per pound following last Friday’s 10-cent jump. Fifteen cars sold on the week. NDPSR butter averaged $1.8092, down 1.4 cents.

DMN reports that butter makers are busy producing at steady to higher rates with extra cream supplies available and active export contracts being filled. Retail orders are picking up, improving domestic demand but inventories are growing.

Cash Grade A nonfat dry milk closed Friday at $2.04, unchanged on the week. NDPSR powder averaged $2.0855, up 0.4 cent, and dry whey averaged 64.25 cents per pound, up 0.8 cent.

January 2014 milk production was up 1 percent compared to a year ago, and most of the extra milk found its way to the cheese vat and dryer and less into the churn, according to USDA’s latest Dairy Products report issued Tuesday.

Butter production totaled 182 million pounds, up 12.9 percent from December but down 3 percent from January 2013. Nonfat dry milk output totaled 140 million pounds, up 11.1 percent from December but 2.3 percent below a year ago.

American type cheese production, at 380 million pounds, was up 0.7 percent from December and 1.1 percent above a year ago. Italian cheese amounted to 418 million pounds, down 1.2 percent from December but up 4.6 percent from a year ago. Total cheese output in January came to 951 million pounds, down 1.9 percent from December but 1.6 percent above a year ago.

CWT accepts 11 requests

Cooperatives Working Together accepted 11 requests for export assistance this week to sell 782,641 pounds of Cheddar cheese and 3.142 million pounds of 82 percent butter to customers in Asia, Central America, Europe, the Middle East and North Africa. The product will be delivered through June 2014.

Year-to-date, CWT has assisted member cooperatives in selling 26.1 million pounds of cheese, 10.42 million pounds of butter and 698,865 pounds of whole milk powder to 19 countries on four continents.

Milk production throughout the U.S. is steady to higher with overall favorable weather conditions outside the cold temperatures in the Upper Midwest, according to USDA’s weekly update. Last week’s rain was welcome in California but they could use a lot more. One positive effect was that the prior run of dry weather improved somatic cell counts in the state.

Milk supplies are becoming more available in several regions, with the exception of Utah and Idaho, where demand is outpacing supplies. Bottle sales are sluggish as interest is moderate to light. Balancing plants are running heavy in many regions, according to DMN.

Fluid milk sales off slightly

Checking demand, December 2013 packaged fluid milk sales totaled 4.35 billion pounds, down 0.8 percent from December 2012, according to USDA data. December sales of conventional products, at 4.16 billion pounds, were down 1.5 percent; organic products, at 199 million pounds, were up 14.4 percent. Organic represented about 4.6 percent of total sales for the month.

January-December 2013 total fluid milk sales, at 51.5 billion pounds, were down 2.3 percent from 2012. Year-to-date sales of conventional products, at 49.2 billion, were down 2.6 percent; organic products, at 2.27 million pounds, were up 5.1 percent, and organic represented about 4.6 percent of total fluid sales.

2013 was a great year for U.S. dairy exporters as volume was up 22 percent to almost 700 million pounds, according to the U.S. Dairy Export Council. USDEC’s Alan Levitt said, “That’s like exporting all the cheese produced in Minnesota.”

The United States saw exports up in all the major markets, according to Levitt. Mexico was up 26 percent, Korea up 25 percent, The Middle East North Africa region was up 40 percent, and Japan was up 21 percent. China, which is still a relatively small customer, saw an increase of 29 percent.

“It’s been a really nice run,” Levitt said. “That level of exports has more than tripled since 2009, so it’s a real significant volume.” Another way of putting it in context, he said, is that the U.S. is exporting nearly 50 loads of cheese per day. But what hasn’t received a lot of mention is that in 2013 the U.S. became for the first time, the worlds’ largest single country cheese exporter.

The U.S. passed France and the Netherlands in 2007, Germany in 2008, Australia in 2010, and New Zealand 2013, according to Levitt. “If this were the Olympics we have won the gold medal,” he said.

“It’s a big achievement and we want overseas buyers now to think of us as the market leader and look to us as a strong partner.”

Levitt says maintaining our spot as the number one cheese supplier in the world “requires a shift in mindset and tactics because market leaders take a different approach than those with a smaller slice of the pie.”

“Market leaders aren’t looking to chip away at competitors share to build business,” he said. “Instead, they’re looking to grow the market as a whole and to expand the pie.” For example, being the market leader in pizza cheese means focusing on building overseas pizza consumption and also getting more cheese on pizza. Or, it could mean working with food companies to get them to incorporate cheese into more processed foods.

“It’s that sort of expanding the pie work that’s at the core of USDEC’s marketing approach and U.S. suppliers are actively taking part in this work as well,” he said.

China outlook

China’s buying spree has certainly impacted world markets but we have to ask, How long will it last? The Daily Dairy Report’s Sarina Sharp warns in the Feb. 28 Milk Producer’s newsletter that “there are growing concerns about the health of the Chinese economy.” She reports that a Bank of America-Merrill Lynch survey of investment fund managers found that nearly half believe the possibility of a “hard landing” in China is the biggest risk to the global economy.

China is already suffering a liquidity crisis and the real estate boom there seems to be ending. The former could slow business investment, while the latter may restrict asset appreciation among the growing middle class.

Economic pain in China could quickly translate into a decline in the flow of dairy products and other commodities to Southeast Asia. Furthermore, it seems presumptuous to assume that the Chinese milk production deficit will compound itself year after year. At the very least, dairy and other commodity markets that are increasingly dependent on import demand from a single source should be wary of amplified volatility,” Sharp concluded.

This week’s Global Dairy Trade auction’s weighted average for all products dropped 4 percent, led by a 5.8 percent plunge in buttermilk powder and a 5.7 percent drop in whole milk powder. Skim milk powder was down 3.9 percent, while butter was up 3.9 percent, and Cheddar cheese was up 0.7 percent. The average butter price equated to about $2.1527 per pound U.S., up from $2.0802 in the February 18 event ($2.1002/lb. on 80 percent, up from $2.0294). The Cheddar average was $2.1940 per pound, down from $2.1977; skim milk powder, $2.1128 per pound, down from $2.1682, and the whole milk powder average was $2.1332 per pound, down from $2.2675 in the last event.


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