Milk may strengthen on rising prices
MILC projection sees lower payments in coming months, which indicates profit
By CAROL RYAN DUMAS
Markets for butter, cheese, nonfat dry milk and whey have strengthened, but prices to producers are still falling.
Rob Vandenheuvel, manager of California Milk Producers Council, said it is because of the lag time in federal marketing orders. In federal orders outside California, the milk price is based on USDA National Agricultural Statistics Service's survey prices.
"They may be pegged to CME, but it takes time for higher commodity prices to make their way to producer prices," he said. "It's a timing thing; you'll see prices in federal marketing orders move up."
In California's marketing order, milk prices are based on CME butter and cheese prices. As butter prices moved up and cheese prices strengthened, prices to producers increased, he said.
The milk price for California's Class 4a, used in butter and powder, for December was $14.67 per hundredweight. The January price is $16.24. The milk price for Class 4b, used in cheese, is down a bit, to $11.72 in January from $12.22 in December, but the December price was reflective of higher cheese prices in early December, Vandenheuvel said.
One indication that producers will benefit from strengthening dairy-product prices is Cornell University's projection of Milk Income Loss Contract payments, he said.
Those projections changed overnight last week. On Jan. 6, the projections went from MILC payments for all of 2011, at a high in March of 67 cents a hundredweight, to a Jan. 7 projection of almost no payments after March, with only a penny in June and three cents in July.
An overnight change might support the viewpoint of Mike Roth, Jerome, Idaho, dairyman and president of Idaho Dairymen's Association. He said a lot of what determines producer prices is based on speculation.
"For every trade on the CME, there is a buyer and seller; one who thinks it (the price) will go down and one who thinks it will go up," he said. "Most speculators don't care what the market does or if farmers are making money; they just want volatility so that they can make trades up and down and make money when the markets move."
In addition, only a tiny percentage of milk is traded, and that means there is very little liquidity, he said.
"The banks like us to sell milk because it makes them feel better that we are trying to lock in a profit. Most of the time, we give up profit by doing that," he added.