Posted: Thursday, November 11, 2010 11:00 AM
Carol Ryan Dumas/Capital Press
Bags of whey product come off the line at Davisco Foods' Jerome Cheese plant in Jerome, Idaho.
Butter market suffers biggest one-day crash in six years
An increase in September milk output boosted production of cheese, butter and powdered milk, sending cheese and butter prices lower.
"The milk is there, and it has to be processed into something," said Alan Levitt, publisher of CME Daily Dairy Report. "If you're a co-op, you have to take the milk from your farmers."
Cheese production in September was up 4.3 percent from a year ago. Butter was up 16.7 percent, in part a factor of the 21.8 percent drop last year. Powder production was up 25.5 percent.
The good news is consumer purchases are also up, said Jerry Dryer, publisher of Dairy & Food Market Analyst. Consumer purchases of all milk and dairy products was up 4.6 percent in the most recent three month and up 3.2 percent year to date.
Exports helped move butter, powder and cheese in the third quarter, but cheese exports took a hit in September when Mexico slapped retaliatory tariffs on U.S. cheese, he said.
In addition, retail cheese sales were down 1.4 percent for the three months ending with September.
But a break in prices is fueling more aggressive retail promotions. Cheese prices began dropping in mid-October, falling from about $1.77 a pound to $1.50 last week. That should help sales, but there are big inventories hanging over the market, he said.
Cheese and butter prices experienced a meltdown last week, Dryer said. Cheese prices dropped an average of 15.5 cents a pound, and butter fell 30.5 cents.
On Nov. 5, the butter market suffered its biggest one-day crash in nearly six years, Levitt said. The spot butter market had been above $2 a pound since mid-August, but fell 27 cents.
Last week's drop in cheese prices sent Class III futures into a tailspin, he added. December futures settled 73 cents a hundredweight lower at $13.56.
But there are bright spots on the horizon, the analysts said.
"People expect exports to be strong and take a larger portion of production," Levitt said.
Exports of cheese from April through August claimed 4.1 percent of U.S. production, compared with 2.3 percent for the same period last year. Butter exports claimed 10.8 percent of domestic production, compared with 2.2 a year ago.
"Cheese exports are at record levels this year," Levitt said.
While it'll be hard to tack on any increases in retail cheese sales, which are 6 percent to 8 percent above a year ago, foodservice sales are perking up, Dryer said.
"Foodservice had a real good third quarter, in general. That'll spill over into fourth quarter," he said.
Job creation and growing consumer confidence will continue to fuel that market, not to mention the high-income people who are tired of not spending, he said.
"I'm looking for real good markets for milk producers by the second quarter (2011) and definitely by third quarter. But it's going to be a little dicey between now and then," he said.