Posted: Wednesday, November 21, 2012 4:35 PM
By LEE MIELKE
For the Capital Press
Cash cheese prices stabilized in the Thanksgiving holiday shortened week as the markets pondered the latest milk production data and awaited Wednesday afternoon's October Cold Storage report. The blocks closed that morning at $1.8250 per pound, unchanged on the week but 3 3/4-cents above a year ago. They plunged 29 1/2-cents in the previous three weeks. Barrel closed at $1.7450, up 2 1/4-cents on the week, 5 1/2-cents below a year ago, and 8 cents below the blocks. The barrels plunged 35 3/4s the previous two weeks. Nothing sold in the cash market Thanksgiving week. The AMS-surveyed U.S. average block price slipped 2.2 cents, to $2.0566. The barrels averaged $2.0293, down 3.6 cents.
Demand for cheese is good as buyers are looking to build on sales at the lower prices, according to USDA's Dairy Market News. The lower price increased interest in the export market. Cheese and butterfat prices were higher while whole milk powder and skim milk powder prices were modestly lower in Tuesday's Global Dairy Trade auction. The average winning price for cheddar cheese delivered from January 2013 through March 2013 was $1.56 per pound, still well below U.S. prices.
Along with assistance from the CWT program, exports of cheese and curd from January to September totaled 444.3 million pounds, up 21 percent from the same period a year ago. Recent ad featuring for retail sales has increased as the holidays approach, USDA reports.
CWT accepted 25 requests for export assistance this week to sell 2.784 million pounds of cheese and 4.381 million pounds of butter, to customers in Asia, the Middle East, and North Africa. The product will be delivered through May and raised CWT's 2012 cheese exports to 111.1 million pounds, 71.1 million of butter, 127,868 pounds of anhydrous milk fat, and 85,980 pounds of whole milk powder.
Jerry Dryer admitted in his Nov. 16 Dairy and Food Market Analyst that he was "surprised by the size of this (cheese price) correction lower," but added the caveat that "buyers might get a big surprise regarding the suddenness of a price reversal and subsequent price increased."
"Manufacturers aren't in an-inventory-building mood, brokers/distributors are not in an inventory-holding mood, and holiday sales are pulling pipeline supplies very thin. Customers (retailers and restaurateurs) could wake up one morning to empty coolers which could trigger a crunch of orders for cheese that has yet to be made," Dryer wrote.
The drop in the cheese market was expected, according to Sara Dorland, analyst with the Daily Dairy Report. She pointed to the price gap between U.S. cheese and the world market in the Nov. 16 Daily Dairy Discussion on the DDR website. She warned that cheese manufacturing margins will get squeezed, pointing to November milk costs versus what they'll be able to sell the cheese for.
It also portends declines in farm milk prices but U.S. producers like what they see in their October milk checks, Dorland said, although that varies regionally. Idaho producers, who are paid off of cheese yield, will see the drop in the CME cheese price quickly, possibly $2.50 by the end of November, and California producers can expect a sizeable drop, according to Dorland, because their 4b cheese milk price is based on the CME average price.
Farms in federal order regions like Wisconsin, where 80 percent of the milk is converted into cheese, will see the decline take a little longer to manifest itself due to the two to three week delay between the spot price and the AMS survey prices, she said, and may not be evident until December or the January milk check.
"The reaction across the country could be quite different," Dorland said. "We could see farms in the West continue to contract and, in the nearby, we could actually see farms in the Midwest expand milk production until they see those numbers come into their milk checks."
October milk production totaled 15.2 billion pounds in the top 23 states, down slightly from October 2011. The 50-state total amounted to 16.255 billion pounds, down 0.1 percent. Revisions lowered the original September estimate by 19 million pounds, to 14.7 billion, down 0.6 percent from a year ago.
Cow numbers in the 23 states, at 8.47 million head, were down 8,000 head from September and 10,000 less than a year ago. Output per cow averaged 1,791 pounds, up one pound from a year ago.
California was down 4.5 percent from a year ago on 12,000 fewer cows although output per cow was up 35 pounds. Wisconsin was up 4.7 percent on 7,000 more cows and 70 pounds more per cow. Idaho inched up 0.9 percent on a 30 pound gain per cow but cow numbers were down 4,000. New York was up 2.7 percent on a 45 pound per cow increase. Cow numbers were unchanged. Pennsylvania was down 0.3 percent on 5,000 fewer cows. Output per cow was up 10 pounds. Minnesota was up 2.9 percent on a 50 pound gain per cow and 1,000 more cows
New Mexico saw the sharpest decline, down 5.9 percent on a 75 pound per cow loss and 8,000 fewer cows. FC Stone's November 20 eDairy Insider Opening Bell pointed out that about 40 dairies have already closed in New Mexico this year and that state has one of the largest cheese plants in the world. Texas was next, down 5 percent, also on a 75 pound per cow drop and 5,000 fewer cows.
In other states of interest, Arizona was down 4.5 percent on 12,000 fewer cows but output per cow was up 35 pounds. Michigan was up 2.7 percent on a 25 pound gain per cow and 5,000 more cows. Vermont was up 1.4 percent, thanks to a 35 pound gain per cow but the herd had 1,000 fewer cows in it. Washington state saw a 2.1 percent decline on 5,000 fewer cows and 5 pound less per cow.
Cash butter was pulled lower for the second week in a row, dipping to $1.69, down 10 1/2-cents on the week but 9 cents above a year ago, and the lowest it has been since early August. Eight cars were sold on the week and the lagging AMS averaged came in at $1.8796, down 1.3 cents.
Butter production across the country remains seasonally active, according to DMN, although producers are closely monitoring fresh production. Many producers and handlers have a pretty good picture of butter needs for the balance of the holiday season. Retail promotional activities are very prevalent. The National Dairy Retail Report says featured butter ranged from $1.98-$3.99 per pound in the U.S. with the national average being $2.71.
Cash Grade A nonfat dry milk closed Wednesday at $1.5575, down three quarters, while Extra Grade remained at $1.56. AMS powder averaged $1.5165, up 1.1 cent, and dry whey averaged 64.81 cents, up 0.7 cent.
Class I demand continues very strong in the Northeast and Mid-Atlantic, limiting manufacturing milk supplies, according to USDA.
The December federal order Class I base milk price is $21.39 per hundredweight, up 69 cents from November, $2.92 above December 2011, the highest it has been since September 2011, and equates to about $1.1.84 per gallon. That put the 2012 Class I average at $17.46, down from $19.13 in 2011 and compares to $15.35 in 2010 and $11.48 in 2009.
The AMS butter price averaged $1.8860 per pound, down 3.4 cents from November. Nonfat dry milk averaged $1.5112, up 6.1 cents. Cheese averaged $2.0717, up 5.3 cents, and dry whey averaged 64.5 cents, up 3.2 cents.
Checking the cupboard
Oct. 31 butter stocks stood at 145 million pounds, down 26 percent from September but 11 percent above those a year ago, according to USDA's latest Cold Storage data issued Wednesday afternoon.
American-type cheese, at 581.7 million, was down 4 percent from September and 6 percent below a year ago. The total cheese inventory stood at 954 million pounds, also down 4 percent from September and 6 percent below a year ago.
The Environmental Protection Agency has denied a request to waive Renewable Fuel Standard ethanol mandates for the remainder of 2012 and 2013, saying the agency has not found evidence to support a finding of severe "economic harm" caused by the requirements.
"We recognize that this year's drought has created hardship in some sectors of the economy, particularly for livestock producers," said Gina McCarthy, assistant administrator for EPA's Office of Air and Radiation. "But our extensive analysis makes clear that Congressional requirements for a waiver have not been met and waiving the RFS will have little, if any, impact."
The decision is based on economic analyses and modeling done in conjunction with USDA and U.S. Department of Energy. Economic analyses of impacts in the agricultural sector, conducted with USDA, showed that on average waiving the mandate would only reduce corn prices by approximately 1 percent.
National Milk Producers Federation and the U.S. Dairy Export Council praised the House of Representatives' approval of HR6156, which would establish permanent normal trade relations, or PNTR, with Russia. A joint NMPF and USDEC press release reported that both have actively supported approval of relations with Russia as part of work necessary to reopen that market to U.S. exporters. The release said the Russia dairy market has been closed to U.S. dairy products for more than two years due to Russian insistence on certain dairy certificate statements and accompanying facility inspection requirements that were not acceptable to the U.S.
"This is a significant step forward on the path to reopening one of the world's largest dairy importing markets," said Tom Suber, president of USDEC. "USDEC has been working extensively to help provide a firm basis for restoring access for U.S. dairy exporters to Russia. More is needed beyond PNTR to achieve that goal but approval of PNTR is a vital piece of puzzle."
"NMPF hopes that House action will help to spur swift action by the Senate to also approve PNTR with Russia so that we can move closer to re-establishing exports of U.S. cheese, butter and other products to benefit of America's dairy producers," said Jerry Kozak, president and CEO of NMPF. "This is a major market with solid opportunities for our industry and it is critical to ensure we have the same access to it that our competitors around the world enjoy."
Both organizations also stressed the importance of a strong focus by the administration on resolving the ongoing dairy certificate and related technical requirements that currently block U.S. dairy shipments. NMPF and USDEC say it is critical to continue to move forward with active and aggressive efforts to resolve these issues as Congress works to pass PNTR legislation.
Dairy Profit Weekly reports that the California Department of Food and Agriculture released its annual list of dairy product manufacturing costs, noting 2011 weighted average costs to produce butter and nonfat dry milk were down from a year earlier, but the cost to produce cheese was up.
The 2011 average cost to produce cheddar cheese was 20.29 cents per pound, up 5.62 percent from 19.21 cents in 2010 and the highest cost per pound since 2008. It compared to 19.66 cents in 2009; 20.99 cents in 2008; 20.03 cents in 2007; 19.88 cents in 2006; and 19.14cents per pound in 2005.
The average all-cheese yield decreased to 12.21 pounds per hundredweight of milk in 2011, compared to 13.70 pounds in 2010; 13.28 pounds in 2009; 13.58 pounds in 2008; 13.71 pounds in 2007; and 12.24 pounds in 2006.
The 2011 average cost of manufacturing butter was 17.75 cents per pound, down 0.34 percent from 17.81cents in 2010 and the lowest since 2008. Among eight plants, 2011 costs ranged from 17.28 cents per pound for the low-cost group to 18.62cents for the high-cost group (four plants each).
The cost to produce nonfat dry milk was 19.42 cents per pound, down 6.18 percent from 20.20 cents in 2010 and the lowest since 2008. Among nine plants, the 2011 range was 17.46 cents for the low-cost group; 20.41cents for the medium-cost group; and 24.56 cents for the high-cost group (three plants in each group).