Home  »  Ag Sectors

Mielke: How high can cheese go?


By LEE MIELKE


For the Capital Press


I know it will be a happy June Dairy Month for consumers because there will be no shortage of safe, wholesome dairy products to enjoy. But will it be a happy June Dairy Month for farmers? That's another issue.


The rumor on cheese is $2.30 per pound, Jerry Dryer reported in his May 20 Dairy and Food Market Analyst newsletter. Dryer told me that the gossip last week was that the price would be at that level by the end of June and, while it may not happen quite that fast, Dryer said cheese could hit $2.30 or close to it this fall for a number of reasons.


Milk production in many prime cheese-making regions was below a year ago or production per cow was down, according to USDA's latest Milk Production report, and that portends less milk ahead. Dryer adds that high butter prices are pulling milk away from the vat and high nonfat dry milk prices are limiting cheese vat fortifications, so yields will slip.


European cheese seems to be headed to Russia, he said. New Zealand milk seems to be going to whole milk powder for China. U.S. cheese is filling some of those export voids, going to numerous locations around the world, and the U.S. economy continues to recover and cheese demand continues to grow.


Ditto on butter; prices could go even higher than $2.30, according to Dryer. A couple of manufacturers told him that $2.30 will be the lowest price this fall, though he's not totally convinced of that yet. He admitted however, that 2011 butter sales remained very strong despite the price being at or close to $2.


In the past, food manufacturers who used butter as an ingredient would often switch to alternatives when butter prices got too high, but Dryer points out there's a different paradigm in place now because it's much more difficult to switch.


"They have proclaimed on their menus and in their recipes that they are transfat-free," Dryer explained. "And therefore can't use a lot of the substitutes for butter that are on the market. They have to stick with butter." Furthermore, the prices of most of those alternatives are quite high, he said.


Dairy-farmer-funded research has shown its value by taking on the conventional thinking that said butter was bad for you and margarine was better.


"There has been a major turnaround in that belief," Dryer said.


Market prices


On the bright side for farmers, dairy product prices continued to move higher going into the Memorial Day weekend. Cash block cheese, after posting 11 consecutive gains, closed that Friday at $1.81 per pound, up 10 1/4-cents on the week, and 34 1/2-cents above a year ago.


Barrel closed at $1.8175, up 10 3/4-cents on the week, 38 3/4-cents above a year ago, and three-quarters above the blocks. One car of block was the only cash cheese traded on the week, the gains all came on unfilled bids. The lagging NASS-surveyed U.S. average block price hit $1.6393, up 1.3 cents, while barrel averaged $1.6680, up 1.9 cents.


Butter closed the week at $2.18, up 11 cents from the previous week, 62 1/4-cents above a year ago, and the highest it has been since October 2010. Three cars found new homes. NASS butter averaged $1.9951, down 8.6 cents.


Cash Grade A nonfat dry milk finished the week at $1.64, up 2 cents, while Extra Grade held all week at $1.61. NASS powder averaged $1.6171, up 0.3 cent, and dry whey averaged 50.46 cents, up 1.1 cent.


Looking "back to the futures;" the Class III contract's average for the last half of 2011 was $17.64 per hundredweight on May 6, $17.49 on May 13, $18.22 on May 20, and was at $18.36 as of Thursday, May 27.


Looking "back to the futures;" the Class III contract's average for the last half of 2011 was $17.64 per hundredweight on May 6, $17.49 on May 13, $18.22 on May 20, and was at $18.36 as of Thursday, May 27.


Supplies plentiful


The good news for consumers is that dairy product supplies are plentiful. The Agriculture Department's latest preliminary Cold Storage report showed April American cheese stocks, at 623.4 million pounds, were up 2 percent from March and 2 percent above a year ago. The total cheese inventory stood at 1.4 billion pounds, up 1 percent from March, and 2 percent above a year ago.


April butter stocks, at 141.4 million pounds, were down 2 percent from March, 31 percent below those in April 2010, and at a 10-year low, according to the CME's Daily Dairy Report. There is no sign of that revised 27 million pounds in the CME's last stocks report that caused so much consternation in the cash markets.


More U.S. cheese will be leaving our shores. The Cooperatives Working Together program accepted four requests for export assistance from Darigold, Dairy Farmers of America and United Dairymen of Arizona to sell a total of 1.52 million pounds of cheddar and Monterey Jack to customers in Asia and North Africa. The product will be delivered June through September and raises CWT's 2011 cheese exports to 33.4 million pounds to 19 countries.


Weather influences


Fluid milk production across the northern tier of states is building toward the flush, according to USDA, although cool, wet weather has prolonged the wait. Southern tier states are past the flush with steady to declining output.


Wet conditions in the north delayed tillage and planting, USDA reported, and southern farmers are dealing with floods, drought or something in between.


The downside for dairy farmers is that these conditions add to financial concerns. California producers are particularly dependent upon purchased feed and are seeing high feed costs eat up a lot of the higher milk prices. That will limit the potential for higher milk production there.


The Daily Dairy Report stated 79 percent of this year's corn crop was planted as of May 22, up from 63 percent the week before. The five-year average is 87 percent, according to the DDR.


California milking


Speaking of the No. 1 milk producer, you'll recall the California Department of Food and Agriculture was petitioned by California Dairies and Land O'Lakes for a public hearing to consider changes to the Class 4a pricing formula. The goal was to increase make allowances for butter and nonfat dry milk and consider adjustments to the price adjuster for butter. Land O'Lakes specifically sought changes to the manufacturing cost allowances and FOB adjuster for cheese and the whey portion of the Class 4b pricing formula.


Those petitions were granted and the hearing will be held June 30 and July 1 in Sacramento. Complete details are available at www.cdfa.ca.gov/dairy .


Fluid milk sales slide


Fluid milk sales continue to struggle. USDA's latest data shows an estimated 4.7 billion pounds of fluid products was sold in March, down 1 percent from March 2010 after adjusting for calendar composition.


F.C. Stone dairy economist Bill Brooks said the report affirms why CME spot cheese prices dropped in March.


"Cheese demand appears to be picking up," Brooks said. The market has adequate quantities of dairy products, he said, "but the folks who own them are holding on with more vigor."


Butter use was up 7.8 percent and nonfat dry milk and skim milk powder was up 12 percent, according to USDA.


Forward the Foundation


Last week I reported on comments from National Milk Producers Federation's Chris Galen regarding the National Dairy Producer's Conference in Omaha. The conference addressed reforming dairy policy, specifically the federation's "Foundation for the Future" proposal.


Galen said the federation will embark on a cross-country "grassroots tour" in July and August to sell their proposal to dairy farmers.


He emphasized the need for unity in the industry if there's any hope of getting dairy policy reform passed in Congress. He said they have learned the value of face-to-face question-and-answer sessions with producers to alleviate concerns about what NMPF is trying to do with their proposal. For more information and to check where these sessions will be held, log on to www.nmpf.org .


Congress


The House Appropriations Committee this week released a subcommittee draft of the fiscal 2012 agriculture appropriations bill. Dairy Profit Weekly editor Dave Natzke said the draft is light on dairy specifics but may offer some insights.


"With Republicans representing the majority on all House committees, the overriding theme is reduced spending," Natzke said. The proposal was scheduled to be marked up in the agriculture subcommittee this week, he said, and according to the draft, overall spending for agencies and programs covering agriculture will receive about $126 billion in discretionary and mandatory funding in fiscal 2012, down about $2.7 billion from this year, and $7 billion less than President Barack Obama requested in his budget proposal.


"With Republicans representing the majority on all House committees, the overriding theme is reduced spending," Natzke said. The proposal was scheduled to be marked up in the agriculture subcommittee this week, he said, and according to the draft, overall spending for agencies and programs covering agriculture will receive about $126 billion in discretionary and mandatory funding in fiscal 2012, down about $2.7 billion from this year, and $7 billion less than President Barack Obama requested in his budget proposal.


Undoubtedly, dairy will face its share of cuts, he said. For example, the proposal reduces the USDA's Risk Management Agency budget, which could negatively impact the dairy insurance program, which ran out of money just halfway through this year.


Government feeding and nutrition programs make up nearly three-quarters of USDA's budget, and those are also cut, which could impact dairy. Dairy products are included in food and nutrition programs and cuts could reduce dairy product sales.


Secondly, support of food and nutrition programs has traditionally created a congressional coalition in support of farm policy.



User Comments

blog comments powered by Disqus