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Home  »  Ag Sectors

Mielke: All eyes on cheese market

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By LEE MIELKE


For the Capital Press


Cheese market drama


Cash dairy markets were the center of attention the second week of November as only two dairy industry-watched USDA reports were released. The spot block cheese price closed Friday, Veterans Day, at $1.95 per pound, up 7 cents on the week, and 54 cents above a year ago when they lost 7 cents. Barrel closed at $1.98, up 6 on the week, and 61 cents above a year ago. Seven cars of block traded hands on the week and none of barrel. The NASS-surveyed U.S. average block price hit $1.7255, up 0.3 cent. Barrel averaged $1.7588, up 1.8 cents.


FC Stone's Nov. 4 Dairy Insider reports that cheese market participants "continue to question whether current price levels are fundamentally supported."


"We are not hearing that a substantial amount of cheese is moving for the holidays," broker Yanna Zalukina said. "And with Oceania cheddar prices 35 cents below CME spot prices, it doesn't appear current price levels are sustainable."


Analyst Jerry Dryer wrote in his Nov. 4 Dairy and Food Market Analyst said that "much delayed (holiday) orders for items like Pepper Jack and Colby Jack cheese have shifted milk from barrels to blocks."


"Most observers remain convinced that this is a short-term price phenomenon," Dryer said. "Class III futures are also very skeptical of the cheese prices' staying power."


He pointed out that his "limited survey of cheese heads" found estimates ranging from $1.35 to $1.55 per pound when asked what the cheese price would be by late December.


Stewart Peterson dairy advisor Matt Mattke said in Tuesday's DairyLine broadcast that "the seasonal potential that cheese prices will stay strong, (which) bows well for November milk prices." Seasonality and correcting for an oversold condition is affecting the market right now, according to Mattke.


"The one good thing that has happened this year -- that is a bit out of the norm -- is that we had cheese prices finish up about 9 cents for the month of October, and that's pretty rare," Mattke said. "When you look back over the past 14 years, there's only been four times prior to that where October has been an up month for cheese."


October is one of the more consistent weaker months for cash prices, he said. Moving on from there, he points out that cheese prices this time of the year tend to be, on average, the strongest weeks of the year. He credits end user buying for Thanksgiving, Christmas, New Year's and the Super Bowl.


Weekly cheese inventories have fallen seven out of the last 10 weeks, Mattke reported, to where they're about 2 percent lower than where they were a year ago.


"It's falling inventory and seasonality that's taken over the market," Mattke said.


Butter questions


The cash butter price fell to $1.74, down 9 1/4-cents on the week and 25 cents below a year ago when it had recaptured 11 cents after plunging 30 1/2-cents the week before. Eight cars were sold on the Veterans Day week. NASS butter averaged $1.8393, up a penny.


Holiday butter orders are also being filled but Jerry Dryer warns that "manufacturers are looking over their shoulders at expensive inventories and big production numbers." Orders are good, he reports, and holiday promotions are building, but prices are well above a year ago and "the big question is how much butter will actually cross the scanner at retail?"


Holiday butter orders are also being filled but Jerry Dryer warns that "manufacturers are looking over their shoulders at expensive inventories and big production numbers." Orders are good, he reports, and holiday promotions are building, but prices are well above a year ago and "the big question is how much butter will actually cross the scanner at retail?"


He speculates that the Cooperatives Working Together program may assist in exporting butter next year, but CWT's own existence may be in question as to whether it has the required 70 percent participation of the nation's milk supply. We may not have the answers until National Milk Producers Federation's Nov. 14 annual meeting.


Bill Van Dam, of the Alliance of Western Milk Producers, cautioned in his member newsletter that the scary part of the butter equation is the falling value of anhydrous butter oil in Fonterra's Global Dairy Auction. He warned that the butterfat corrected price works out to butter values of $1.21.


"However, domestic and export sales have for quite some time now been robust enough to clear an ever growing output of butter, but as we repeatedly learn there is always a price adjustment necessary to keep the volumes moving. This appears to be the case with butter and we can expect a continuing seasonal downward adjustment in prices. Holiday sales could surprise us if special promotions provide a boost and can keep prices fairly high for now," he said.


Butter prices in Europe and Oceania are slipping downward, Van Dam reports, but not at a very rapid rate. Inventories are higher than the past year but are not at a level that will be a burden on the market. "It seems the butter market fundamentals are still OK but the proper clearing price will need to be found."


California butter production was up 15.5 percent in September and up 18.8 percent in August.


"Our state produces more that 1.5 million pounds of butter every day. That's 33 full truckloads of butter every day," he said. "The size of this business always amazes me."


Milk production forecast


National Milk's Roger Cryan writes in his latest market report that milk production growth will slow through fall but will continue to grow faster than domestic consumption. He also said that higher dairy cow slaughter hasn't stopped expansion in the dairy herd, pointing out that the increased use of sex-sorted semen has meant an increase in the replacement heifer supply. A study at the University of Florida showed about 1.8 million straws of sexed semen were used in 2009, producing an additional 300,000 heifer calves. Two years later, nearly all of these have grown into additional replacement cows, the study showed.


The Agriculture Department did not change its 2011 0r 2012 milk production forecasts in this month's World Agricultural Supply and Demand Estimates report. Production for 2011 is expected to hit 195.9 billion pounds, up from 192.8 billion in 2010 and 2012 output remains projected at 198.4 billion. 2011 commercial exports were forecast higher. Fat and skim-solids ending stocks were lowered.


Cheese, butter and whey prices were forecast higher for both 2011 and 2012, but the nonfat dry milk price forecast was reduced for 2011 and unchanged for 2012. Cash Grade A nonfat dry milk inched a half-cent higher, to $1.4350. Extra Grade dropped a dime, to $1.48. NASS powder averaged $1.4723, down a penny and a half, and dry whey averaged 63.22 cents, up 0.8 cent.


Class III milk prices were raised for 2011 and 2012 on the increased price forecast for cheese and whey. Look for the 2011 Class III average to range $18.30-$18.40 per hundredweight, up 15 cents from last month's projection. The 2012 range is now put at $16.70-$17.60, up 40 cents from last month's estimate. The Class III averaged $14.41 in 2010 and $11.36 in 2209.


Looking to the futures market, the average for the first six months of 2012 stood at $16.63 on Nov. 4 and was right around $16.67 at our deadline on Nov. 11.


California's December Class I milk price is $20.67 per hundredweight for the north and $20.94 for the south, up 41 cents and 40 cents respectively from November but $2.39 above December 2010. The Northern price averaged $20.68 in 2011, up from $16.97 a year ago. The southern price averaged $20.95, up from $17.24 in 2010. The federal order Class I base price will be announced Nov. 18 by USDA.


Crop production


USDA's November Crop Production report lowered 2011 corn and soybean harvest expectations slightly, but the WASDE report forecast season-average soybean prices would be lower. Corn production was forecast at 12.3 billion bushels, down 1 percent from the October forecast and down 1 percent from 2010. If realized, this will be the fourth-largest U.S. production total on record, according to Dairy Profit Weekly.


Based on conditions as of Nov. 1, yields are expected to average 146.7 bushels per acre, down 1.4 bushels from the October forecast and down 6.1 bushels from 2010. If realized, this will be the lowest average yield since 2003. Area harvested for corn grain is forecast at 83.9 million acres, unchanged from the October forecast, but up 3 percent from the previous year. If realized, area harvested for grain will be the second highest on record since 1944, said DPW, behind only the 86.5 million acres harvested in 2007.


Based on conditions as of Nov. 1, yields are expected to average 146.7 bushels per acre, down 1.4 bushels from the October forecast and down 6.1 bushels from 2010. If realized, this will be the lowest average yield since 2003. Area harvested for corn grain is forecast at 83.9 million acres, unchanged from the October forecast, but up 3 percent from the previous year. If realized, area harvested for grain will be the second highest on record since 1944, said DPW, behind only the 86.5 million acres harvested in 2007.


The U.S. season-average farm price for corn is unchanged at $6.20-7.20 per bushel. Soybean production is forecast at 3.05 billion bushels, down slightly from the October forecast and down 9 percent from last year. Based on Nov. 1 conditions, yields are expected to average 41.3 bushels per acre, down 0.2 bushel from last month and down 2.2 bushels from last year. If realized, the average yield will be the second lowest since 2003. Area for harvest is forecast at 73.7 million acres, unchanged from October but down 4 percent from 2010. Harvested area, if realized, will be the sixth largest ever.


The U.S. season-average soybean price range is projected at $11.60-$13.60 per bushel, down 55 cents on both ends of the range. The soybean meal price is projected at $310-$340 per short ton, down $25 on both ends of the range.


USDA lowered its cottonseed estimate by about 100,000 tons, to 5.47 million. That's down about 628,000 tons from 2010. Drought conditions in many of the cotton growing areas have negatively impacted this year's crop. The November crop report did not update dry hay production estimates, according to DPW.


USDA also reports that disruptions in processing and consumption were noted in the Northeast the week of Oct. 31 as heavy snow caused branches and power lines to break, leaving many consumers without power for extended periods. Manufacturing in the region was heavier as a result.


Milk intakes are near annual low levels in the Northeast, Upper Midwest and Pacific Northwest. California intakes are both higher and lower and above year ago levels. Receipts are higher in Florida, Utah and Idaho. Bottlers were increasing production of eggnog as well as specialties for holiday consumption such as sour cream, dips, and whipping cream, reducing manufacturing milk supplies in those areas. Cream interest was also improved from most non-ice-cream manufacturers as a result.


Cooperatives Working Together


The Cooperatives Working Together program accepted 12 requests for export assistance this week from Dairy Farmers of America, Darigold, Foremost Farms and United Dairymen of Arizona to sell a total of 2.1 million pounds of cheese to customers in Asia and the Middle East. The product will be delivered through May 2012 and raises CWT 2011 cheese exports to 81 million pounds.


Livestock Gross Margin



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