By LEE MIELKE

For the Capital Press

Cash cheese prices saw a third week of sharp decline the week of Aug. 22, dropping to $1.73 but ending the week at $1.79 a pound.

University of Wisconsin emeritus professor Robert Cropp said in Tuesday's DairyLine that cheese could come back up in October, but $2 was not sustainable even though milk production was impacted by the weather in July and August.

Looking for the "silver lining in the dark cloud," eDairy economist Bill Brooks said in their Aug. 25 Executive Edition that "while the declines in cheese prices occurred more quickly than many expected, lower cheese prices could spur demand and get product moving. The industry could see better fourth-quarter sales now than had cheese prices remained above $2."

The blocks plunged to $1.73 but regained a nickel on Thursday and a penny on Friday, to close at $1.79 per pound, down 11 cents on the week, down 36 1/2-cents from its July peak, but still 9 1/2-cents above a year ago. A penny movement on cheese equates to about a dime on the milk price.

The barrels rolled down to $1.6925 but also rallied and closed Friday at $1.7225, down 14 cents on the week, 41 1/4 below its peak, but 5 3/4-cents above a year ago. The NASS-surveyed U.S. average block price slipped a penny and a half, to $2.1322, while the barrels averaged $2.1489, down 1.2 cents. Twelve cars of block traded hands on the week and 25 of barrel, 13 on Friday.

American-type cheese amounted to 648.6 million pounds, up 30.9 million or 5 percent from June, and just 9.1 million or 1 percent above a year ago. The CME's Daily Dairy Report stated this was the largest one-month increase in 17 years. The total cheese inventory, at 1.084 billion pounds, was up 34.8 million or 3 percent from June, and 14.6 million or 1 percent ahead of a year ago.

Butter

Butter closed the week at $2.0925, up a half cent, but 8 3/4-cents below a year ago when it had jumped 14 cents. Only three cars found new homes this week. NASS butter averaged $2.0668, down 2.7 cents. NASS powder averaged $1.5537, down 3.3 cents, and dry whey averaged 57.08 cents, up 0.6 cent.

The $2 butter price is more understandable, according to Bob Cropp, because butter stocks remain fairly tight, though they have increased some, but sales are good. He warned that the price could soon fall below $2 as there's more cream available with schools reopening, thus more milk going to fluid use, and there's less ice cream being produced. Our guess is that buyers are likely holding off holiday butter purchases, hoping the price will slip.

The $2 butter price is more understandable, according to Bob Cropp, because butter stocks remain fairly tight, though they have increased some, but sales are good. He warned that the price could soon fall below $2 as there's more cream available with schools reopening, thus more milk going to fluid use, and there's less ice cream being produced. Our guess is that buyers are likely holding off holiday butter purchases, hoping the price will slip.

USDA's July Cold Storage report stated butter inventories declined 2.6 million pounds after increasing 48.6 million in May and June. Stocks totaled 187.7 million pounds, down 1 percent from June, and 3 percent below July 2010.

Milk output

He sees U.S. milk output remaining close to a 1 percent increase from a year ago. He said that will maintain a "reasonable milk price" -- not $20-plus, but $17 or $18, he said. USDA revisions that lowered its corn and soybean crop estimates impacted things as well, he said. Also, the international market is expected to be a little soft.

Fluid milk continues to struggle in the beverage market. The Agriculture Department estimates June sales totaled 4.1 billion pounds, down 1.3 percent from June 2010 after adjusting for calendar composition. Conventional fluid sales were down 2.1 percent while organic sales were up 10.4 percent.

Retail milk prices in the April to July period were up 10.7 percent from a year ago and July's consumer price index (CPI) for milk was the highest since September 2008, according to the DDR. The April to July cheese CPI was up 6.3 percent from last year and butter was up 22.3 percent. Interestingly, butter sales were up about 5.5 percent in the first half of 2011, though prices closed at or above $2 in all but three weeks of that period.

Cow numbers

USDA estimates 207,100 culled dairy cows were slaughtered under federal inspection in July, down 18,800 head from June and 12,000 less than July 2010. January-July dairy cow slaughter was estimated at 1.665 million head, up 69,600 from the same period in 2010.

Back to the futures

The federal order Class III contract's average for the last half of 2011 was $18.54 per hundredweight on July 8, $19.29 on July 15, $19.75 on July 22, $19.92 on July 29, $19.75 on August 5, $19.42 on August 12, $19.18 on August 19, and in the neighborhood of $19.32 late morning August 26.

Shifting supply and demand

USDA reports that temperatures have moderated across all but the Southern tier of states and milk production is slowly recovering from the excessive heat of recent weeks. Schools are reopening across many parts of the country resulting in Class I capturing more of the milk supply.

Florida imported its first loads of milk for 2011. Manufacturing milk supplies in the East and Central regions are tight in many cases. The Eastern seaboard awaits the arrival of Hurricane Irene and it many impacts. Western milk supplies are above year ago levels thanks to moderate temperatures and increased cow numbers. Fluid milk and condensed solids are moving into deficit areas, although transportation costs are a hindrance.

Increased Class I demand has made more cream available. Demand is mixed as ice cream production slows and other Class II products begin to increase.

Looking abroad

Milk production in Europe continues to decline seasonally, although overall volume is running heavier than last year at this time. Some traders and handlers are reporting that, although it is the summer holiday season and Ramadan is ongoing, sales activity is more active than anticipated. Sales, especially to the Middle East, are being reported, according to USDA.

Traders report that international interest might be resuming as buyers feel that European prices for some products might be at the bottom and product is available for immediate and future shipment. Much of current demand is to fill fourth quarter needs.

Traders report that international interest might be resuming as buyers feel that European prices for some products might be at the bottom and product is available for immediate and future shipment. Much of current demand is to fill fourth quarter needs.

The winter season continues in New Zealand as cold temperatures and heavy snowfall blanketed areas of the North Island and much of the South Island. Auckland received snow for the first time in many years. The question that milk producers and handlers were asking is how long the snow will remain on the ground and what impact will this have on early season grass growth and the start of the new milk production season.

Conditions are much the same as they have been for the current winter season in Australia. Wet conditions in some dairy regions of Victoria continue to concern producers and handlers. Elsewhere within Victoria, temperatures start to warm, but then a cold snap arrived to quickly curtail an early arrival of spring. Although there are negative conditions in both New Zealand and Australia that potentially will impact output, producers and handlers remain optimistic about the season.

The Cooperatives Working Together program accepted seven requests this week for export assistance from Darigold and Dairy Farmers of America to sell a total of 1.8 million pounds of cheddar and Monterey Jack cheese to customers in Asia, North Africa and the Middle East. The product will be delivered through December and raised CWT's 2011 cheese exports to 63 million pounds.

California

The California Department of Food and Agriculture announced that it will amend its 4a and 4b milk pricing formulas. The changes follow hearings held June 30 and July 1. The 25 cent per hundredweight whey factor will be replaced with a sliding scale that floors the whey factor at 25 cents and caps it at 65 cents. Make allowances for butter and nonfat dry milk were increased. Cheese was unchanged.

"Had these changes been effect from May 2006 to April 2011, the five-year average price of Class 4a, 3 and 2 would have been 16 cents per hundredweight lower and the 4b would have been 15 cents higher," The Daily Dairy Report stated. The new formulas apply to September milk.

In dairy politics

Dairy Profit Weekly editor Dave Natzke reported in Friday's DairyLine that "one point of emphasis of the Obama administration was targeting antitrust activities, and the largest U.S. milk processor, Dean Foods, and largest dairy cooperative, Dairy Farmers of America, were squarely in their sites." Three lawsuits alleging antitrust activities by Dean Foods were under way at the same time, according to Natzke, and are in various stages of being resolved.

In a class-action lawsuit filed in the U.S. District Court of Vermont on behalf of dairy farmers in 11 states, Dean reached a $30 million settlement. The deadline for dairy farmers to submit claims and gain a portion of that settlement, after $6 million in attorney costs, was Aug. 23.

In a case filed in a Wisconsin U.S. District Court, one provision of an out-of-court settlement called for Dean to sell a fluid milk processing plant in Waukesha, Wis. Dean purchased the plant from Foremost Farms in 2009. In an announcement earlier this month, OpenGate Capital, a global private equity firm, signed a definitive agreement to acquire the Dean's plant and related assets, including the Golden Guernsey brand name.

Resolution of another class-action lawsuit, filed in the Eastern District of Tennessee, remains less clear, Natzke said. Dean originally agreed to a $140 million settlement with dairy farmers in the Southeastern region of the U.S. After that settlement was announced however, members of Dairy Farmers of America, who make up well over a third of the dairy farmers in that part of the country, were exempted as members of the "class," because DFA is a co-defendant in the lawsuit. As a result, Dean vacated the settlement, and is considering other options, Natzke reported. A trial date has been set for Sept. 13. Dean Foods has admitted no wrongdoing in all three cases, Natzke concluded.

Fiscal beginnings

The Milk Producer's Council's Rob Vandenheuvel reminded his members in his Aug. 19 newsletter that Oct. 1 marks the start of a new fiscal year for the Milk Income Loss Contract program. He wrote that while efforts are underway to reform and improve dairy farm "safety nets as it stands now, the MILC and the Dairy Price Support programs continue to be our main safety nets."

While there is no indication that the milk price will be low enough to trigger an MILC payment in the near future, he warned that, "given the volatility in dairy markets, we simply don't know whether the program will trigger in for any of the months between October 1, 2011 and September 30, 2012."

The MILC program limits the payments made under the program to 2.985 million pounds, which is only about 3 months worth of production for a 500-cow dairy producing 65 pounds per head per day.

Larger dairies may only be collecting payments for weeks or months, he warned, so it's important to choose months with the highest payment rates in order to maximize the amount received under the program. "Do the math and check with your banker," he said. "You have until September 14th to make changes."