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Home  »  Ag Sectors

Mielke: Volatile export markets may buffet prices

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By LEE MIELKE


For the Capital Press


The University of Wisconsin's Brian Gould said in Tuesday's DairyLine that the high butter price has increased butter's contribution to the federal order Class III milk price. Butter typically represents about 40 percent of the Class III value, he said. That jumped to 48 percent in May but the big player is whey.


The strong protein market has meant a strong nonfat dry milk and dry whey price, according to Gould. Whey's contribution to the Class III price has doubled since the first of the year in terms of its relative value. Now it's about 10 percent of the Class III value, he said, something not seen since late 2007.


He attributed that to the strong export market for protein and said domestic users of dry whey are competing for whey with the export market. Last month's calculation of the Class III price showed dry whey averaged about 49 cents per pound, Gould reported, and whey typically averages 25 to 30 cents. (The June whey price was 52.33 cents as reported earlier.)


Export markets tend to be more volatile than domestic markets, Gould said, and that was evidenced in 2008 and 2009 when we lost a significant amount of exports resulting in a dramatic downturn in prices. It's something to be aware of, he warned, "when we start relying on the export market to be a major source of our dairy product demand."


Milk prices


The June federal order benchmark farm milk price took a much needed jump. The Agriculture Department announced the Class III manufacturing grade milk price on July 1 at $19.11 per hundredweight, up $2.59 from May, $5.49 above June 2010, the highest it has been since June 2008, and equates to about $1.64 per gallon. The 2011 average now stands at $17.06, up from $13.58 at this time a year ago, and compares to an anemic $10.19 in 2009.


Looking ahead, Class III futures were trading late Friday morning as follows: July $20.50, August $18.79, September $18.18, October $17.75, November $17.06, and December $16.60. These prices would result in a 2011 average of $17.61, up from $14.41 in 2010, $11.36 in 2009, and $17.44 in 2008.


The June Class IV price is $21.05, up 76 cents from May, and $5.60 above a year ago. California's comparable 4a and 4b prices were announced after our deadline. I'll report them here next week.


The four-week NASS-surveyed cheese price averaged $1.8999 per pound, up 24.7 cents from May. Butter averaged $2.1287, up 10 cents. Nonfat dry milk averaged $1.6520, up 4 cents, and dry whey averaged 52.33 cents, up 3 cents from May.


Cash dairy prices saw little change in the week entering the Fourth of July holiday. Block cheese closed that Friday on a down note at $2.1250 per pound, down a half-cent on the day and the week, but 67 cents above that week a year ago. Barrel closed at $2.0975, up 2 cents on the week, and 69 3/4-cents above a year ago. Only two cars of block traded hands on the week and none of barrel. The lagging NASS-surveyed U.S. average block price hit $1.9861, up 3 1/2-cents, and the barrels averaged $2.0478, up 5 1/2-cents.


FC Stone dairy broker Dave Kurzawski looks for cheese to slip after the Fourth. On Wednesday, Kurzawski said he has heard of discounted cheese being sold. Cheese sold at the Chicago Mercantile Exchange is no more than 30 days old, he said, so the steady current price is a "symptom of some tightness in fresh cheese," but he believes that's about to change.


FC Stone dairy broker Dave Kurzawski looks for cheese to slip after the Fourth. On Wednesday, Kurzawski said he has heard of discounted cheese being sold. Cheese sold at the Chicago Mercantile Exchange is no more than 30 days old, he said, so the steady current price is a "symptom of some tightness in fresh cheese," but he believes that's about to change.


Eyes are on butter which slipped the second week in a row, though it did rally a penny on Wednesday and Thursday. It has been at or above $2 since the first of the year. The cash price closed Friday at $2.04, down 2 cents on the week, following the previous week's 8-cent drop, but is still 29 cents above a year ago. Ten cars traded hands on the week. The NASS price hit $2.1272, up 0.8 cent.


Kurzawski doesn't believe we're out of the woods yet on the tightness in butter as demand still appears to be good. The real issue in his mind is what demand will look like on Aug. 1. By then a lot of commercial buyers will have sourced their needs for the balance of the year, he said. We could see prices slip at that point but, "as of today, we still have a pretty decent support underpinning the market."


He's not calling it a sleeping market, he said, as it is quiet most of the time. Right now buyers have been quiet and international pressure has come on prices. We'll learn more from Fonterra's auction on July 5.


"The demand picture has been quiet," he said. "I really wouldn't think that this market is going to be very well supported as we roll into the middle of third quarter."


Back to the futures


The federal order 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, $18.39 on May 27, $18.72 on June 3, $18.34 on both June 10 and June 17, and $18.21 on June 24.


Exports


More U.S. cheese will be taking a cruise. The Cooperatives Working Together program announced the acceptance this week of four requests for export assistance from Dairy Farmers of America and Darigold to sell 1.4 million pounds of cheddar and Monterey Jack cheese to customers in Asia and Europe. The product will be delivered July through September and raises 2011 CWT cheese exports to 44.7 million pounds after adjusting for a cancellation.


Milk receipts are generally past the annual peak throughout the country, according to USDA's weekly update, with appreciable declines prevalent in the Southeast, Arizona and New Mexico. California temperatures broke 100 degrees, so handlers expect receipts to decline.


Fluid demand remains at lower summer levels. Cream demand has improved as warmer temperatures stimulate ice cream sales. Also, production of dips, sour, and whipped cream were steady to stronger ahead of the Fourth of July holiday. Cream was getting shipped from region to region to supplement local offerings.


Milk production in the Oceania region is nearing seasonal low levels. The end of the 2010-11 milk production season was positive in both New Zealand and Australia with herd health and conditioning also positive. If that carries through the winter months, will provide a strong start to the new season.


The new milk production season is underway in New Zealand. Milk handlers are reporting that output during the 2010-2011 fiscal season was up 2 to 3 percent from the previous year. The outlook for the 2011-12 season remains strong with some estimates in the 5 to 6 percent range.


The 2010-11 milk production season in Australia comes to a close at the end of June. At this point, milk handlers estimate that annual output will be up about 1 percent from a year ago and project the 2011-12 year to be slightly higher.


On the home front


Dairy farm profitability improved slightly in June as milk prices increased to cover a small hike in feed. The Agriculture Department's latest Ag Prices report shows the all-milk price for June estimated at $21 per hundredweight, up $1.40 from May, $5.60 above June 2010, and the highest since December 2007, according to the CME's Daily Dairy Report.


The cost of feed to produce 100 pounds of milk was $11.48, up just 15 cents from May. Corn averaged a record $6.58 per bushel, up 28 cents from May and $3.17 above a year ago. Soybeans averaged $13.30 per bushel, up a dime from May and $3.85 above a year ago. One bright note, alfalfa hay averaged $180 per ton, down $6, but still $61 higher than a year ago. That left income over feed costs of $9.52 per hundredweight, according to the DDR, $1.25 higher than May, and compares to a 10-year average of $9.09.


The cost of feed to produce 100 pounds of milk was $11.48, up just 15 cents from May. Corn averaged a record $6.58 per bushel, up 28 cents from May and $3.17 above a year ago. Soybeans averaged $13.30 per bushel, up a dime from May and $3.85 above a year ago. One bright note, alfalfa hay averaged $180 per ton, down $6, but still $61 higher than a year ago. That left income over feed costs of $9.52 per hundredweight, according to the DDR, $1.25 higher than May, and compares to a 10-year average of $9.09.


There's more good news on the feed front. USDA's Acreage and Grain Stocks report showed U.S. corn plantings at 92.3 million acres, substantially higher than what was forecast in the July 12 World Agriculture Supply and Demand Estimates report, and compares to 88.2 million acres a year ago. Soybean acreage was also below expected levels and a year ago.


USDA reported that corn stocks were estimated at 3.67 billion bushels, down 15 percent from a year ago. Still, that's higher than expected and sent prices tumbling from record high levels of the last few weeks. Soybean stocks, at 619 million bushels, were above forecast estimates and a year ago.


The DDR also reported that sales of cheese and butter were very strong in the February-April period, according to USDA data. Total cheese usage was up 5.1 percent versus the prior year. American cheese use was up 4.2 percent and movement of other varieties was up 5.8 percent. Butter disappearance was up 19 percent but nonfat dry milk and skim milk powder was down 7 percent, with gains in exports offset by a steep decline in domestic use, according to the DDR.


Shopper survey


Dairy Profit Weekly recently reported highlights from the latest American Farm Bureau Federation's quarterly Marketbasket Survey. It shows that shoppers in 30 states reported paying the following average prices for milk in half-gallon containers in the second quarter of 2011: regular milk: $2.31, up 6 cents from the prior quarter, and up 12 percent compared to the same quarter a year earlier. (The price for one gallon of regular milk was $3.62, up 16 cents from the prior quarter, and up about 18 percent from the second quarter of 2010.)


The price of rBST-free milk averaged $3.18, down a nickel from the previous quarter, but 6 percent more than second quarter 2010. It is about 40 percent higher than the reported price of a half-gallon of regular milk. The retail markup on rbST-free milk is 87 cents per half-gallon or $20.23 per hundredweight.


Organic milk averaged $3.77, up 7 cents compared to the first quarter of 2011, and up 3 percent compared to the second quarter a year earlier. It is about 60 percent higher than the reported price of a half-gallon of regular milk.


In a separate report, the Minnesota Farmers Union reported the U.S. average retail price for fat-free milk at $4.09 per gallon in April. According to MFU calculations, dairy farmers received $1.67 per gallon, or about 38 percent.


Forward the Foundation

Meanwhile, as the National Milk Producers Federation begins its effort to sell its future dairy policy proposal to farmers, California Farmers Union and the California Dairy Campaign are joining the National Family Farm Coalition in supporting legislative reforms called for in the NFFC-backed “Federal Milk Marketing Improvement Act.” The legislation would pay dairy producers based on their cost of production, manage milk inventories to meet market demand, and address the impact of unregulated concentrated dairy imports.

California

California’s June 4b cheese milk price is $18.79 per hundredweight, up $4.05 from May, $6.56 above June 2010, 32 cents below the comparable Federal order Class III price though the gap continues to narrow, and equates to about $1.62 per gallon. Its 2011 average now stands at $15.67, up from 12.29 a year ago. The 4a butter powder price is $20.79, up 85 cents from May, and $5.53 above a year ago. Its 2010 average is now $18.94, up from $13.69 a year ago. 



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