Fall dairy product prices going up?

Lee Mielke

Dairy prices continued sliding the second week of October.

Cash block cheddar sank to $1.5175 per pound Tuesday but regained 3 1/4-cents Friday, closing at $1.55, unchanged on the week but 11 1/2-cents below a year ago.

The barrels dipped to $1.4475 Thursday but inched back a penny and a quarter Friday, to $1.46, 5 cents lower on the week, 18 cents below a year ago, and a larger than normal 9 cents below the blocks. Three cars of block traded hands on the week and 19 of barrel.

The blocks sustained Friday’s turnaround on Monday, jumping another 3 1/2-cents on an unfilled bid, as traders anticipated Tuesday’s Global Dairy Trade and Thursday’s September Milk Production report. They jumped 9 1/2-cents Tuesday, to $1.68 per pound.

The barrels advanced 3 cents Monday and pole vaulted 12 cents Tuesday, hitting $1.61.

FC Stone’s Dave Kurzawski wrote in his Monday “Early Morning Update” that “the bears continue to debate good milk production in the Midwest and Eastern regions, along with Canadian import restrictions of MPCs. The Restaurant Performance Index showed a contraction for the first time in 8 months with softer sales and customer traffic. The bulls continue to say retail and foodservice buyers will continue to find value in cheese in the $1.50s where they can continue promotional activities confidently.”

Midwest cheesemakers report milk is readily available, according to Dairy Market News. Some say it has hit the low point for the year and is starting to come back up. Components are also increasing. Inventories are long, but not a major concern as holiday demand approaches and exports improve.

Spot Grade A nonfat dry milk finished last week at 87 cents per pound, down 4 1/2-cents, and 11 cents below a year ago, with five cars sold on the week.

The powder was up a penny and a quarter Monday but gave back a penny Tuesday, slipping to 87 1/4-cents per pound.

Cash butter fell to $1.77 Thursday but regained a penny and a half Friday and closed at $1.7850, down 6 1/2-cents on the week and 66 1/2-cents below a year ago. Eight cars were sold on the week.

Monday’s trading ignored Friday’s small uptick and inched a half-cent lower, then lost a penny and a quarter Tuesday, dipping to $1.7675 per pound, lowest spot price since April 2015.

Butter demand dropped 17.95 percent from August 2015, while imports dropped 18.5 percent. Commercial disappearance of butter was up 0.9 percent from July, with year-to-date butter use through August up just 0.1 percent, according to USDA.

Cream supplies continue increasing in the Central region, says DMN, and readily available. Many processors are gearing up to meet year-end holiday needs. Inventories are heavy but some processors anticipate being short in Fourth Quarter.

Western buttermakers report strong retail demand but cream is also readily available. Lower prices are generating interest. USDA’s Foreign Agricultural Service reported that the Japanese government will offer a tender for an additional 4,000 metric tons of butter this month. American processors hope the narrowed price gap will make U.S. butter more attractive.

FC Stone’s Kurzawski says, “The general consensus is that butter in the $1.70s will incentive holiday demand.” He adds that Canada was out recently with a 3,000 metric ton butter tender. “The U.S. is competitive at these prices,” he said, “and Canadian buyers are also interested in importing U.S. cream.”

Tuesday’s Global Dairy Trade auction lost more ground. The weighted average for all products offered slipped 1.4 percent, after dropping 3 percent Oct. 4, ending four successive sessions of gain.

Rennet casein led the declines, down 4.5 percent, after falling 3.7 percent last time. Cheddar cheese was next, down 3.7 percent, after losing 2.3 percent. Skim milk powder inched 0.3 percent lower, after dropping 3.9 percent last time.

Lactose led the gainers, up 5.6 percent, after leading the declines Oct. 4 with a 9.7 percent plunge. Whole milk powder was next, up 2.9 percent Tuesday, after falling 3.8 percent. Butter was up 2.6 percent, after inching 0.3 percent lower last time. Anhydrous milkfat was up 1.1 percent, after slipping 1 percent last time.

FC Stone equated the average GDT butter price to $1.8204 per pound U.S. CME butter closed Tuesday at $1.7675. GDT cheddar cheese equated to about $1.4923 per pound U.S. and compares to Tuesday’s CME block cheddar at $1.68.

GDT skim milk powder was at 99.95 cents per pound U.S., and whole milk powder averaged $1.2519 per pound U.S. The CME Grade A nonfat dry milk price closed Tuesday at 87 1/4-cents per pound.

America will have plenty of milk. The Agriculture Department again raised its milk production forecasts for 2016 and 2017 in its latest World Agricultural Supply and Demand Estimates report from a month ago “as the cow inventory has grown more rapidly than previously expected. The higher cow inventories appear to reflect growth in herds supplying expanding dairy product facilities.”

2016 production and marketings were projected at 212.7 billion and 211.7 billion pounds, respectively, up 500 million pounds on production and 400 million on marketings. If realized, 2016 production would be up 4.1 billion pounds or 1.97 percent from 2015.

2017 production and marketings were projected at 217.3 billion and 216.4 billion pounds, respectively, up 1.2 billion pounds on production and 1.3 billion pounds on marketings from last month. If realized, 2017 production would be up 4.6 billion pounds or 2.2 percent from 2016.

Import forecasts for 2016 and 2017 were raised on higher expected imports of butter and several other dairy products. Exports were forecast higher as increases in Oceania prices and relatively low U.S. prices are expected to make the U.S. more competitive in world markets.

Ending stocks were reduced as lower prices encourage increased demand from both export and domestic markets. Cheese and butter price forecasts for 2016 and 2017 were lowered due to higher expected milk supplies.

However, nonfat dry milk and whey will likely benefit from increased competitiveness in export markets, and stronger exports will help support prices of those products. Thus, price forecasts for NDM and whey were raised from last month.

Class III and Class IV milk prices were lowered from last month as lower cheese prices more than offset the higher whey price in the Class III calculation and the lower butter price outweighs the NDM price increase in the Class IV price.

Look for the 2016 Class III price to average around $14.35 per cwt., down 50 cents from last month’s projection, and compares to $15.80 in 2015 and $22.34 in 2014. The 2017 average is expected around $14.65, down 80 cents from what was projected a month ago.

The 2016 Class IV price is anticipated around $13.70, down a dime from last month’s projection, and compares to $14.35 in 2015 and $22.09 in 2014. The Class IV should average $14.20 in 2017, down 15 cents from last month.

Fluid milk consumption showed a reversal in August. Packaged fluid milk sales totaled 4.1 billion pounds, up 2.1 percent from August 2015, according to USDA.

Conventional product sales totaled 3.9 billion pounds, up 1.6 percent from a year ago; organic products, at 218 million pounds, were up 13.6 percent. Organic represented about 5.3 percent of total sales for the month.

Whole milk sales totaled 1.2 billion pounds, up 7.5 percent from a year ago, with year to date running 4.9 percent above a year ago and making up 30 percent of total fluid sales. Skim milk sales were down 9.7 percent from a year ago and down 11 percent year to date.

Total packaged fluid milk sales for the eight months of 2016 totaled 32.4 billion pounds, down just 0.6 percent from the same period a year ago.

Year-to-date sales of conventional products, at 30.6 billion pounds, were down 0.9 percent; organic products, at 1.7 billion pounds, were up 5.5 percent. Organic represented about 5.3 percent of total fluid milk sales so far in 2016.

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