Dairyline: Cheese 'price spread cannot hold'

Lee Mielke


For the Capital Press

Farm milk prices took another badly needed jump as the Agriculture Department announced the November Federal order Class III price Friday at $14.08 per hundredweight, up $1.26 from October, $1.43 below November 2008, and 32 cents above California's comparable 4b price. That put the year's average at $11.03, down from $17.63 a year ago and $17.80 in 2007. The November Class IV price is $13.25, up $1.39 from October, and $1.00 above a year ago.

Class III futures portend further gains to come. The December contract was trading late Friday morning at $14.75. January was at $14.59, February $14.66, March $15.06, April $15.33, May $15.50, June $15.80, July $16.15, with a peak of $16.20 in August before beginning its seasonal slide.

Class III futures portend further gains to come. The December contract was trading late Friday morning at $14.75. January was at $14.59, February $14.66, March $15.06, April $15.33, May $15.50, June $15.80, July $16.15, with a peak of $16.20 in August before beginning its seasonal slide.

The NASS-surveyed cheese price averaged $1.5169 per pound, up 10.6 cents from October. Butter averaged $1.3817, up 15.7 cents. Nonfat dry milk averaged $1.1120, up 8.5 cents, and dry whey averaged 34.71 cents, up 2.9 cents.

California's November 4b cheese milk price is $13.76 per cwt., up $1.07 from October, but $1.38 below November 2008. The 4a butter/powder price is $13.16, up $1.62 from October, and 96 cents above a year ago.

Traders in the cash cheese market are leery of the wide price spread between blocks and barrels. The block price actually inched back a quarter-cent the first Friday of December, following a run of gains, and closed at $1.7175 per pound, up 6 3/4-cents on the week and the highest it's been since December 2008, but still 7 1/4-cents below a year ago.

Barrel closed at $1.46, down a nickel on the week, 28 3/4-cents below a year ago, and 25 3/4s below the blocks. Fifteen cars of block traded hands on the week and seven of barrel. The NASS U.S. average block price hit $1.5577, up 1.7 cents. Barrel averaged $1.4985, down 0.3 cent.

Butter closed Friday at $145, down 7 1/2-cents on the week but 19 1/4-cents above a year ago when butter melted down 24 1/4 cents, on its way to $1.11 the following week. Forty cars were sold in the first week of December. NASS butter averaged $1.4906, up 1.3 cents.

Cash Grade A nonfat dry milk closed at $1.4075, up three quarters on the week, while Extra Grade held all week at $1.40. NASS powder averaged $1.2048, up 3.1 cents, and dry whey averaged 35.35 cents, up 0.2 cent. Some question the discrepancy between the CME powder prices and the NASS surveyed prices.

Robert Cropp, emeritus professor at the University of Wisconsin-Madison, warned that the price spread in cheese is pretty wide. He questioned whether the blocks would hold at this high level and expects them to slip. On the other hand, the cheese supply is fairly tight, he said, and sales are good at retail and Christmas cutting and wrapping, although October American type cheese stocks were pretty high. "We'll see November data on Dec. 22," he said. "Cheese sales are good but that price spread cannot hold."

Prior to Wednesday, the butter market had been stuck at $1.5250 since Nov. 9, but butter production is way down from a year ago, Cropp explained. The cream supply is tight, he said, butter stocks are pretty good, but current needs are strong and older stocks have been accessed. Reports are that restaurant sales are up some and retail sales are good, thanks to store specials.

Price ratios

The November Milk-Feed Price Ratio is 2.19, up from October's revised estimate of 2.09, according to USDA's latest "Ag Prices" report, and compares to 2.01 in November 2008.

The All Milk Price was estimated at $15 per hundredweight, up 80 cents from last month's estimate, and the high for 2009, but still $2.10 below a year ago. Corn averaged $3.64 per bushel, up 3 cents from September, but 62 cents below a year ago. The soybean price, at $9.48 per bushel, was up 4 cents from October, and 9 cents above a year ago. Alfalfa baled hay was $110 per ton, up $1 from October, but $55 below a year ago.

The CME's Daily Dairy Report says the income over feed cost was $8.15 for November, nearly double the rate producers saw in the first half of the year.

Milk prices continue to recover and December levels will likely be the highest in a year, but there is concern for the other factor in the dairy profitability equation, according to Dairy Profit Weekly editor, Dave Natzke.

Natzke said one such concern is production costs, of which feed plays the biggest expense. Based on the latest milk-feed ratio, Natzke reported that improved milk prices are being offset somewhat by slightly higher feed prices.

October's milk-feed price index, which is an indicator of milk income over feed costs, was the highest since February 2008, according to Natzke, and came despite slightly higher corn, soybean and dry hay costs, which offset some of the gains of higher milk prices.

"The good news on the feed side is that a warmer and drier-than-normal November helped extend the harvest season," Natzke said. "Which has been running well behind average."

As of Nov. 29, about 79 percent of the U.S. corn crop and 96 percent of the soybean crop had been harvested. Normally, the harvest is all but finished at this time of the year, he said.

Even with the delays, farmers Natzke talked to said yields are surprisingly strong, indicating large soybean and corn crops will help buffer feed prices somewhat.

Another big expense is labor, and Natzke reported that speakers at this week's Dairy Business Association annual meeting in Wisconsin held out little hope of comprehensive immigration policy reform in 2010.

Angelo Amador, with the U.S. Chamber of Commerce, and Tamar Jacoby, with ImmigrationWorks USA, said comprehensive immigration reform lost its leading advocate with the death of Sen. Ted Kennedy, and that many in the Senate want to start from a blank slate.

"Health care, climate change and new jobs creation legislation will likely occupy Congress for some time," Natzke concluded. "Immigration reform might be too hot to handle prior to next fall's mid-term elections."

National Milk's Jim Tillison reported highlights from the Federation's latest Import Watch, which is published quarterly. He reported that the imports that are monitored remain below year ago levels, with milk protein imports down significantly.

Casein imports were down about 42 percent, he said, and milk protein concentrate imports were down 21 percent. They are also down for the year, down 39 percent for casein and casinates and 14 percent for MPCs. Most product imports are down from the previous four year average, he said.

Butter and butter substitute imports are above a year ago, according to Tillison, up 269 percent and 428 percent respectively, but he said that's misleading because imports in 2008 were down a large amount from 2007, due to drought in Oceania and the strong demand for butterfat in Asia and the Middle East.

Cheese imports are also monitored, Tillison said, and all of those were down in 2009, compared to 2008 on a year to date basis, except for Cheddar, which was up slightly in the third quarter and for the first nine months of 2009.

Forum preview

The 25th annual Dairy Forum will be held Jan. 17-20 in Phoenix and International Dairy Foods Association's Peggy Armstrong offers a preview.

She reported that the forum is held every January and brings together leaders and innovators from across the dairy industry to learn from each other, discuss policies and politics and chart a course for the year ahead. It will focus on the key issues for dairy producers and processors: milk pricing, the economy, food safety, nutrition, sustainability and consumer demands.

Groundbreaking research recently conducted by Bain & Co. on global demand for dairy products will be reviewed, she said. A panel of dairy leaders will address what it means for dairy farmers and dairy food companies and what role the U.S. dairy industry will play, as demand for dairy products grows in places like India and China over the next 10 years, and dairy CEOs from Russia and China will give a better understanding of global market opportunities, she said.

"Dairy Forum is the place to take on the tough issues," Armstrong said. "We'll take a good look at the recent low milk prices and talk with farmers and economists about dealing with dairy price volatility."

Some of the industry's leading dairy producers will share their point of view on the future of dairy farming, she said. The Innovative Farmer of the Year will also be recognized at the awards luncheon.

Stephen Sundlof, director of the FDA center for Food Safety and Applied Nutrition, will address what impact proposed food safety legislation will have on producers and processors. Ron Brownstein, of Atlantic magazine, will have an update on where things stand in Washington D.C. Martin Regalia, of the U.S. Chamber of Commerce, will discuss what current economic indicators mean for dairy. Dairy farmers are welcome to attend, Armstrong said.

For more information and to register, log on to www.idfa.org.

Joint meetings

Dairy Management Inc.'s Joe Bavido described the recent joint annual meeting in Texas of the National Dairy Board, United Dairy Industry Association and National Milk. He talked about the redirection of checkoff funding due to the hard times of the dairy industry, in an effort to increase sales of dairy products. About $35 million of the DMI budget and the U.S. Dairy Export Council was directed toward efforts that would affect immediate sales, he said.

DMI also eliminated $9 million in fixed administrative expenses such as consulting fees and moved it to programming and entered into partnerships to drive short-term sales while advancing the dairy checkoff's long term goals.

Lee Mielke is a syndicated columnist and farm broadcaster based in Lynden, Wash.

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