By LEE MIELKE

For the Capital Press

Cheese prices are strengthening again. The bock price closed Sept. 18 at $1.33 per pound, up 6 cents on the week but still 62 1/2-cents below that week a year ago. Barrel closed Friday at $1.29, up 4 cents on the week, but 64 1/4 below a year ago. Thirty cars of block traded hands on the week and 10 of barrel. The lagging NASS-surveyed U.S. average block price inched 0.1 cent lower, to $1.3721. Barrel averaged $1.3395, down 4 cents.

Cash butter closed at $1.27, up 9 cents on the week, but 45 1/2-cents below a year ago. Forty-one cars were sold. NASS butter averaged $1.1677, up 0.4 cent.

Cash Grade A nonfat dry milk finished the week at $1.04 per pound, up 3 1/2-cents on the week, and Extra Grade closed at $1.00, up 5 cents. NASS powder averaged 97.19 cents, up 3 cents, and dry whey averaged 29.76 cents, up 0.7 cent.

There were no price support purchases on the week, in fact 1.3 million pounds of powder was canceled. Year to date powder purchases stand at 276.2 million. DEIP bid acceptances for the week included 661,300 pounds of anhydrous milkfat to Africa and the Middle East, 1.3 million pounds of butter to Asia and Eurasia, and 659,174 pounds of cheddar cheese to Africa and the Middle East and Asia and Eurasia.

Lower milk production in the west has put a dent in powder-drying volumes, according to the CME's Daily Dairy Report, and skim powder out of Oceania has been trading at $1.01-$1.18 per pound in the last six weeks.

Downes-O'Neill dairy economist Bill Brooks said that, after holding so long at $1.17, butter is still a "pretty good value" here in mid-September and folks are starting to look toward the upcoming holiday season. He added that butter stocks are still high, but current supplies probably aren't that great because of the shifting of milk and milk being seasonally close to the low point in output.

Perhaps there's similar thinking in cheese, according to Brooks, as most do not anticipate any more decline in the price. Demand for American type cheese has been good, he said, especially in the process category as consumers choose the fast food chains instead of the sit-down-style restaurants that typically use more of the block-style cheese in the shredded form.

Brooks warned that output may be above that of August 2008 because of the mild weather this year.

"In a year that needed good strong hot weather to knock production lower, we haven't had that this year," he said. Milk per cow might be more than enough to offset the decline in cow numbers, which is what we have seen the last few months.

The October Federal Order Class I base milk price was announced at $12.35 per hundredweight, up $1.42 from September and the highest since January, but is $3.18 below October 2008. Look for an MILC payment of about 60 cents, with no feed cost adjustor, according to market analyst Alan Levitt.

The NASS-surveyed butter price averaged $1.1658 per pound, down a nickel from September. Nonfat dry milk averaged 95.41 cents, up 8.5 cents. Cheese averaged $1.3802, up 14.9 cents, and dry whey averaged 29.42 cents, up fractionally from September.

The Agriculture Department's latest Livestock, Dairy, and Poultry Outlook says persistent milk production, despite low, recessionary domestic demand and slow exports, is the basis for continued low prices this year. It warned that recovery isn't likely until 2010 when the decline in milk production forecast for later this year and next, will impact the market. The cheese market is showing more strength than other major dairy products, according to the outlook.

The July Milk Production report showed U.S. milk output estimates virtually unchanged from August a year ago, despite 145,000 fewer cows in the national herd. For the year to date, milk production has risen every month compared with the corresponding month a year ago, while the dairy herd has shown a decline for every month in 2009 since March, according to USDA.

Government cheese

National Milk's call on lawmakers to purchase cheese to donate to food banks and other charities to help financially struggling dairy farmers drew praise from Downe's O'Neill broker Dave Kurzawski. Kurzawski said "it's the best proposal of the three options being considered right now."

One option is a direct payment to producers, another is to increase the purchase price of cheese again, and the third is to purchase commercial-grade cheese. Kurzawski said purchasing commercial-grade cheese is the best way to help dairy farmers, in his mind. Increasing the support price on cheese doesn't help farmers because it doesn't specify that it be commercial grade.

"The government still wants to ... buy government-grade cheese," Kurzawski said. Producers of cheese in this country don't want to convert to that specification, so no cheese is sold and the support program is ineffective.

Kurzawski doesn't believe direct payments are the best way to help farmers either, but "there is legitimate thought behind moving cheese to the government" by buying and then donating it.

Others in the dairy industry are calling for a supply management program of some kind, as has been done many times in the past, but Kurzawski said, "I don't believe so."

"If you could get everyone in the country to agree on something, you might have a case," but he believes the industry is still far away from that even in this time of depressed dairy prices.

"I don't think you'll get the east and the west together on a supply management program," Kurzawski said. "Certain producers like it and there are certain producers that don't. And so long as that's the case, it's going to flounder."

As to current risk management strategy for producers, Kurzawski said 2010 milk prices are averaging close to $15 per hundredweight. He admits they don't have many producers aggressively selling milk right now but expects that within the next 30 to 90 days producers will have an ability to lock in a profit margin. He suggests producers work with their banker, broker, or consultant to create a plan for profitability for 2010. For more details, call him at 800-231-3089.

National Milk's Chris Galen also discussed their proposal. At issue, he said, is the $350 million that was included as an amendment to an agricultural spending bill offered last month by Sen. Bernie Sanders, I-Vt.

Senate and House leaders will meet in a Conference Committee to decide how to best spend that money, Galen reported, so National Milk called for the cheese purchases because it believes that to be the most effective way to help dairy farmers as well as needy families suffering from the nationwide recession. The other methods, direct payments or raising support prices, would not be as efficient in the federation's opinion, Galen said.

"We expect that it will have a positive impact on the cheese market because there will be, all of a sudden this new demand for consumer cheese that wouldn't have been there before," Galen said. The federation doesn't see this competing with any other commercial demand because "these food banks are going to be giving the product away just to certain specific populations of consumers."

Consumption

U.S. consumers ate a little less cheese in 2008, according to Dairy Profit Weekly editor Dave Natzke, but lower retail prices may help bring consumption levels back up.

Latest estimates from USDA's Economic Research Service indicate 2008 U.S. per capita cheese consumption was 32.5 pounds, down about three-quarters of a pound from 2007's peak of 33.2 pounds.

While the decline isn't much, it does represent the first year-to-year per capita decline in cheese consumption in more than two decades, Natzke said.

Per capita consumption of American-type cheeses, such as cheddar and Colby, hit about 13 pounds in 2008. That was actually up from 2007, he said, but it was offset by a decline in the consumption of all other cheeses.

2008 per capita consumption of Italian-type cheese last year was just over 14 pounds, down about a quarter pound from 2007. In the Italian category, mozzarella, which is the most-consumed cheese in the U.S., was estimated at 10.7 pounds, down from 2007's record of 11.1 pounds, but still the second-highest total ever.

"If retail prices are a factor, we should see a rebound in cheese consumption," Natzke said. Consumer Price Index data just released by the Bureau of Labor Statistics, shows August 2009 retail dairy prices were down 0.4 percent compared to July 2009, and down 10.4 percent compared to August 2008.

Products

August retail prices for fluid milk were down 0.7 percent from July and nearly 18 percent less than August 2008. Retail cheese prices declined for the 12th straight month, down 0.8 percent from July and down 11 percent from a year ago; and even butter prices, which had been rising throughout summer, were down 0.3 percent from July and down 8.5 percent from August 2008.

The dairy CPI is falling more than other foods, according to Natzke. The index of all foods eaten at home was unchanged from July, and down just 1.6 percent from August 2008.

One of the major lessons dairy farmers learned in 2009 is the importance of strong export markets. The U.S. Dairy Export Council's Margaret Speich said that in the first half of the year, overall export volumes were down by more than a fourth from last year and "with a loss of those markets, we've seen U.S. supplies back up on the domestic market."

The return of export growth is linked to the return of global economic growth, she said, but that return is uneven now. Earlier this month analysts said the global economy is coming out of its slump slowly but faster than originally projected.

USDEC, programs have refocused on protecting market share, Speich said. "We're seeing signs of a comeback. Over the last three months our export prices were up about 9 to 25 percent, depending on the product."

 

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