Mielke: Benchmark milk prices jump 87 cents
July 7, 2017
The June Dairy Month Federal order Class III benchmark milk price was announced by U.S. Department of Agriculture at $16.44 per hundredweight (cwt.), up 87 cents from May and $3.22 above June 2016. It is the highest Class III since February 2017 and equates to about $1.41 per gallon, up from $1.34 in May and $1.14 a year ago.
The half-year Class III average stands at $16.12, up from $13.48 at this time a year ago and $15.99 in 2015.
Class III futures, as of June 30's settlements, portend a July price at $15.72; August, $16.58; September, $16.73, with a peak at $16.97 in November.
The June Class IV milk price is $15.89, up $1.40 from May and $2.12 above a year ago. The mid-year average is $15.08, up from $13.18 a year ago and $13.70 in 2015.
The USDA-surveyed cheese price used in calculating the month's Class values averaged $1.6293 per pound, up 9 cents from May. Butter averaged $2.4065, up 24.2 cents. Nonfat dry milk averaged 91.37 cents per pound, up 4.3 cents, and dry averaged 49.17 cents per pound, down 1.8 cents from May.
As to what lies ahead, worldwide milk production is past its peak and won't see another uptick until Oceania starts its season in a few months on a volume basis, according to FC Stone's June 26 Early Morning Update. "Looking at year over year figures, global milk production was in contraction during the second half of 2016, so it is expected that in the coming months, we will be seeing positive year over year increases," the Update states.
"Heat is a concern, especially out west which has caused over 18 wildfires already this summer. In the Midwest however, temperatures have been rather optimal for milk production at the moment. The problem nationally is getting milk production into the right dairy commodity," according to the EMU.
Cash block Cheddar cheese fell to $1.51 per pound June 28 but closed June 30 and June Dairy Month at $1.5250, down 1 1/2 cents on the week and the fifth consecutive week of loss, 10 cents below a year ago, and 21 1/4-cents lower than on June 1. The Cheddar barrels dropped to $1.35 Thursday but closed June 30 at $1.3525, down 1 3/4-cents on the week, 31 3/4-cents below a year ago, 18 cents lower on the month, and a still too-high 17 1/4-cents below the blocks. Twenty three cars of block traded hands the last week of June at the CME and 36 of barrel.
Extra loads of milk may not be as prevalent as they were the last few weeks, but some Midwest cheese makers report distressed milk is available at $1 to $3 below Class, said Dairy Market News. Manufacturers also report running full schedules, but intakes have eased back a load or two. There was an expectation of more available loads over the 4th of July holiday and cheese makers had to weigh the pros and cons of taking more milk, DMN said.
Demand is mixed. Some contacts say curds and readily consumed product orders are strong, others say demand from food manufacturers and food service businesses is steady and cheese continues to move well. Other contacts think cheese orders are "lackluster." Inventories are heavy for both blocks and barrels and some contacts suggest the all-time high for total natural cheese stocks may represent efforts by cheese makers to find homes for heavy milk intakes through various cheese aging programs for hard Italian cheeses, aged Cheddar, and other hard cheeses. Storage capacity concern is pressuring cheese prices.
Western cheese inventories also continue to be long and loads with a little more age are proving harder to move, DMN said. Domestic demand is fair. Food service requests are perhaps slightly lower, but retail demand is steady. Cheese seems to be moving well through regular contracts, but end users are not asking for a lot of extra loads. Contacts hope the price differences between U.S. and international markets can spur additional sales, but large volumes have yet to materialize. Production is active and is pushed on by plentiful milk supplies.
Butter ended the week at $2.6425 per pound, up 5 1/4-cents, 29 1/4-cents above a year ago, and up 23 1/4-cents on the month. Ten cars traded hands last week.
Butter at $3 a pound may be on the horizon. The EU price was reportedly averaging about $3.14, according to FC Stone. DMN said the status quo for butter production, in general, remains mostly active with moderate clearance, as the balance of output moves into storage. Salted butter supplies are adequate but unsalted volumes are considered tight in some channels. However, the market is preparing for lower trending milk production and butterfat declines to deter available cream. Hence, in the next few weeks, producers expect that cream will be readily absorbed into Class II ice cream, prompting reductions in churning rates, which is typical for this time of year. Some buyers noted this as a cause of the premium butter price.
DMN says Western butter makers report cream is available for butter but seasonal demand is making cream supplies tighter. Some butter processors are choosing to slow their churns and sell cream to ice cream and other Class II manufacturers because of the strong milkfat prices. Butter inventory is seasonally high and manufacturers are managing stocks closely to assure they have product to meet expected high third and fourth quarter demand. End users are very much aware of year-end butter needs and some suggest that end users are even seeking quotes for available butter into 2018, DMN reported.
Fat in the EU remains tight, according to FC Stone's EMU, which suspects that Oceania milk is being put into cheese. "The U.S. has the fat," the EMU said, "but you can't buy it. The U.S. has the upper hand in this poker game, and physical traders know it. It has been a game of chicken between price and demand, with demand faltering as of late, especially in the EU," the EMU said.
The EMU said that "There is a certain price level where consumption will slow down. In the US we are somewhat acclimated to $2-plus butter. Internationally that is not the case as there has already been outrage because of increases in croissant prices. So at what price level does consumption subside significantly? It's hard to say, but it probably starts with a 3," the EMU said.
As to cheese, the EMU said, "The U.S. looks like a nice bargain on cheese today. With shipping costs down, maybe half of what they were five years ago, we're scratching our heads on why the export bid in not more pronounced."
Cash Grade A nonfat dry milk closed June 30 at 84 1/2-cents per pound, down a quarter-cent on the week but a penny above a year ago, with 10 cars sold on the week at the CME.❖