Mielke: Class III milk prices increase | TheFencePost.com

Mielke: Class III milk prices increase

Lee Mielke
lkmielke@juno.com

The Agriculture Department announced the February Federal order (FO) Class III benchmark milk price at $16.88 per hundredweight (cwt.), up 11 cents from January, $3.08 above February 2016, and the highest February Class III price since 2014. The two-month Class III average stands at $16.83, up from $13.76 at this time a year ago and compares to $15.82 in 2015. It also equates to about $1.45 per gallon, up from $1.44 in January and $1.19 a year ago.

The March 3 futures settlements portended a March Class III at $15.94; April, $15.92; May, $16.04; June, $16.33; with a peak of $16.91 in August.

The Class III price is also $1.07 above California's comparable 4b cheese milk price, the highest gap since September 2016, and comes despite the temporary state mandated whey pricing formula adjustment.

The February FO Class IV price is $15.59 per cwt., down 60 cents from January but $2.20 above a year ago. The two-month Class IV average, at $15.89, is up from $13.40 a year ago and $13.53 in 2015.

The four-week, USDA-surveyed cheese price used to calculate the month's Class prices averaged $1.6871 per pound, down 1.4 cents from January. Butter averaged $2.1760, down 8.1 cents, nonfat dry milk averaged 99.26 cents per pound, down 3 cents, but dry whey averaged 48.94 cents per pound, up 4.7 cents from January.

California's comparable Class 4b cheese milk price is $15.81 per cwt., down 18 cents from January, $2.76 above a year ago, and the lowest 4b price since October 2016.

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The Class 4a butter-powder price is $15.40 per cwt., down 27 cents from January but $2.12 above a year ago.

The 4b 2-month average stands at $15.90, up from $13.07 a year ago and $13.77 in 2015. The 4a average now stands at $15.54, up from $13.27 a year ago and $13.28 in 2015.

Cheese prices fell for the fourth consecutive week. The blocks closed March 3 at $1.48 per pound, down 9 1/2-cents on the week, 4 cents below a year ago, and the lowest since June 2016. The barrels finished at $1.4375, down 8 cents and 2 1/4-cents below a year ago. The blocks have plunged 26 cents since the end of January and the barrels are down 27 cents. Eight cars of block were traded on the week and 21 of barrel.

Milk continues to be abundant for Midwest cheese producers, according to Dairy Market News. Some expect discounted milk prices in the near term and are buying spot milk when the price is favorable. Cheese production is steady to active while cheesemakers try to maintain production and manage increasing inventory. Demand varied from producer to producer the last week of February but was generally improving last week.

DMN says the seasonal lull has begun to fade and orders are slowly trending upward. Pizza cheese producers are also seeing a demand turnaround, with orders edging up compared to the past two to three weeks. The market tone is unsteady but, with block prices back above the barrels, some contacts believe that is a sign of stability.

Western cheesemakers report cheese is moving well through existing contracts. They are hopeful that softening prices may provide more opportunities for exports. Domestic sales have slowed somewhat and new international sales could be a shot in the arm. Contacts say inventories are long for both barrels and blocks and there's plenty of milk moving into the cheese vats.

The resilient butter closed at $2.1625 per pound, up 3 1/4-cents on the week and 12 1/4-cents above a year ago, with 24 cars trading hands on the week.

Cream is plentiful in the central U.S., according to DMN. Class II producers continue to show interest in cream but some butter makers report the abundant cream supply has not deviated from previous weeks. Demand for butter in the central region is strengthening and spring holiday orders are in full swing. Some butter producers are beginning to increase bulk inventories for the fall. The market tone is termed "steady.

"Western domestic retail demand is starting to ramp up for the spring holidays. Overall demand is steady with current contracted buyers pulling good volumes of butter. Churns are actively processing available cream, which is plentiful. Inventories are building seasonally for late year butter needs.

Why is butter so strong? The Daily Dairy Report pointed out that March 1 marked the start of new-crop butter; "That is, only butter produced on or after Dec. 1, 2016, is eligible for sale at the CME cash market after March 1, 2017."

Another possible factor; while it took a while to follow McDonald's lead, Burger King announced that it has reformulated its breakfast sandwiches to include real butter. The Feb. 24 Dairy and Food Market Analyst estimates that will absorb another 4.0 million pounds of butter annually. I think more will follow.

Cash Grade A nonfat dry milk saw some ups and downs on the week but closed at 80 1/2-cents per pound, down 1 3/4-cents but 2 1/2-cents above a year ago. Eight cars found new homes on the week at the CME.

One factor influencing powder was an announcement that the EU's skim milk powder intervention tender closed yet again (fifth time) with no product sold. Add to that, the DFMA reports that new data shows Chinese buyers have "stepped back from the market, while milk production is again growing in New Zealand."

The DFMA warned "Less demand and more supply is a recipe for lower prices," adding that "By a longshot, the USA is the cheapest origin for milk powder. But with Mexican demand still stagnant, prices may have to dip further to stimulate buying interest from other parts of the world."

The Feb. 27 DDR reported that, while New Zealand moved massive volumes of milk powder to China in January, the third largest on record, "China brought in 72.3 million pounds of skim milk powder (SMP) and 238.4 million pounds of whole milk powder (WMP) in January." But added; "Despite that good news, however, the combined total of 310.7 million pounds of milk powder was 8 percent lower than the previous year."

New Zealand accounted for 96 percent of China's WMP imports and 76 percent of the country's SMP shipments and according to the DDR, "underscoring the advantage that lower tariffs can provide."

China's imports of cheese, whey, and ultra-high temperature milk were "a bit disappointing," the DDR stated. ❖

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