Lee Mielke: Dairy prices up from January
April 1, 2016
The February Federal order Class III benchmark milk price was announced March 2 by USDA at $13.80 per hundredweight (cwt.), up 8 cents from January, $1.66 below February 2015, but is 75 cents above California's comparable 4b cheese milk price. It equates to about $1.19 per gallon, up a penny from January and 14 cents above a year ago. It is the lowest February Class III price since 2009.
But, the Class III price is poised to head back down. The March Class III futures contract settled Friday at $13.78; April, $13.53; May, $13.53 ; and June at $13.63. The peak was only $15.00 in November.
February's Class IV milk price is $13.49, up 18 cents from January but 33 cents below a year ago, and the lowest February Class IV since 2010.
California's 4b cheese milk price is $13.05 per cwt., down 3 cents from January and 73 cents below a year ago. The 4a butter-powder price is $13.28, up 2 cents from January but 18 cents below a year ago.
There was some positive news globally. The first Global Dairy Trade (GDT) auction of March reversed four sessions of decline on March 1, as its weighted average for all products offered inched up 1.4 percent, following a 2.8 percent decline February 16 and 7.4 percent on February 2.
However, the GDT gains on powdered products were pretty much "muted," according to HighGround Dairy's Eric Meyer in Friday's DairyLine, offset by the continued weakness in butterfat items and cheese. He talked of global bullishness on rumors of strong sales out of New Zealand to Algeria and strong exports to China in January but declines in New Zealand exports resumed in February, he said.
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Meyer foresees a continued flat U.S. domestic market in cheese, as stocks are "overwhelming," and so are butter inventories, so there'll be a limited upside, bear market, "for a while longer."
When asked about rising EU milk production, Meyer said that is causing global bearishness and, "With EU output up over 5 percent in December, that's approximately one and half times the size of the U.S. milk shed, like U.S. milk production being up 7 to 8 percent. If that were to happen here, we'd be limit down on futures, so it certainly keeps an overhang to the global markets."
Checking spot prices the first week of March, as traders absorbed Thursday's January Dairy Products report, block Cheddar cheese closed Friday at $1.52 per pound, highest level since December 3, 2015, up 4 cents on the week, but 4 cents below a year ago. The barrels finished at $1.46, up 3 cents on the week and 3 1/2-cents below a year ago. Thirty one cars of block traded hands on the week and four of barrel.
With milk readily available, many Central cheese manufacturers report milk supplies to be well balanced, according to Dairy Market News (DMN). But as on-farm milk production increases through the spring, manufacturers are starting to face an oversupply. Some processors report slowing cheese production and turning milk away. A few other managers are encouraged to keep the vats full in order to meet the solid retail demand which has not subsided much after the holidays and Super Bowl, though there is some concern about growing inventory.
Western cheese output remains steady and active. Milk is in relatively good balance and adequate, says DMN. "Like a broken record, domestic cheese demand continues to be solid, while export opportunities are limited.
Cash butter on Tuesday fell to $1.9575 per pound, lowest level since July 30, 2015, but rallied Wednesday and Thursday, clawing its way back above $2, and no doubt encouraged by Thursday's Dairy Products data, jumped 2 cents Friday to close at $2.04 per pound, up 6 1/4-cents. That ended four weeks of decline and is 29 cents above a year ago. Seventeen cars traded hands on the week.
Central region churning is steady to slower, says DMN. Some manufacturers indicate they are not buying cream outside of contracts. As the market shows weaker prices, manufacturers are focusing on balancing production and sales. Sales related to the upcoming spring holidays are picking up, says DMN, but inventories are steady to building.
Western manufacturers are actively producing butter and are committed on current agreements. However, some say domestic demand for butter has subsided a little as spring holiday orders get filled.
Spot Grade A nonfat dry milk climbed to 78 cents per pound Wednesday, highest price since December, then fell 4 cents Friday to close at 74 cents, down 2 on the week and 36 cents below a year ago. Thirteen cars were sold on the week. ❖