Lee Mielke: Monthly Dairy Prices 3-14-11
March 14, 2011
The February Federal order benchmark milk price took a badly needed jump Friday as the Agriculture Department announced the Class III price at $17.00 per hundredweight (cwt.), up $3.52 from January, $2.72 above February 2010, 8 cents above California’s comparable 4b price, and the highest Class III price since October 2008. It equates to about $1.46 per gallon.
Class III futures settled Friday with a peak of $19.58 in March, followed by April at $18.43, May, $17.56, June $17.02, and July at $17.04. The Class IV price is $18.40, up $1.98 from January, and $5.50 above a year ago.
The NASS-surveyed cheese price averaged $1.7449 per pound, up 33.7 cents from January. Butter averaged $2.06809, up 22-1/2-cents. Nonfat dry milk averaged $1.3728, up 12 cents, and dry whey averaged 42.34 cents, up 3 cents.
California’s February 4b cheese milk price is $16.92 per cwt., up $4.43 from January and $3.97 above February 2010. The 4a butter powder price is $17.88, up $1.39 from January and $5.04 above a year ago.
All eyes were on the cheese market to see if it would hit $2 per pound. It did on Wednesday and the blocks closed Friday at $2.02, up 3-1/4-cents on the week, the sixth week of gain and 72-1/4-cents above a year ago. Barrel closed at $1.98, up 3 cents on the week, and 73 cents above a year ago. Twelve cars of block traded hands on the week and six of barrel. The NASS U.S. average block price hit $1.8810, up 9.6 cents. Barrel averaged $1.8878, up 7.9 cents.
Butter closed at $2.1175, up 9-3/4-cents from the previous week, and 66-3/4-cents above a year ago. Seventeen cars were sold. NASS butter averaged $2.0355, down 4.4 cents.
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Grade A nonfat dry milk closed Friday at $1.8150, down 1-3/4-cents on the week, while Extra Grade held all week at $1.80. NASS powder averaged $1.4027, up 0.9 cent, and dry whey averaged 42.88 cents, down 0.6 cent.
Meanwhile; the February Milk-Feed Price Ratio is 1.96, unchanged from January, according to USDA’s “Ag Prices” report and compares to 2.36 in February of 2010. The CME’s Daily Dairy Report (DDR) points out that feed costs are the highest since the summer of 2008, led by record-high corn which averaged $5.66 per bushel, up 72 cents from January, and $2.11 above a year ago. The soybean price, at $12.10 per bushel, was up 50 cents from January, and $2.69 above a year ago. Alfalfa baled hay was $127.00 per ton, was up $6.00 from January, and $17.00 above a year ago.
Milk prices are rising and offsetting some of the higher feed prices. The All Milk Price was estimated at $18.40 per hundredweight, up $1.70 from last month’s estimate, and $2.50 above a year ago. The DDR adds that, based on adjustments to January grain prices, it doesn’t look like there will be an MILC payment for January and may not be any in February.
But, dairy producers well remember that what goes up always comes down and are thus protecting themselves with the Livestock Gross Margin (LGM) insurance program, according to the University of Wisconsin’s Dr. Brian Gould.
Speaking in Tuesday’s DairyLine broadcast, Gould said the markets are saying we will continue to have volatility in the Class III futures markets. It’s been quite volatile the last week or so, he said, and producers he talks to are concerned about the down side risk so, in addition to conventional risk management strategies, they have been “going whole hog” in the LGM program.
As of Friday, February 25, 15 million cwt. of milk was insured, according to Gould, raising the LGM total so far to 34.5 million, a little less than 2 percent of 2010’s total production.
The LGM is “like a bundled option,” Gould explained, “where you set a floor on your income over feed costs. You’re not locking in anything, you can take advantage of positive price movements and this is a federal insurance program available through license insurance brokers who sell crop insurance.”
It’s also a self-financing program, Gould said, except the USDA pays the administrative overhead and the subsidies. “Basically USDA is taking the risk,” he said, “Because the premiums are set such that in the long run the payouts will equal the payins.”
For more information, Google “Understanding Dairy Markets,” which will take you to Gould’s website, and then click the “LGM Dairy” tab.