Lee Mielke: Monthly Dairy Prices 8-15-11
August 15, 2011
Blistering heat and humidity across huge sections of the U.S. is pushing thermometers and milk prices higher. The July Federal order Class III benchmark milk price jumped $2.28, to a record high $21.39 per hundredweight (cwt.) Friday, according to the Agriculture Department. That’s $7.65 above July 2010, the highest since July 2007, $2.04 above California’s comparable 4b cheese milk price, and equates to about $1.84 per gallon. The 2011 Class III average now stands at $17.68, up from $13.60 at this time a year ago, and compares to just $10.16 in 2009 and $18.24 in 2008.
The August Class III price will likely be the peak for the year at a record $21.50, if the CME futures contract is any indication. That’s what it settled at Friday afternoon. The September contract settled at $20.35; October $19.25; November $18.45 and December at $17.57. Those prices would result in a 2011 average of $18.41, up from $14.41 in 2010, $11.36 in 2009, and $17.44 in 2008.
The July Class IV price is $20.33, down 72 cents from June, but $4.58 above a year ago.
The NASS-surveyed cheese price averaged $2.1243 per pound, up 22.4 cents from June. Butter averaged $2.0304, down 9.8 cents. Nonfat dry milk averaged $1.6159, down 3.6 cents, and dry whey averaged 54.94 cents, up 2.6 cents.
California’s July 4b cheese milk price is $19.35, up 56 cents from June, $5.98 above a year ago, and equates to about $1.66 per gallon. Its 2011 average now stands at $16.20, up from $12.44 at this time a year ago, but the gap widened again between it and the Federal order Class III price. The difference this year has varied from 8 cents below in February to $2.64 in March. The 4a butter powder price is $20.07, down 72 cents from June, but $4.45 above a year ago.
Those futures prices may sound great but it’s the bottom line that really matters and that looked a little better in July as well, according to USDA’s latest Ag Prices report. Increased milk prices covered rising feed costs. The All-Milk price was estimated at $22.10 per cwt., up 90 cents from June, and the highest ever.
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The cost of feed to produce 100 pounds of milk was $11.57, up 29 cents from June, according to the CME’s Daily Dairy Report (DDR). Corn increased 8 cents, to $6.46 per bushel, soybeans were up 20 cents, to $13.40 per bushel, and alfalfa hay was up $9, to $189 per ton.
All three were record highs, according to the DDR, which added “Rising milk prices left income over feed costs of $10.53 per cwt., 61 cents per cwt. higher than June.” “Over the last 10 years, income over feed costs has averaged $9.09 per cwt.,” the DDR said.
Meanwhile, the cash block cheese price closed the first Friday in August at $2.1325 per pound, down 2-1/4-cents on the week, but 53 cents above a year ago. Barrel closed at $2.1350, up a half-cent on the week, and 56-3/4-cents above a year ago. Sixteen cars of block traded hands on the week and one of barrel. The ever lagging NASS-surveyed U.S. average block price inched a half-cent higher, to $2.1062, while the barrels averaged $2.1344, down 0.2 cent.
Butter closed the week at $2.1025, up a quarter-cent, and 25-1/4 cents above a year ago. Six cars were sold. NASS butter averaged $2.0085, down 1.8 cents. NASS powder averaged $1.5832, up 2.9 cents, and dry whey averaged 55.91 cents, up 0.9 cent.
California’s Milk Producers Council July 29 newsletter questions whether current butter production being affected by the hot weather plus stocks on hand will be sufficient to fully supply domestic and export demand. Heavy demand for cream for other uses is pulling product away from the churns, it said, and “While butter stocks have risen sharply in the last two months, approaching levels of a year ago, they were not sufficient last year, and prices soared.”
The MPC says “Buyers are calculating the odds that butter production will be sufficient this fall to supply their customers’ needs.” “If they wait and the market busts like last year, they win. If they stock up now and the market busts they lose. If they hold off buying, and the market remains tight, they may lose one way or another. The price swing last year was a drop of 56 cents per pound in four weeks followed by an increase of 60 cents five weeks later,” MPC said.
Jerry Dryer, editor of the Dairy and Food Market Analyst, told me the U.S. is exporting a lot of butter right now and inventories are low. He sees little to no price relief for several months and said that some manufacturers have told him they expect butter to get as high as $2.75 a pound through the fall. By the way, the record high on butter was $2.81 in September 1998.