Lee Mielke: Monthly Dairy Prices 9-12-11
The farm benchmark milk price has hit the highest level ever, topping last month’s record and highs set four years ago. The Agriculture Department announced the August Federal order Class III price at $21.67 per hundredweight (cwt.), up 28 cents from July, $6.49 above August 2010, $3.07 above California’s 4b cheese milk price, and equates to about $1.86 per gallon. That put the 2011 average at $18.18, up from $13.80 at this time a year ago and $10.29 in 2009.
The strong prices are being offset in part by strong feed prices and Class III futures portend a downturn from here. The September contract settled Friday at $19.06; October at $18.87; November, $18.61; and December settled at $18.18.
The August Class IV price is $20.14, down 19 cents from July, but $4.53 above a year ago. California’s August 4a price was $20.23.
The four week NASS-surveyed cheese price averaged $2.1402 per pound, up 1.6 cents from July. Butter averaged $2.0695, up 3.9 cents, nonfat dry milk $1.5739, down 4.2 cents, and dry whey averaged 56.91cents, up 2 cents.
California’s comparable 4b cheese milk price is $18.60 per cwt., down 75 cents from July, and $4.21 above a year ago. The 4b price average for 2011 now stands at $16.50, up from $12.69 a year ago. The 4a butter-powder price is $20.23, up 16 cents from July, and $4.54 above a year ago. The 4a average stands at $19.24, up from $14.18 a year ago.
The rally in cash cheese continued in the final week of August, mainly on the barrels, following sharp declines earlier in the month. The blocks which had got as high as $2.1550 in late July, closed the first Friday in September at $1.79 per pound, unchanged on the week but 7 cents above a year ago, and narrowed the spread which may be what traders wanted to accomplish. The barrels closed at $1.76, up 3-3/4-cents on the week, and 7-1/2-cents above a year ago. Four cars of block traded hands on the week and 18 of barrel. The NASS U.S. average block price fell 3.9 cents, to $2.0929, while the barrels averaged $2.0827, down 6.6 cents.
eDairy economist Bill Brooks warned in Tuesday’s DairyLine that the lower $1.70s in cheese is a real possibility near term. He said “The last two to 2-1/2 weeks we have seen a real flip in the supply/demand situation in cheese.” Barrels were extremely tight, based on market activity through the summer months until the first part of August while blocks were plentiful and a lot of trading took place. That has switched, he said, as barrels are “more than adequate” and “looking for a home,” which put pressure on prices and widened the spread.
Blocks are not tight by any means and certainly not as tight as barrels were in June and July, he explained, but they’re tighter than the barrel market is. It’s also the time of the year because demand slows for processed cheese due to less grilling and, “instead of holding up the blocks like they did in the early stages of July, could very well cause the whole complex to come down and pull the blocks down with it.” He also pointed to the economic uncertainty in the U.S., warning that could further lessen demand and put more downward pressure on prices.
Cash butter closed the week at $2.0050, down 8-3/4-cents, and 22 cents below a year ago. You’ll recall it peaked last year at $2.2350, the week of September 27. Only three carloads were traded on the week and the latest NASS price averaged $2.0509, down 1.6 cents. NASS nonfat dry milk averaged $1.5698, up 1.6 cents, and dry whey averaged 57.94 cents, up 0.9 cent.
Butter is available and in storage, according to Bill Brooks, but there’s not enough of it to be a burden on those who own it and there’s no push to sell it even though we are in a slack period for demand. He added that we’re not making a whole lot of butter right now although with the cheese price declines the past few weeks, milk that was destined to the cheese vat may now get channeled into butter/powder facilities and that could result in higher inventory levels and pressure markets.
Dairy farm profitability appears good for U.S. dairy farmers and remained above historical averages in August, according to the DDR, but Dairy Profit Weekly editor Dave Natzke, warned in Friday’s DairyLine that “things aren’t quite so bright.” He said that, despite the high milk prices, dairy farmers actually saw income margins tighten a little in August, squeezed by higher feed prices and other costs and pointed out that, when comparing the milk-feed price ratio for the entire summer, it’s the lowest since spring and summer of 2009, when milk prices were hovering around $11-$12 cwt., or about half of what they are today.