Monthly Dairy Prices 1-11-10
January 12, 2010
The final Class III milk price of 2009 was announced New Year’s Eve by USDA at $14.98 per hundredweight (cwt.) for December, up 90 cents from November but 30 cents below December 2008. That put the year’s average at $11.36, down from $17.44 in 2008, and $18.04 in 2007. CME futures had the January contract settling Thursday at $14.22, February $13.89, March $14.49 and April at $14.77, with a peak of $16.11 in September. The December Class IV price is $15.01, up $1.76 from November and $4.66 above a year ago.
The NASS-surveyed cheese price averaged $1.5969 per pound, up 8 cents from November. Butter averaged $1.4459, up 6.4 cents. Nonfat dry milk averaged $1.2858, up 17.4 cents, and dry whey averaged 36.68 cents, up 2 cents.
California’s December 4b cheese milk price is $15.04, up $1.28 from November, $1.09 above a year ago, and 6 cents above the comparable Federal order Class III price. The 4b averaged $11.05 in 2009, down from $16.85 in 2008 and $17.46 in 2007. The Golden State’s 4a butter-powder price is $10.15, down $2.05 from November, and 4.61 below a year ago.
Cash cheese prices at the Chicago Mercantile Exchange ended the year on a down note and corrected the unusually large price spread but are sharply above those a year ago. The block price closed New Year’s Eve at $1.45 per pound, down 11-3/4 cents on the holiday shortened week, but a whopping 31-3/4 cents above that week a year ago when they tumbled almost 14 cents, to $1.1325. This week’s loss was in addition to the previous week’s 13-1/3 cent decline.
Barrels closed at $1.43, down a penny on the week but 30 cents above a year ago. Sixteen cars of block traded hands on the week and three of barrel. The NASS surveyed U.S. average block price hit $1.6917, up 1.7 cents. Barrel averaged $1.4994, down 1.5 cents.
Butter held all week at $1.3275, 19-3/4 cents above a year ago. Nothing sold. NASS butter averaged $1.3556, down 8 cents. NASS nonfat dry milk averaged $1.3327, up 4.3 cents and dry whey averaged 37.25 cents, up 0.3 cent.
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The cash cheese market answered a key question regarding the huge price spread, according to Dr. Brian Gould, Associate Professor at the University of Wisconsin. Everyone was wondering if the blocks would come down or would the barrels come up as it had been a concern, considering the record number of trading days it was so large.
Reading between “the cheese slices” in Tuesday’s DairyLine, Gould pointed to American cheese stocks, which increased in November for the first time in five years so the downward price movement is not a surprise. He suggested that listeners log on to the University’s Web site, “Understanding Dairy Markets,” at http://future.aae.wisc.edu, where the values of cheddar cheese are imputed, based on the current daily Class III, butter and dry whey futures prices.
When asked if cheese demand is down or pizza sales lagging, Gould admitted he did not have current commercial disappearance numbers due to the lag in reporting, but production data from January through November of this year showed Cheddar output was up 2.4 percent from a year ago.
That’s a very large number, he said, relative to what he believes we’ll see in commercial disappearance down the road, considering what’s going on with our economy. He said, “It’s a real supply issue. Our production was up in almost every month this year, relative to last year, and we know our commercial disappearance is under duress.”
The key question is how low will cheese prices go. Downes-O’Neill dairy broker Dave Kurzawski said in Wednesday’s DairyLine that no one really knows but the $1.50 level was the “level of resistance” on the way up and it stalled there for a week or two on the way to $1.70 and “now we’re back down so, in a trader’s mind, that $1.50 level is our level of support.”
Given current whey prices, Kurzawski said that a $1.50 cheese price would equate to a Class III milk price of about $13.85-$13.90 per cwt.
Recent reports show that milk production in Oceania is not as strong as anticipated and may only be up 1 to 1.5 percent from the previous season in New Zealand. It was down 5 percent in Australia in the July to October period.
That means elevated dairy product prices for the world, according to Kurzawski, and that should spill into the U.S., but he warned that there’s a lot of conflicting information out there because “we are primarily a domestic market and there are certain aspects of supply and demand that will end rallies and push prices down from time to time as international demand ebbs and flows.”
Oceania Cheddar is running around $2 per pound so some expect U.S. prices to rebound soon. And, Super Bowl demand is also on the horizon.
Kurzawski sees a relatively volatile 2010 but he sees much better prices for dairy producers than in 2009. He recommends that producers look more seriously at risk management programs, “especially if their existence is contingent upon operating loans from banks, which most dairy producers are.”
“Producers need to have a worst case scenario floor price on the table for discussion,” he concluded.