Balancing plants prepare to juggle after school closings

Editor’s note: The following are available market reports and futures data as of May 29, 2009.

Butter
The cash butter price at the CME Group remains firm and closed the Memorial Day week at $1.2650. Churning activity over the past holiday weekend was very strong as surplus cream offerings were plentiful.

The heavy production over the weekend and early the following week often surpassed demand, thus clearances to inventory are heavy. Overall butter demand is slow as buyers assess their supply situation before returning to the marketplace.

The Commodity Credit Corporation (CCC) invites competitive offers, subject to the terms and conditions of Announcement SDP1 and this Invitation, to buy from CCC approximately 4,639,010 pounds of salted butter packaged in 25 Kg containers for unrestricted use. The CCC-owned butter herein offered for sale was acquired in January and February 2009 under the Dairy Product Price Support Program and specifications of Announcement Dairy-6, and is stored at Van G Trucking, Inc. (Sanger Cold Storage), in Sanger, California (CCC warehouse code 3534).

Cheese
The CME Group cash cheese market firmed on May 28 with barrels finally reaching the price support level of $1.10 for the first time since April 27.

CME sales activity remains heavy with May combined barrel and block purchases totaling 254 loads, the largest month since August 2008.

Current production remains active as large seasonal milk supplies are available to manufacturing plants and from bottlers as schools close for the summer. Retail private label interest remains solid though as consumers get used to seeing promotions, the effectiveness has eased. Branded retail sales often continue to struggle and food service demand is segmented between slow and good.

Process movement has increased in recent weeks, typical in warmer weather.

Revised 2008 cheddar cheese production (366 days) totaled 3.149 billion pounds, up 92.5 million pounds (3.0 percent) from 2007. Revised 2008 total cheese production was set at 9.935 billion pounds, up 157.7 million pounds (1.6 percent) from 2007.

Fluid milk Advanced planning and lower overall milk output seemed to be factors in milk being handled well across most areas of the country.

Financial issues continue to plague dairy producers. Anecdotal and published reports state that more producers are having operating credit pulled.

The impact of low milk prices countered with high input costs is intense, especially as time goes on without a break in the price cycle.

Milk output is trending lower in much of the Southwest with weather conditions more summerlike. In the Northwest and Mountain regions, milk processing went well over the holiday weekend as current milk supplies are still building seasonally. In the Midwest, more northern areas are seeing milk intakes build, while southern states are coming off peak levels. Northeastern plants were running on extended schedule to handle the holiday milk supplies. Plant conditions were tight in the Southeast with plant problems causing delays.

Dry products
The announcement of the Dairy Export Incentive Program (DEIP) and the subsequent invitation announcements have the trade exploring what options will work.

Numerous factors play into DEIP participation – timing, future pricing, bonds, bonuses, product age, world needs, and fluctuating exchange rates – all are part of the decision-making process.

Nonfat dry milk prices moved slightly higher. Product is more available in the West, where clearances continue to the support program.

Dry buttermilk powder prices are higher in the West, steady to lower elsewhere. Demand is being curtailed at the higher pricing levels.

Dry whey markets continue to firm. Output is seasonally strong in the Midwest and East, while some Western processors are adjusting whey streams. Whey supplies are tightest in the West.

International overview (DMN)
The major topic of discussion in international markets was the announcement by USDA of allocations and invitations under the DEIP and how this would potentially impact international sales.

New Zealand and Australian traders and handlers indicate that the DEIP announcement, coupled with recently re-activated European export subsidies, puts Oceania at a further disadvantage internationally. Neither of these two countries have any type of export assistance. They also state that this will further delay market recovery and pay prices to dairy farmers within their countries and worldwide.

Traders and handlers indicate that international sales activity is quiet. Many are awaiting to see if DEIP will increase export activity out of the U.S. There is a limited timeline for the program to function as the program runs for a fiscal year, but the current fiscal year ends June 30.

The milk production season in Oceania is now basically finished for the 2008–2009 fiscal year. Producers and handlers in New Zealand are projecting a 7.5 percent increase over last season with Australian producers projecting that their season will end at much the same level as last year.

In Europe, milk production is very near or at peak levels in Western areas, while still building in Eastern regions. Production growth has been positive thus far this spring, but is often trailing last year at this time.

Dairy products continue to clear to intervention in the EU. Current intervention volumes total nearly 77,000 metric tons of butter and 161,000 metric tons of skim milk powder. Both of these levels are well above the maximum levels (30,000 metric tons of butter and 109,000 metric tons of skim milk powder) that were allowable to receive full restitution. Subsequent offerings into intervention are being accepted but at reduced restitution levels.

CCC purchases (FSA)
During the week of May 25-29, CCC purchased no butter and 1,385,143 net pounds of Western NDM under the dairy price support program. Cumulative CCC purchases since Oct. 1 total 4,639,010 pounds of butter and 239,809,256 pounds of NDM.

April cold storage (NASS)
On April 30, U.S. cold storage holdings of butter totaled 242.7 million pounds, up 14.2 percent from a month ago but down 3.5 percent from last year. Natural American cheese holdings total 586.1 million pounds, up 4.4 percent from a month ago and up 7.9 percent from a year ago.

Total cheese stocks were 914.1 million pounds, up 2.2 percent from March 2009, but up 6.8 percent over last April.

June announced co-op Class I prices (AMS)
For June 2009, the all-city average announced cooperative Class I price was $15.07 per hundredweight, $2.35 higher than the Federal milk order (FMO) Class I price average for these cities. The June cooperative Class I price was $0.90 lower than the May price, while the Federal order Class I price was $0.89 lower.

On an individual city basis, the difference between the Federal order and announced cooperative Class I price ranged from $0.50 in Phoenix, Arizona, to $3.15 in Miami, Florida.

For June 2008, the all-city average announced cooperative Class I price was $23.44, $2.62 higher than the Federal order Class I price average for these cities. Note: For most cities, the Announced Cooperative Class I Price now includes premiums paid for milk produced without rBST.

FMMO over-order charges (AMS)
For March 2009, the all reporting areas combined average over-order charge on producer milk used in Class I was $2.05 per hundredweight, down $0.15 from the February 2009 average. Ninety-one percent of the producer milk used in Class I carried an over-order charge.

On an individual order basis, Class I over-order charges ranged from $0.71 in the Pacific Northwest to $2.93 in Florida.

For producer milk used in Class II, the all reporting areas combined average over-order charge was $1.22 per hundredweight, up $0.04 from the February 2009 average. Eighty-six percent of the producer milk used in Class II carried an over-order charge.

April consumer price index (BLS)
The April CPI for all food is 218.2, up 3.3 percent from April 2008. The dairy products index is 197.1, down 5.1 percent from a year ago. The following are the April-to-April changes for selected products: fresh whole milk is down 16.6 percent; cheese, down 1.2 percent; and butter, down 10.8 percent.

Commercial dissappearance (ERS, AMS)
Commercial disappearance of dairy products during the first three months of 2009 totals 45.3 billion pounds, 2.5 percent below the same period in 2008. Comparing disappearance levels with year-earlier levels: butter is down 6.6 percent; American cheese, up 3.7 percent; other cheese, down 1.7 percent; NDM, down 11.1 percent; and fluid milk products, up 1.8 percent.  PD