Dairy product prices trend generally higher

Editor’s note: The following are available market reports and futures data as of January 19, 2006.

Butter

The CME cash butter price has fluctuated within a narrow range during the week, closing at $1.2250 on January 22. Some manufacturers and handlers are surprised at the strength in the cash butter price when cream volumes are heavy and butter inventories are increasing. Some speculate the 3-cent increase one week earlier was more related to cream pricing for the long Martin Luther King holiday weekend than butter supply and demand. Churning activity across the country is active, although some indicate cream offerings are lighter this week. In most instances, fresh butter production continues to outpace demand. Thus, surplus butter is clearing to inventory programs. Butter demand is rated as fair at best. Orders are occurring, but no significant sales activity is being reported.

Cheese

The cheese market is weak. The Chicago Mercantile Exchange weekly average barrel price closed above the block average (inverted) for the second straight week in 2007. The average price inversion occurred for 11 weeks during 2006. Supplies for Super Bowl activities need to be shipped soon.

Best current interest continues to concentrate on shreds. Current cheddar block supplies are at least adequate. High prices and availability issues for NDM continue to hamper production of many reduced fat varieties such as LMPS mozzarella. Producers continue to market extra product produced with year-end holiday milk. Cheese production is about steady.

Fluid milk

Milk production is trending steady to higher in the Central and Eastern states. Production in the West is mixed with some areas reporting seasonal increases, whereas others are indicating hardship from the recent inclement weather. Farms, particularly in California, reported reduced milk output as water lines burst and drinking cups or troughs cracked in the cold weather, limiting cow water intake. Winter storms in the Western and Central states also wreaked havoc on driving conditions and electrical capacities, delaying milk receipts and impeding demand at locations without the benefit of generators.

Bottling milk interest is seasonally steady in the Western and Central regions. In the East, Class I demand is strong with some plants working on a conversion to rBST-free status to satisfy the growing interest. Cream supplies are heavier in the West than in the rest of the nation.

Dry products

Dairy product prices are generally trending higher. Increased milk intakes into Class IV facilities are noted throughout the country. As a result, production of NDM and dry buttermilk are increasing. The gap in pricing between the Western region and the rest of the nation is narrowing. However, buttermilk and NDM prices as high as $1.5000 in the Central/East remain significantly different than Western prices that trend as low as $1.0200-1.0500 respectively. Supplies of whey are available for spot trade in the Western and Eastern regions but not in the Central US. Whey demand from export markets is strong, limiting available supplies offered domestically.

WPC prices jumped nearly 7 cents this week with prices reported as high as $1.0425. WPC supplies remain short of buyer interest, encouraging some users to instead purchase higher priced NDM. Spot loads of lactose traded as high as 70 cents this week. Some buyers are working to reformulate away from lactose because of higher prices and supply shortages.

Federal milk order advance prices highlights (dairy programs):

Under the federal milk order pricing system, the base price for Class I milk for February 2007 is $13.39, down 20 cents from January. This price is derived from the advanced Class III skim milk pricing factor of $9.19 and the advanced butterfat pricing factor of $1.2906 per pound. Class I differentials specific to each county are added to the base price to determine the Class I price. The Class II skim milk price for February is $8.77 and the Class II nonfat solids price is $0.9744 per pound. The following are the two-week product price averages: butter $1.1905, nonfat dry milk $1.0461, cheese $1.3279, and dry whey $0.4539.

Make allowance lawsuit

Bridgewater Dairy, LLC, et al. vs. USDA: The court conducted status phone conferences on January 16 and 17, 2007, regarding plaintiffs’ motion for a temporary restraining order (TRO) and/or preliminary injunction. In lieu of opposing plaintiffs’ motion for a TRO, defendant USDA has agreed to delay the release date of the Interim Final Rule until the February 23, 2007, date. This matter is set for a preliminary injunction hearing on February 15, 2007, at 9:30 a.m. In light of this litigation, commenced in U.S. District Court for the Northern District of Ohio, the manufacturing allowances used to compute the Federal order minimum advance Class I and Class II prices and pricing factors in this announcement are the current manufacturing allowances, rather than the revised manufacturing allowances contained in the Interim Final Rule published in the Federal Register on December 29, 2006 (71 FR 78333-78335). As long as the Interim Final Rule is not enjoined as a result of the litigation, federal order minimum prices for Class III and Class IV milk for February 2007, as well as the federal order minimum advance Class I and Class II prices and pricing factors for March 2007 and thereafter will be computed using the revised manufacturing allowances contained in the Final Rule. Information regarding this matter can be found on the AMS website at www.ams.usda.gov/dairy/

October mailbox milk prices

(AMS & CDFA)

In October 2006, mailbox milk prices for selected reporting areas in federal milk orders averaged $13.65, $.77 more than the previous month. The component tests of producer milk in October 2006 were: butterfat, 3.77 percent; protein, 3.13 percent; and other solids, 5.70 percent. On an individual reporting area basis, mailbox prices increased in all federal milk order reporting areas, and ranged from $17.20 in Florida to $11.97 in New Mexico. In October 2005, the federal milk order all-area average mailbox price was $15.42, $1.77 higher.

December federal milk order price and pool summary (AMS)

During December, about 9.6 billion pounds of milk was received from producers. This volume of milk is 4.3 percent lower than the December 2006 volume. In December 2006, there was a significant volume of milk not pooled due to intraorder disadvantageous price relationships. About 3.9 billion pounds of producer milk were used in Class I products, 0.8 percent lower than the previous year. Calendar composition likely had a positive impact on milk used in Class I in 2007 as compared to 2006. The all-market average Class utilization percentages were: Class I = 40 percent, Class II = 12 percent, Class III = 37 percent, and Class IV = 11 percent. The weighted average statistical uniform price was $13.89 per cwt., $0.31 higher than last month and $0.39 lower than last year.  PD