1308 PD: Stronger dollar slows exports; new pricing system postponed

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Friday, 29 August 2008 09:21

Editor’s note: The following are available market reports and futures data as of August 22, 2008.

The cash butter price at the Chicago Mercantile Exchange (CME) Group is mixed and firmed slightly at $1.6100, $0.2050 higher than last year at this time and $0.3150 higher than August 22, 2006. According to FAS, quota imports of butter for the first seven months of the year total 2.3 million pounds. This amount stands at only 29 percent of the total imported for the same period last year. The amount is 15 percent of the annual quota.

The cheese market is unsettled and sizeable current cheddar offerings continue to add pressure to the CME group cash cheese market. According to FAS, quota imports of cheese for the first seven months of 2008 total 98.2 million pounds, down 27 percent from the same period in 2007. Imports stand at 33 percent of the annual quota.

Fluid milk
Milk production is at seasonally lower levels, but reported as steady in many parts of the country, with some exceptions. In a number of areas, there has been less-than-normal extreme heat and/or humidity, which has kept herds more comfortable.

Dry products
Nonfat dry milk (NDM) markets throughout the country are unsettled and weak as prices trend lower. Gains in the U.S. dollar against foreign currency are making U.S.-sourced NDM more expensive in foreign markets. Buttermilk powder markets continue to be unsettled to weak with prices unchanged to lower. Drying schedules have been steady in the West but reduced in the East and Central Region, with less churning there. Export interest for dry whey is being challenged by the strengthening U.S. dollar and more whey availability in other countries.

Federal milk order advance prices highlights (dairy programs)
A complaint to prohibit the implementation of the revised manufacturing allowances and butterfat yield factor contained in the Interim Final Rule published in the Federal Register July 31, 2008 was filed in the United States District Court for the District of Columbia. The effective date of the Interim Final Rule will be postponed to October 1, 2008.

Under the Federal Milk Order pricing system, the base price for Class I milk for September 2008 is $17.65, down 82 cents from August. This price is derived from the advanced Class III skim milk pricing factor of $11.98 and the advanced butterfat pricing factor of $1.7411 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 September is $11.59 and the Class II nonfat solids price is $1.2878 per pound.

August milk supply and demand estimates
Milk production forecasts for 2008 and 2009 are unchanged, as lower feed prices are partly offset by lower milk prices. Dairy trade forecasts are adjusted with lower forecast imports and higher forecast commercial exports. Imports to date have been weaker than expected as world supplies are tight and the U.S. dollar is relatively weak. Conversely, these conditions are expected to support higher forecast commercial exports. In the face of tighter supplies, forecast domestic disappearance is lowered. However, reduced supplies are expected to support prices in 2009 and the forecast for that year is unchanged.

Strong demand is boosting butter prices and nonfat dry milk (NDM) prices. As demand is expected to remain firm into 2009, price forecasts are raised for that year. The whey price forecast is reduced for both 2008 and 2009 as stocks are high and exports are expected to lag. For 2008 and 2009, the Class III and Class IV prices are adjusted to reflect changes in the make-allowances, which are due to take effect in September 2008. For 2008, Class III prices are lowered but Class IV prices are raised, reflecting higher butter and NDM prices. For 2009, both Class prices are lowered. The all-milk price is forecast lower this month, averaging $18.85 to $19.05 in 2008 and $18.25 to $19.25 in 2009.

July milk production
Milk production in the 23 major states during July totaled 14.8 billion pounds, up 1.7 percent from July 2007. June revised production at 14.7 billion pounds, was up 3.2 percent from June 2007. The June revision represented a decrease of 19 million pounds or -0.1 percent from last month’s preliminary production estimate. Production per cow in the 23 major states averaged 1,742 pounds for July, unchanged from July 2007. The number of milk cows on farms in the 23 major states was 8.47 million head, 143,000 head more than July 2007, and 5,000 head more than June 2008.

June over-order charges (dairy programs)
For June 2008, the all reporting areas’ combined average over-order charge on producer milk used in Class I was $2.27 per hundredweight, the same as the May 2008 average. Ninety 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 $0.62 in the Pacific Northwest to $4.30 in Florida. For producer milk used in Class II, the all reporting areas’ combined average over-order charge was $1.25 per hundredweight, up $0.06 from the May 2008 average. Eighty-five percent of the producer milk used in Class II carried an over-order charge.

Federal Milk Order price and pool summary
During July, about 10 billion pounds of milk were received from producers. This volume of milk is 0.2 percent higher than the July 2007 volume. In July 2007, there was a significant volume of milk not pooled due to intraorder disadvantageous price relationships. Calendar composition likely had a positive impact on milk used in Class I in 2008 as compared to 2007. The all-market average Class utilization percentages were: Class I = 35 percent, Class II = 13 percent, Class III = 39 percent and Class IV = 13 percent. The weighted average statistical uniform price was $20.06 per hundredweight, $0.61 higher than last month and $2.29 lower than last year.  PD


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