Butter
Butter markets held generally steady this week following firmness last week. Some traders and handlers were surprised at the increase while others indicate it is not unusual for the cash price to firm at this time of the season. Churning activity across the country is somewhat heavier this week as cream supplies are more available to local and out-of-area churns. Butter producers state that they are taking advantage of additional cream offerings at this time due to anticipated increased demand from Class II cream buyers as the year-end holidays near.

Butter stocks continue to run heavier than last year at this time, although the drawdown of inventory is more rapid this year. The CME weekly butter stocks report showed 7.4 million pounds moved out last week, with the total stocks at 81.9 million pounds. For the comparable week last year, stocks moved just 1.4 million pounds lower to 61.2 million pounds.

Demand and shipments of butter for the upcoming holiday period are very active. Producers and handlers state that orders are and have been strong this season. It appears retail feature activity during the holidays will be occurring, which is expected to clear large volumes of print butter.

Cheese
The cheese market is unsettled with a cautiously firm undertone. Inverted barrel/block spreads continue fairly frequently on the Chicago Mercantile Exchange daily cash market. The growth in plant production capacity in recent years has not been in barrels and, at times, cheddar block offerings may exceed short-term current needs. Orders for the Thanksgiving holiday need to be shipped soon to large distributors. Demand for holiday specialty items has improved.

Producers of mozzarella and some other specialty varieties report continued difficulty in filling orders. The extreme tightness in NDM supplies has some cheese manufacturers, often mozzarella makers, separating extra butterfat out rather than adding solids to extend cheese yields. Cheese production is steady to lighter where some operations shift some milk away from cheese production due to the strong interest in NDM and/or skim solids.

Fluid milk
Milk production trends across the country are very typical for this time of the season. For the most part, output is holding steady at seasonal low levels with reports of slight increases in the Southeast and Southwest. In most areas, milk supplies are reported as tight and less available than milk handlers desire. Class I demand continues to take a significant volume of milk, with additional volumes quickly absorbed by manufacturing facilities.

Some plants, when possible, are switching milk away from cheese to take advantage of the strength in NDM/condensed skim prices and demand. Condensed skim markets remain firm and supplies are limited. Lack of sufficient volumes of NDM have buyers reaching to condensed volumes for their solids needs. Often these supplies are not available and if available, are priced too high. Cream markets are generally steady. Cream traders indicate supplies appear to be more available this week and heavier volumes are clearing to Class IV needs.

Churning activity is increased in many parts of the country. Most butter producers are welcoming the heavier cream offerings, thus they are not pulling as much inventoried butter for current needs.

Dry products
Nonfat dry milk markets are firm with prices generally higher. Powder stocks are light depending on milk availability and the direction of available milk volumes within operations. Some operations are clearing more milk into Class IV versus Class III. Condensed skim sales remain strong, thus limiting skim for the dryer. Buttermilk powder markets are firm with prices moving higher. Buttermilk stocks are somewhat more available as more cream is clearing to Class IV operations. Most production is clearing to contracts, with limited volumes available for spot buyer interest.

Whey powder markets are firm with prices unchanged to generally higher. Variations in milk supplies and NDM availability are affecting cheese production in some areas, yet overall whey output is trending about steady. There are buyers that continue to assess alternatives to whey, especially on the feed sector. Food accounts often need to use whey in formulas and have limited options for replacing or supplanting whey. Whey protein markets are firm as prices increase. Interest is good into domestic and export markets. Production is steady and supplies are mixed depending on producers or handlers.

November Federal Milk Order advance prices
Under the Federal milk order pricing system, the base price for Class I milk for November 2006 is $12.40, down $0.02 from October. This price is derived from the advanced Class I skim milk pricing factor of $7.77 and the advanced butterfat pricing factor of $1.4004 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 November is $7.37 and the Class II nonfat solids price is $0.8189 per pound. Following are the two-week product price averages: butter $1.2820, nonfat dry milk $0.8891, cheese $1.2846, and dry whey $0.3500.

2006/07 DEIP allocations announced
On October 12, the U.S. Department of Agriculture announced new one-year allocations under the Dairy Export Incentive Program (DEIP) for the July-June 2006/2007 year. DEIP allocations of 68,201 metric tons of nonfat dry milk, 21,907 tons of butterfat, and 3,030 tons of various cheeses may be made available through Invitations for Offers. These allocations correspond to total WTO limits for this year’s DEIP. Because of current international and domestic market conditions, Invitations for Offers will not immediately be made available.

September milk production
Milk production in the 23 major states during September totaled 13.3 billion pounds, up two percent from September 2005. August production, unrevised (net no changes) at 13.9 billion pounds, is up 1.6% from August 2005. Production per cow averaged 1,615 pounds for September, 16 pounds (one percent) above September 2005. The number of milk cows on farms was 8.25 million head, 79,000 head more (one percent) than September 2005, but 6,000 head less than August 2006.

Federal Milk Order price and pool summary
During September, about 8.7 billion pounds of milk were received from producers. This volume of milk is 8.7 percent lower than the September 2005 volume. In September 2006, there was a significant volume of milk not pooled due to intra-order disadvantageous price relationships.

About 3.9 billion pounds of producer milk were used in Class I products, 0.3 percent higher than the previous year. Calendar composition likely had a positive impact on milk used in Class I in 2006 as compared to 2005. The all-market average Class utilization percentages were: Class I = 45%, Class II = 14%, Class III = 34%, and Class IV= 7%. The weighted average statistical uniform price was $12.86 per cwt., $0.59 higher than last month and $2.42 lower than last year.  PD