Columnist Lee Mielke wraps up the week’s dairy industry news.
By: Lee Mielke
Source: Capital Press
Cash cheese prices strengthened last week. The Cheddar blocks closed Friday at $1.51 per pound, up 4 3/4-cents, but 10 cents below a year ago. Barrels hit $1.36, up 3 1/2-cents on the week, 29 cents below a year ago, and 15 cents below the blocks.
The blocks slipped three-quarter cents Monday but gained it back Tuesday, returning to $1.51. The barrels were unchanged Monday but inched up a quarter-cent Tuesday, to $1.3625.
Spot and contract milk offers are abundant for cheesemakers in the Midwest, Dairy Market News reports, and milk prices are nearing holiday level discounts, from $1 over to $4 under Class III. Cheese demand varies. Some pizza cheese producers report seasonally slow sales now that Super Bowl is history, but expect buyers to replenish stocks. The block to barrel price gap “remains a reminder of potential instability.”
Western cheese output is ongoing with “bounteous supplies of milk available,” although a number of Class II processors are clearing more milk, releasing some of the pressure on cheese producers. Overall, stocks of cheese in the West are balanced to down slightly but cheese is more than sufficient to meet end user needs. Some suggest that interest from international and domestic markets is trending up, possibly due to lower prices, others report sales have slowed.
FC Stone’s Tuesday Early Morning Update stated, “The spread makes sense to us today. Fresh barrels appear more plentiful today than that of blocks, but there seems to be no material sign of the kind of buyer worry that boosts prices. Part of that may be freight considerations (increased costs), which continue to be a bit of a weight on bids. Meanwhile, there is some planning for Easter promotion going on right now, which may supply a willing bid for blocks around current levels this week.”
Butter closed Friday at $2.0275 per pound, down 8 3/4-cents on the week, lowest price since Nov. 21, 2016, and 7 1/2-cents below a year ago.
It regained a quarter-cent Monday and tacked on 3 1/4-cents Tuesday, hitting $2.0625.
DMN says butter demand, in certain cases, has increased from last month. Other producers suggest sales continue to meet “seasonally downplayed expectations.”
Western butter is at or near full capacity and ample cream is finding its way to the churn but butter demand is picking up ahead of the spring holidays.
Cash Grade A nonfat dry milk moved 1 1/4-cents higher on the week, closing at 73 1/2-cents per pound, 18 1/2-cents below a year ago.
The powder was unchanged Monday but inched back a half-cent Tuesday, to 73 cents per pound.
In most of the U.S., milk prices are determined using complex formulas by the U.S. Agriculture Department but the system has evolved over the years from a simple volume/butterfat basis to the current multiple component pricing, which takes into consideration volume, butterfat, protein, and various other components of the milk, as well as where the milk is to be used.
There are four classes of milk: Class I is fluid in the bottle or jug and yields the highest rate of return to the farmer. Class II is milk used in ice cream, yogurt and cream cheese. Class III is milk that goes to cheese and dry whey, and Class IV is milk used in butter, nonfat and whole milk powder.
It takes 9.6 pounds of milk to produce 1 pound of cheese, so every penny movement in the cheese price is equivalent to about 10 cents on the Class III milk price.
Dry whey is a byproduct from making cheese. One hundred pounds of milk will yield about 10 pounds of cheese and about six pounds of dry whey. A 1 cent movement in the dry whey price equals about 5.9 cents on the Class III milk price.
The Class IV milk price is driven by powder and butter. One hundred pounds of milk yields about 8.6 pounds of nonfat dry milk and 4.2 pounds of butter. A penny movement on the nonfat dry milk price will mean about 8.6 cents on the Class IV milk price and a penny movement on butter results in a 4.2 cent impact on the Class IV price.
Farmers receive a uniform or blend price, which is determined by their region of the country, based upon how much of that farmer’s milk went into the four different classes in his milk market order. California is not part of the Federal order system, though efforts are underway to make that happen, so it currently has its own Classes of milk and pricing formulas.
The Agriculture Department lowered its 2018 milk production forecast for the fourth month in a row in the latest World Agricultural Supply and Demand Estimates report, based on expectations of slower growth in milk per cow.
2018 production and marketings were projected at 218.7 and 217.7 billion pounds respectively, down 100 million pounds from last month. If realized, 2018 production would be up 3.3 billion pounds or just 1.5 percent from 2017.
The Class III price forecast was lowered, based on the cheese price projection while the Class IV price was down on a lower butter price forecast.
The 2018 Class III milk price forecast was projected to range from $14.20 to $14.90 per cwt., down a nickel on the low end from last month’s estimate, and 15 cents lower on the high end. The Class III averaged $16.17 in 2017 and $14.87 in 2016.
The 2018 Class IV price is expected to range from $13.35 to $14.15 per cwt., down 20 cents on the low end and 30 cents lower on the high end, and compares to $15.16 in 2017 and $13.77 in 2016.
Just as Coke and Pepsi are battling falling consumption, so dairy industry woes continue regarding fluid milk, a beverage that once upon a time outsold soda.
USDA’s latest data pegs December packaged fluid sales at 4.1 billion pounds, down a hefty 4.0 percent from December 2016.
Conventional product sales totaled 3.9 billion pounds, down 4.1 percent from a year ago; organic products, at 215 million pounds, were down 1.9 percent and represented about 5.2 percent of total sales for the month.
Whole milk sales totaled 1.3 billion pounds, down 0.4 percent from a year ago, but up 2.2 percent for the year, and made up 31.6 percent of total fluid sales in the month and 30.7 percent for the year. Skim milk sales fell to 338 million pounds, down 11.7 percent from December 2016 and down 11.9 percent for all of 2017.
Total packaged fluid milk sales in 2017 slipped 48.1 billion pounds, down 2.2 percent from the same period a year ago. The 2017 total was just 0.7 percent below 2016.
Conventional products for 2017 totaled 45.5 billion pounds, down 2.3 percent; organic products, at 2.6 billion pounds, were virtually unchanged. Organic represented about 5.4 percent of total fluid milk sales in 2017.