California’s December Class I milk price is $18.28 per cwt. for the north and $18.55 for the south. Both are down 43 cents from November, but are $2.24 above a year ago. The Northern price averaged $16.97 in 2010, up from $13.12 in 2009. The Southern price averaged $17.24, up from $13.39 a year ago. The December Federal order Class I base price is announced Nov. 19.

The U.S. corn and soybean harvest is all but completed and the dairy feed supply and price picture is coming into clearer focus, but it’s not looking good for dairy farm feeding costs.

Dairy Profit Weekly Editor Dave Natzke reported in Friday’s broadcast that October’s weather helped the U.S. crop harvest advance quickly, with nearly all corn and soybeans harvested by the first week of November but, with the early harvest, USDA now estimates corn production at about 12.5 billion bushels, down 1 percent from the October estimate and 4 percent less than last year’s record production. U.S. soybean production is forecast at a record-high 3.38 billion bushels, but is also down 1 percent from the October forecast.

As a result of the reduced crop estimates compared to a month ago, USDA is now forecasting smaller feed grain supplies for 2010 and 2011, resulting in higher prices for dairy farmers who buy feed, Natzke warned.

On the demand side, USDA expects an increase in corn for ethanol production, resulting in the smallest carryover of corn since 1995-96. Export demand, especially to China, will result in a decline in soybean carryover, as well.

The season-average farm corn price is projected at $4.80-$5.60 per bushel, up 20 cents compared to last month, and well above the previous record of $4.20 per bushel in 2007-2008.

The U.S. season-average soybean price paid at the farm is projected at $10.70-$12.20 per bushel, up 70 cents compared to last month, with soybean meal projected at $310-$350 per ton, up $20 per ton. For producers who price feeds off the Chicago Mercantile Exchange, 2011 corn futures contracts averaged $5.76 per bushel as of the close of trading on Nov. 10. CME soybean futures contracts for November 2010 through August 2011 averaged $13.21 per bushel, while soybean meal futures averaged more than $356 per ton, according to Natzke.

Cash block cheese falls to lowest level
The cash block cheese price fell to the lowest level in four months, but regained a penny the second Friday in November, closing at $1.41 per pound, down 7 cents on the week, and 16.5 cents below a year ago. It had lost 36 cents in five weeks. Barrel finished at $1.37, down 14 cents on the week, and 7.25 cents below a year ago.

Twenty nine cars of block traded hands on the week and 26 of barrel. The NASS-surveyed prices were not available before our deadline due to the Veteran’s Day holiday.

Cash butter, after plunging 27 cents the previous Friday and rebounding 12 cents on Monday, closed the week at $1.99, up 11 cents on the week, and 46.5 cents above a year ago. Four cars were sold on the week.

The cash markets are “jumpy,” according to Alan Levitt, editor of the CME’s Daily Dairy Report in Tuesday’s broadcast. He said that “Everybody expected cheese and butter to fall at some point, and now seems to be the time.”

He said that “traders aren’t really sure where the level of support is so they’re selling off a little bit.” As to the butter crash, Levitt said there wasn’t anything specific to cause the crash but, “I think the butter price was too high for too long.”

He pointed out that, even with the crash it was still the highest price ever for that date in the year.

The break in the butter price may have the buyer’s attention, as the price jumped 12 cents on Monday, to $2. “I could see a similar bounce in the cheese, once buyers are comfortable that the bottom is put in,” Levitt explained. “Then I think we could see the bids come back.”

Monday’s spot price translates into a Class III price of $13.60 per cwt., according to Levitt, and a Class IV price of $16.50. “That’s not a sustainable gap,” he said. “We’ve never seen a point where the Class IV is almost three dollars more than the Class III, so something has to give,” adding the butter price may be more vulnerable after Thanksgiving.

The Agriculture Department’s latest World Agricultural Supply And Demand Estimate Report, shows the 2010 milk production estimate unchanged from last month but lowered its 2011 projection as forecast cow numbers were reduced. Look for 2010 output to hit 192.8 billion pounds, up from 189.3 billion in 2009, and compares to 190 billion in 2008. 2011 output is now expected to hit 195.6 billion pounds, down 400 million pounds from last month’s estimate.

Milk per cow was adjusted slightly higher in early 2011, but higher feed prices and lower forecast milk prices limit the rate of growth in 2011.

Exports in 2010 are forecast higher due to strong growth in butter, cheese, and fluid milk/cream. For 2011, continued global economic recovery and a favorable exchange rate should support exports.
Cheese and butter prices for both 2010 and 2011 were forecast lower. The 2010 forecast for nonfat dry milk was unchanged from last month, but stronger expected exports support a higher forecast for 2011.

Both 2010 Class III and Class IV milk price forecasts were lowered due to the lower cheese and butter price forecasts. The Class III forecast was lowered for 2011 but the Class IV price forecast was raised as the higher nonfat price more than offset the expected lower butter price.

Look for the 2010 Class III price to average $14.35-14.45 per cwt., down 30 cents from last month’s projection, but compares to $11.36 in 2009. The 2011 average is now put at $14.40-$15.30, down a dime from last month.

The Class IV average will be $15.05-$15.25 in 2010, down a nickel from last month’s estimate, and compares to $10.89 in 2009.