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Last week in August saw dairy markets go up, down
By Lee Mielke

Once again DairyLine passes another milestone. It was Labor Day 1988 that our first syndicated broadcast hit the airwaves on five radio stations in three states. Our DairyLine column followed shortly after. Our thanks goes to you our listeners and readers for allowing us the privilege of serving this very important industry.

The dairy industry’s August Federal order benchmark milk price was announced by the USDA Friday at $11.06 per hundredweight (cwt.), up 14 cents from July, but $2.54 below August 2005. That raises the 2006 Class III average to $11.47, down from $14.15 a year ago and $15.60 in 2004. The Class IV price is $10.64, up 43 cents from July, but $2.80 below a year ago.

Class III futures portend a big jump next month. September was trading Friday morning at $12.30. October was at $12.72, November $12.59, and December $12.53, portending a 2006 average of $11.82, down from $14.05 in 2005.

The NASS cheese price averaged $1.1813 per pound, up from $1.1793 in July. Butter averaged $1.1990, up 6.5 cents. Nonfat dry milk averaged 84.84 cents, up 1.8 cents, and dry whey averaged 29.65 cents, up 1.5 cents from July.

California’s August 4b cheese milk price is $10.80 per cwt., up 52 cents from July, $2.19 below August 2005, and 26 cents below the comparable Federal order Class III price. The 4a butter-powder price is $10.50, up 67 cents from July, but $2.56 below a year ago.

The dairy markets saw more ups and downs the last week of August. Block cheese closed Friday at $1.3475 per pound, the highest price since late January. That’s 5.25 cents above the previous week but 15.25 cents below a year ago. Barrel climbed to $1.3350 and then gave back some on Friday, closing at $1.3125, up 2.25 cents on the week, but 17.75 cents below a year ago. Eighteen cars of block traded hands on the week and seven of barrel. The NASS U.S. average block price hit $1.1925, up 1.9 cents. Barrel averaged $1.2046, up 3.9 cents.

Butter closed Friday at $1.3675, up 1.25 cents on the week, but 32.75 cents below a year ago. 40 cars were sold. NASS butter averaged $1.2406, up 1.8 cents.

The dairy markets are doing what they often do at this time of year; “heating up,” according to Alan Levitt, editor of the CME’s Daily Dairy Report. Speaking in Tuesday’s DairyLine, Levitt said that September is typically the highest priced month of the year for cheese and Labor Day is usually when we “hit that tipping point where, building up to Labor Day, a number of seasonal factors converge at the same time to tighten the market.”

Milk production is lower seasonally, he said, component levels are lower seasonally, and fluid milk demand is up as processors fill the pipeline for schools reopening so less milk is available to make cheese and butter.

Supplemental milk shipments to the Southeast have also jumped to offset local shortages, according to Levitt, and so far in August, 66 million pounds of milk have been trucked to the Southeast, up 71 percent from a year ago, leaving less milk in the surrounding regions and manufacturing plants looking for milk.

Fourth quarter Class III futures as of Monday morning would translate into a CME cheese price of about $1.37 per pound, Levitt said, “So we still have a bit of room to go higher” but he warned that the limiting factor going forward is that inventories are still heavy relative to historic trends.

He warned that, when cheese prices were lower earlier this year, people were buying and stocking up for their end of the year needs so that could limit the gains. He doesn’t expect any runaway $1.50-$1.60 cheese prices this fall.

As to the July Slaughter report showing that culling is running ahead of a year ago, Levitt said it shows what we’ve seen for the last few months but a year ago the summer slaughter rate was the lowest in over a decade so we’re up a little from a year ago, he concluded, and that’s indicative of lower milk prices but “It’s not a big surprise.”

The August Milk-Feed Price Ratio is 2.48 up 13 points from July, according to USDA’s latest “Ag Prices” report. That compares to 3.08 in August of 2005. The All Milk Price was estimated at $11.90 per cwt., up 10 cents from last month’s revised estimate, and compares to $14.80 a year ago.

Corn averaged $2.03 per bushel, down 11 cents from July’s revised estimate, but 8 cents above August 2005. The soybean price, at $5.24 per bushel, was down 37 cents from July’s revised estimate, and 91 cents below August 2005. The alfalfa hay price, at $110 per ton, is down $3 from last month, but $2 above August 2005.

The USDA announced that it will reconvene the public hearing regarding proposals to amend Federal order Class III and Class IV milk price formula manufacturing allowances. The hearing will be held September 14 in Strongsville, Ohio.

National Milk’s latest Import Watch released this week notes that dairy imports across the board for the first six months of 2006 are down from a year ago. Chris Galen reported Thursday that milk protein concentrate imports were down about 4 percent and casein imports are down about 21 percent.

Those are products that have no quotas, Galen said, and can be imported in unlimited quantities but the U.S. market has seen below average prices the past six months so that has reduced the volume of dairy proteins entering the U.S.

Butter imports are down significantly from 2005, according to Galen, and “really significantly” from 2004 and imports of several types of cheese are down and “This is a function of the fact that, as farmers are painfully aware, milk prices the first half of this year have been below average and that means that imports and a variety of finished dairy products have tended to not come to this market because it’s just not as lucrative to bring them into the U.S.”

Down the road we’ll hopefully see stronger prices, Galen said. Cash prices have strengthened, he said, but that may mean that, in the last six months of the year, imports will rebound as well.

He added that the USDA can implement temporary “safeguard tariffs” on certain products when imports of those products exceed a three year average. They did that in 2002 on American type cheese, Galen said, but National Milk asked for the tariffs on butter two years ago but the USDA declined.

U.S. dairy exports are continuing at a strong pace in 2006 and totaled $762 million through the end of May, up about 8 percent from the same period a year ago. Speaking in Monday’s “DMI Update,” the U.S. Dairy Export Council’s Margaret Speich, said the U.S. dairy export outlook is positive.

Exports of U.S. cheese, ice cream, infant formula, whey, and lactose are all running ahead of last year’s pace, according to Speich. In particular, cheese exports have been a bright spot with an increase of 33 percent, mostly due to a huge 60 percent increase in exports to Mexico. Whey protein exports have increased by 18 percent, she said, with demand so great that traders report difficulty in finding enough U.S. supply to meet demand.

Exports of lactose are up 22 percent, with much of the increase coming from Mexico, according to Speich. Skim milk powder was down 22 percent in the first quarter of 2006, with shipments to Mexico and Asia down, but Speich believes they will take off again.

This farm news was published in the Sept. 6, 2006 issue of Farm World, serving Indiana, Ohio, Illinois, Kentucky, Michigan and Tennessee.