Cash cheese saw some ups and downs the second week of 2009 as it awaited Friday afternoon’s release of preliminary December milk production data and got word that the European Union is restarting its dairy export subsidies, something that will surely have repercussions on the world dairy market.

The CME block price inched higher on Monday, then saw three days of losses, but ended on an up note Friday and closed at $1.07 per pound, down a quarter-cent on the week, and 58 cents below that week a year ago when the blocks tumbled 20 cents, to $1.65.
Barrel closed Friday at $1.09, up 2 cents on the week, but 71.25 cents below a year ago. Nineteen cars of block traded hands on the week and 13 of barrel. The NASS U.S. average block price fell to $1.3471, down 13.1 cents. Barrel averaged $1.2804, down 15.7 cents.

Alan Levitt, editor of the CME’s Daily Dairy Report, said that buyers are picking up bargain cheese as it’s a good opportunity, relative to where prices have been, but no one saw the uptick as a start of a bull market.

Prices remain at six-year lows, according to Levitt, and even though Uncle Sam has a standing purchase price of $1.13 on block and $1.10 on barrel, it doesn’t mean manufacturers automatically sell to the government because of the additional costs involved in packaging, grading, and other conditions that take more time and costs. USDA also changed the rules, Levitt said, and no longer buy processed cheese so that’s one less variety we can take off the market.

The last time the government purchased cheese under the support program was in 2002 and 2003, Levitt reported, and in the summer of 2002, cheese prices fell below support in the middle of June. It wasn’t until five weeks later that the first loads of barrel moved to the government and blocks followed two weeks later.

And, even though there was a 10-month period where blocks averaged $1.13, it was below support much of the time, according to Levitt, but only 14.50 million pounds of block and barrel was actually sold to the government. “For whatever reason,
manufacturers don’t see that as a viable option,” he said, “And don’t tend to move a lot of cheese to the government.”

Levitt also reported that the U.S. Department of Agriculture, in its World Agricultural Supply and Demand Estimates report projected that USDA will purchase 320 million pounds of nonfat dry milk, 20 million pounds of cheese, and 5 million of butter so that will “hang over the market for much of 2009.”

The USDA lowered its 2008 milk production estimate in the World Agricultural Supply and Demand Estimates report.

Based on production data through November higher expected cow numbers are more than offset by lower expected milk per cow. 2008 output is now projected at 189.6 billion pounds, down 100 million pounds from last month’s estimate.

Forecasts for 2009 were also reduced from last month’s report as “poor returns are expected to manifest themselves in a more rapid decline in cow numbers and slower growth in milk per cow.” 2009 output is now projected at 190.5 billion pounds, down from the 191.4 billion projected a month ago.

Exports for 2009 are expected to remain below those of 2008 as global demand reflects economic weakness. Ending stocks for both 2008 and

2009 are expected to be above levels forecast last month as weak demand is expected to slow domestic use. Sales of nonfat dry milk to the CCC in 2009 are forecast higher and small sales of cheese and butter is now predicted in 2009.

2008 milk and dairy product prices are adjusted from last month reflecting December data. Class milk prices for 2009 were reduced as product price forecasts were lowered. The report states that “Economic uncertainties have reduced demand for dairy products and prices have declined sharply for cheese, with lesser declines in butter, nonfat dry milk, and whey.”

The 2009 Class III price is now projected to average $10.60-$11.40 per cwt., down from the $14.50-$15.30 projected a month ago, and compares to $17.44 in 2008 and $18.04 in 2007.

The 2009 Class IV price is projected at $10.00-$10.90, down from $10.75-$11.65 expected last month, and compares to $14.65 in 2008 and $18.36 in 2007. The sharpest declines in cheese and butter prices are expected in the first half of 2009 due to large supplies but the reduction is less, later in the year as lower forecast milk production results in declines in stocks of fat-based products. Although forecast weaker than last month, tightening supplies of nonfat dry milk later in the year are expected to help support powder prices.

Meanwhile the cash butter price closed Friday at $1.1125, up a quarter-cent on the week but 10.75 cents below a year ago. Only five cars were sold. NASS butter averaged $1.1187, up 1.7 cents.
Grade A and Extra Grade nonfat dry milk closed Friday at 83 and 85 cents per pound respectively, unchanged on the week. NASS-surveyed powder averaged 83.6 cents, up 0.4 cent, and dry whey averaged 17.1 cents, down 0.3 cent.

Price support purchases this week included 8.3 million pounds of nonfat dry milk and 254,000 pounds of butter.

Cumulative powder purchases now stand at 134.3 million pounds and 376,000 pounds of butter, compared to none a year ago.
Plunging product prices sent California’s February Class I milk price sharply lower. The Northern price is $11.27 per cwt., down $6.15 from January and $10.44 below February 2008. The southern price is $11.55, down $6.14 from January and $10.43 below a year ago. The federal order Class I base price is announced January 23rd and is expected to be near $10.00 and trigger the first MILC payment since February 2007.