Excitement in the cash dairy markets intensified the second week of 2011 as the rising butter price appeared to pull cheese prices higher as well. A lot of eyes are “down under,” on the flooding in Australia, which is driving up powder prices.

Cash Cheddar block closed Jan. 14 at $1.5250 per pound, up 16 cents on the week, and 11 cents above that week a year ago. Barrel closed at $1.4750, up 13.25 on the week, and a penny above a year ago. No block was traded on the week, but 19 cars of barrel found new homes. The lagging NASS-surveyed U.S. average block price dropped to $1.3457, down 2.9 cents. Barrel averaged $1.3762, down 2.5 cents.

Cash butter held all week at $2.10, 57.5 cents above a year ago. Four cars traded hands on the week. NASS butter averaged $1.6702, up 2.3 cents.
Cash Grade A nonfat dry milk ended the week at $1.4325, up 10.25 cents. Extra Grade closed at $1.40, up 6 cents. NASS powder averaged $1.2224, up a half cent, and dry whey averaged 38.70 cents, down 0.1 cent.

Continued strength in cheese shows “folks are comfortable owning and wanting to buy additional cheese at prices in the mid to upper $1.30s,” said Downes-O’Neill Dairy Economist Bill Brooks in Tuesday’s DairyLine, but he didn’t think they would do so if prices got into the mid $1.40s. That was Tuesday morning.
He said it appeared that 2011 may repeat what happened in 2010 with cheese “moving sideways and bouncing around a little bit,” but warned that, if the price got to a point where demand gets cut, prices will have to come back down and then we’ll repeat the process at least for the next few months, given current cheese inventory levels and the fact that we typically build stocks at this time of the year. He didn’t see anyone wanting to add to those heavy inventories."

Butter has its “normal cast of characters, fear and greed,” according to Brooks, mainly fear spurred by last week’s global dairy trade auction, even though it’s a market that calls for delivery two or three months from now when Australia and New Zealand are coming to the end of their production season. There’s a strong bump up there, he said, and that spills into the U.S. market and has pushed our butter price between Europe’s and the Oceania price.

There’s concern about how much butter we can export at $2.10, he warned, definitely a concern on the domestic side if that export market goes away.
People are concerned about that and, while our history of having butter above $2 is fairly limited, the history that we do have shows that when we get above $2 we stay there for at least a couple of months and sometimes as many as four months.

We could very well be above $2 as we go into the Easter holiday which is late this year, Brooks said, and a lack of sales around Easter because of the substantially higher price this year versus last year could very well be the thing that pushes that down if you’re just looking at the domestic market.
If the international market takes away that butter, Brooks says manufacturers may not be overly concerned about the domestic market.

Producers will be happy with the pay prices that will result from that, he concluded, because the high Class IV price will filter through to Class I and Class II prices as well.

2011 milk forecast mirrors 2010 estimates
Meanwhile, U.S. milk production estimates for 2010 and the forecast for 2011 was unchanged from last month in the Agriculture Department’s latest World Agricultural Supply and Demand Estimates report. 2010 milk output is expected to total 192.8 billion pounds, unchanged from last month’s estimate, and compares to 189.3 billion in 2009. The 2011 estimate remained at 195.5 billion.
Ending stocks for 2010 were reduced due to expected low stocks of butter and nonfat dry milk (NDM) at the end of the year. Imports for 2010 and 2011 were reduced due to low U.S. prices relative to those internationally, coupled with a weak U.S. dollar.

Skim-solids basis exports were raised as NDM exports are expected to be supported by tight world supplies into mid-2011. Fat basis exports for 2010 were lowered from last month on weaker-than-expected exports of butterfat.
Butter, NDM, and whey prices are forecast higher, but the cheese price forecast was lowered.

Tighter beginning stocks support a higher butter price forecast while generally strong exports of NDM and whey will support higher prices.
The cheese price forecast was reduced from last month on moderate demand. The Class III price forecast range was reduced as the lower forecast cheese price more than offsets the higher whey price forecast. Look for the Class III price to average $14.35-$15.15 per cwt., down a dime from last month’s projection, and compares to $14.41 in 2010, $11.36 in 2009, and $17.44 in 2008.

The Class IV price forecast was raised as the butter and NDM price forecasts were raised. Look for a 2011 Class IV average of $14.90-$15.80, up 40 cents from last month’s estimate, and compares to $15.09 in 2010, $10.89 in 2009, and $14.65 in 2008.

Farm milk price steadily improves
Speaking of milk prices, California’s February Class I milk price IS $16.88 per cwt. for the north and $17.15 for the south. Both are up 43 cents from January and 42 and 41 cents respectively above February 2010. The Federal order Class I base milk price is announced Jan. 21.

The Agriculture Department issued three major crop reports this week that, Dairy Profit Weekly Editor Dave Natzke said gives us a barometric reading of how much pressure feed prices will put on dairy farm profitability this year.
USDA released its final 2010 U.S. Crop Production report, along with latest Grain Stocks and World Ag Supply and Demand reports, and all point to reduced feed inventories and higher prices for dairy farmers, Natzke reported.

The Crop Production report put the 2010 corn crop at 12.4 billion bushels, down 9 percent from 2009 and the soybean crop was estimated at about 2.3 billion bushels, down 1 percent from a year ago.

In addition, the Grain Stocks report estimated corn in storage is down 8 percent from a year ago, with soybean inventories down 3 percent. The corn stocks-to-use ratio is projected at just 5.5 percent, the lowest ratio in 15 years, according to Natzke.

Combined with lower available supplies, the World Ag Supply & Demand report raised projected use of major crops and, as a result, marketing year average farm-level prices also raised.

2010-11 marketing-year average corn prices were raised 10 cents on both ends of the range, to $4.90-$5.70 per bushel. The U.S. soybean price, projected in a range of $11.20-$12.20, is up 50 cents and the soybean meal price was projected at $320-$360 per ton, up $10.

The Crop Production and Grain Stocks reports provided insights on other major dairy feedstuffs. USDA said corn silage and dry hay harvests were smaller than previous estimates and last year’s totals, Natzke said.

The views and opinions expressed in this column are those of the author and not necessarily those of Farm World. Readers with questions or comments for Lee Mielke may write to him in care of this publication.