Cash cheese prices at the Chicago Mercantile Exchange (CME) saw a fourth week of gain, jumping almost 50 cents in the period, and reached levels not seen since June 2008. The 40-pound blocks closed the second Friday of June Dairy Month at $2.11 per pound, up 6 cents on the week, and 74 cents above a year ago. The 500-pound barrels closed at $2.0675, up 10.75 cents on the week, and 73.75 cents above a year ago. Seven cars of block traded hands on the week and none of barrel. The NASS-surveyed U.S. average block price hit $1.7083, up 5.1 cents from the previous week while the barrels averaged $1.76, up 7.2 cents.

The run up in cheese prices was triggered in part by a problem with a Dalhart, Texas cheesemaker, Hilmar Cheese. The company put a hold on about 15 million pounds of product which was produced from April 19 to May 4 because of “plastic contamination.” Once the dust settles prices will likely ease back.
Bill Van Dam, of the Alliance of Western Milk Producers, reported in his weekly newsletter that rumor had it that range of dates was extended and that as much as 30 million pounds might be involved and a Hilmar letter informing its customers was dated May 28 so Van Dam said “It’s likely the market knew something was amiss at the beginning of the week” and “because this is a very significant volume to suddenly disappear from the fresh cheese market, buyers quite understandably started bidding for cheese,” though only one sale of block took place.

Repeated calls to Hilmar resulted in the following statement; “Hilmar Cheese Company, Incorporated identified and corrected a production issue affecting specific 40 pound block cheese manufactured in our Dalhart, Texas facility. Dalhart production of 40 pound blocks from May 18th forward is clear.”
“We are working through the situation cooperatively with our customers. All other production in Dalhart and all production in our Hilmar, Calif. facility were not affected. Early reports significantly exaggerated the volume involved. We have and always will act with an over abundance of caution with regard to the integrity of the products we provide to our customers.”

Dairy media was frustrated in trying to obtain information that could have been reported days ago, rumors quenched, and perhaps averted an unnecessary run up in the market.

Thankfully, this story did not reach the mainstream media that I know of and, while the contamination wasn’t E. coli or anything of that nature, I was reminded of the lessons taught at the Dairy Crisis Drill I attended a few years ago in Seattle, put on by IDFA and DMI on how these situations should be handled. Hilmar is one of the industry’s great success stories and produces a quality product. I think this episode has an important lesson for us all.

Cash butter continues to tumble
Cash butter, after dropping almost 4 cents the previous week, continued to head down this week, though it rallied 3 cents Thursday, and closed Friday at $2.13, down 1.25 cents on the week, but still 52 cents above a year ago. Fourteen cars were sold on the week. NASS butter averaged $2.1244, up 7.8 cents.

Cash Grade A nonfat dry milk closed Friday at $1.65, up three-quarter cents, and Extra Grade held all week at $1.61. NASS powder averaged $1.6381, up 1.2 cents, and dry whey averaged 51.56 cents, also up 1.2 cents.
Whey added about 10 percent to the May Class III value, according to the University of Wisconsin’s Dr. Brian Gould in Tuesday’s DairyLine broadcast. The May whey value was almost 50 cents, he said, up from the typical 25 to 35 cents and historically contributes 5 percent or less to the Class III price, he said.

The CME’s Daily Dairy Report says “International whey prices have firmed in the last two months, providing support to U.S. markets” and that “spot and futures prices have risen despite growing production and inventories.”

In the first four months of the year, U.S. dry whey output was up
12.3 percent from two years ago, according to the DDR, and dry whey stocks on April 30 were 56.3 million lbs., up 35 percent in five months, the highest figure for that date since 1999, according to USDA data.

Looking “back to the futures;” the Class III contract’s average for the last half of 2011 was $17.64 per hundredweight on May 6, $17.49 on May 13, $18.22 on May 20, $18.39 on May 27, and $18.72 on June 3.

Dairy producers expected to expand
Meanwhile; the USDA raised its 2011 milk production estimate again. Dairy producers are expected to continue to expand herds through the middle of the year and although herds may begin to decline toward the end of the year, cow numbers are expected to be above 2010, according to the latest World Agricultural Supply and Demand Estimates report. 2011 output is now projected to hit 195.5 billion pounds, up 100 million from the May estimate, and compares to 192.8 billion in 2010 and 189.3 billion in 2009.

However, USDA warns that higher feed costs will impact profitability and the dairy cow inventory is expected to decline in 2012.

Tighter feed supplies will also likely impact the rate of increase of milk per cow. As a result, the milk production forecast for 2012 is reduced 200 million pounds from last month, to 198.5 billion.

Commercial exports were forecast higher for 2011 largely due to stronger expected cheese exports. But, imports of cheese and milk proteins have been stronger than expected so the import forecasts for 2011 and 2012 were raised.
Dairy product price forecasts were raised from last month.

“Butter supplies are tight and demand for cheese, nonfat dry milk (NDM), and whey are expected to support product prices,” USDA said.
Class III and Class IV price forecasts were raised from last month in line with the increased product prices. Look for a 2011 Class III average of $17.40-$17.80 per hundredweight, up sharply from the
$16.45-$16.95 forecast a month ago.

The 2012 average is now projected at $16-$17, up 65 cents from the May estimate. The 2010 average was $14.41.

The 2011 Class IV price is expected to average $18.95-$19.45, up from $18.40-$19 projected a month ago. The 2012 average was put at $16.50-$17.60, up 20 cents from the May estimate. The 2010 average was $15.09.
And, in case you were wondering about MILC payments; National Milk’s Roger Cryan said “the NASS’ preliminary alfalfa price for May was at an all-time high of $186 per ton, finally following the reported spot prices from around the country, and reflecting high feed costs generally. Given the high hay spot prices already reported, the continued high grain and oilseed prices, and the nation’s hot weather, NASS-reported alfalfa prices should rise higher still.”
“For the rest of the fiscal year, high butter and powder values are expected to hold the Class I milk price in Boston, as well,” Cryan said, however “no MILC payments are projected through September, although the lines are moving closer together than they were a month ago.”

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.