Scorching temperatures have taken their toll on people, cows and markets. We’ll start with the markets. Cash block cheese closed the last Friday of July at $2.1550 per pound, unchanged on the week, but 55.25 cents above a year ago. The barrels finished at $2.13, up a half-cent on the week, and 57.25 cents above a year ago. Twenty four cars of block traded hands on the week and none of barrel. The lagging NASS-surveyed U.S. average price on block cheese dropped to $2.1014, down 3.2 cents, while the barrels came in at $2.1364, up 1.2 cents.

Cash butter finished the week at $2.10, up 6 cents, and 28.50 cents above a year ago. Seven cars found new homes. Only nine cars were sold in the month. NASS butter averaged $2.0263, up 0.1 cent.

Looking back a year ago; butter peaked at $2.2350 on Sept. 27, 2010.
Cash Grade A nonfat dry milk continued to slide, closing the week at $1.51, down a penny and a half. Extra Grade held at $1.61. NASS powder averaged $1.5544, down 9.7 cents, and dry whey averaged 55.01 cents, down .2 cent.
Checking the cupboards; June butter stocks totaled 190.6 million pounds, up 12 percent from May, but 4 percent below June 2010, according to USDA’s preliminary data in its latest Cold Storage report. Butter stocks aren’t considered burdensome though ice cream sales have not been as strong as expected, but that’s likely due to June’s mild weather. The blistering heat that came in July should turn that around as the heat took its toll on people.
American type cheese, at 619 million pounds, was unchanged from May and down 1 percent from a year earlier. The decline in American stocks was a surprise to most analysts and the first year-over-year decline since May 2008.
Mozzarella stocks were up, but FC Stone Dairy Economist Bill Brooks theorized that commercial buyers may have been hesitant to buy until the NFL lockout was over. He added however that, “While a continued lockout would put downward pressure on mozzarella demand, college football and the reopening of schools could offset some of the near-term impact.”

The total cheese inventory was estimated at 1.05 billion pounds, also unchanged from May, and just 1percent above 2010.

Milk production dwindles
As to the toll on the cows, milk production was curtailed by hot, humid conditions across a big swath of the U.S., according to USDA’s weekly update. Milk solids are also declining, further impacting product yields. Upper Midwest plant intakes were down by 10 percent or more when compared to conditions prior to the heat wave. Processing plants were running on reduced schedules and some activities were curtailed because of the weather.

The East and Southeast was also experiencing oppressive heat and high humidity, which was impacting cow comfort and milk output. Several balancing plants were shut down as milk supplies dried up, according to USDA.
Milk output was lower in Arizona while mainly steady in New Mexico and California. Weather was not a factor in the Northwest and production remained heavy and near the seasonal peak. Plants are generally running well and handling the milk with adequate capacity. Utah and Idaho plants were running on heavy schedules, but have capacity to handle the milk.

Dairy futures slide south
Looking “Back to the futures;” the Federal order Class III contract’s average for the last half of 2011 was $18.34 per cwt. on June 10 and 17, $18.21 on June 24, $18.19 on July 1, $18.54 on July 8, $19.29 on July 15, $19.75 on July 22 and was averaging $19.92 just before the cash market traded on Friday, July 29. Bill Brooks warned on Wednesday however that settlement prices for some of the 2012 contracts were below breakeven for some producers given the high cost of feed and “could be causing producers to be less aggressive in selling milk futures than they usually would be with Class III prices as high as they are.”

Meanwhile; an abundance supply of replacement heifers are waiting in the pipelines, according to the CME’s July 22 Daily Dairy Report (DDR). 4.2 million replacements were on hand at mid-year, according to USDA’s biannual Cattle report, up from 4.1 million last year, and the most since 1989. There were 45.7 replacements for every 100 cows, according to USDA, up 1.4 from a year ago.
Dairy Profit Weekly Editor Dave Natzke, reports that USDA was to announce July average cow prices on July 29. That will likely have some good news for the dairy ledger. Cull dairy cow prices through the first six months of 2011 have averaged $74.50 per hundredweight, compared to $54.58 for the same period in 2010, and $45.38 in 2009.

The quantity of beef available to consumers in the U.S. has declined a startling amount in recent years, and that trend is going to continue, according to Chris Hurt, Purdue University Extension economist.

The declining supplies are related to continuing liquidation of the beef cow herd in the past few years due to high feed prices, a weak U.S. dollar spurring beef exports, and drought in the southwest and southeast, according to Hurt, who adds that declining supplies will support prices across the cattle complex at new record highs in 2011 and 2012.

But, the news isn’t all good. The heat and drought in many areas has hurt feed crops and resulted in the smallest hay crop in over a century driving prices higher. A headline this week on the Drudge Report reads “Hay crisis reaches North Texas, ranchers stunned at shortage.”

Alfalfa hay prices have surged over 50 percent in the past year to a record $186 per ton in May and, with hay and grass making up about half a cow’s ration, farmers are forced to feed less costly alternative feeds but that will surely affect milk production.

Natzke outlined in Friday’s DairyLine how inputs are taking a bigger bite out of improving dairy prices. He reported USDA data showing costs of production in June were the highest in more than 30 months, approaching the previous highs of 2008, and overall costs are up about 11 percent from a year ago.
The biggest culprit is feed, representing more than three-quarters of the total increase. The other big ticket items on the list are fuel and electricity costs, which are up 33 percent from a year ago, he said. “Higher milk prices should benefit the income side of the index,” Natzke concluded, but “Higher feed prices will likely limit improvements to the farmers’ bottom lines.”

Dairy product demand is good, according to the Daily Dairy Report. Total cheese consumption was up 3.8 percent in the March-May period, according to USDA data, boosted by continued strong export performance. Cheese exports were up 36.4 percent in the three-month period (+35.5 million pounds versus a year ago), while domestic sales were up 2.5 percent (+64.5 million pounds). Cheese exports were driven in large part by the Cooperatives Working Together program.

Butter use was up 13.1 percent. Exports were up 65.7 percent (+20.7 million pounds), and domestic use was up 8.6 percent (+31.4 million pounds).
Disappearance of nonfat dry milk and skim milk powder was down 5.6 percent in the three month period, however. Exports were up 13.7 percent (+28.1 million pounds), but domestic use was down 18.6 percent (-56.9 million pounds). The main channel for nonfat dry milk domestically is as fortification for other dairy products, according to the DDR, primarily cheese, yogurt and frozen desserts.

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.