Cash cheese prices crashed the third week of August as they anticipated July milk production data, but did the market overreact? The block cheese price closed Aug. 19 at $1.90 per pound, down 12.50 cents on the week, but still 25.25 cents above a year ago. Barrel closed at $1.8625, down 21.75 cents on the week, and 24.75 cents above a year ago. Six cars of block traded hands on the week and 13 of barrel.

The lagging NASS-surveyed U.S. average block price jumped 3.6 cents, to $2.1476, while the barrels inched up 0.6 cent, to $2.1611.
It was the third week in a row of declines in the blocks which totaled 25.50 cents. Class III futures slipped as well with the September contract taking the brunt of the losses. Prices for the last six months of 2011 were averaging $19.25 per cwt. as of late Friday morning, down from the previous week’s $19.42.

The impact of $2-plus cheese is beginning at the retail level, reported Jerry Dryer’s Dairy and Food Market Analyst, and orders from international buyers have slowed dramatically. But he added that several Upper Midwest manufacturers have told him they are unable to fill all of their orders.
“The domestic foodservice business seems to be doing well as supported by same-store sales data,” Dryer wrote, and “These cheese companies are also faced with a reduction in their milk supply; a situation that is prevalent throughout the Eastern two-thirds of the country. He cited the extreme heat of several weeks ago as the reason why and admits that a good recovery is underway but the milk supply is still 5-8 percent below a year ago.
He conceded that further erosion in cheese prices on the near term, but he is still convinced that “prices will spend a lot more time over two bucks than under two bucks between now and at least the end of this year.”

Heat reduces milk production

Heat and humidity in July took a toll on milk production in the Midwest and Northeast, according to the USDA’s latest preliminary data, but Western output was up. July output in the 23 major states totaled 15.45 billion pounds, up just 0.8 percent from July 2010.

Production in the 50 states, at 16.55 billion pounds, was up 0.7 percent. Revisions subtracted 5 million pounds from the June total, now put at 15.4 billion pounds, up 1.3 percent from a year ago.

July cow numbers in the 23 states were estimated at 8.47 million head, up 8,000 from June, and 93,000 more than a year ago. Production per cow averaged 1,824 pounds, down 5 from a year ago.

California production was up 4.4 percent from a year ago, thanks to 22,000 more cows and a 60 pound gain per cow. Contrast that to Wisconsin which was down 3.5 percent on a 65 pound loss per cow. Cow numbers were up 1,000 head. New York was off 0.2 percent on a loss of 1,000 cows but output per cow was unchanged.

Idaho was up 4.8 percent, on 13,000 more cows and 50 pounds more per cow. Pennsylvania was down 3.2 percent on 1,000 fewer cows and a drop of 50 pounds each. Minnesota was down 6.6 percent, on a 115 pound drop per cow. Cow numbers were up 1,000 head.

The biggest gain was in Texas, up 8.3 percent. Cow numbers were up 20,000 head and output per cow was up 60 pounds. Florida was up 8 percent and Washington was up 6.6 percent. The biggest decline was in Missouri, down 8.4 percent, on a loss of 50 pounds per cow and 4,000 fewer cows. Iowa was next, down 7.1 percent, followed by Minnesota.

Milk demand is a concern

Increased prices on fluid milk won’t help demand. The September Federal order Class I base price is $21.78 per cwt., up 35 cents from August, $6.28 above September 2010, the highest since September 2007, and equates to about $1.87 per gallon. The 2011 average now stands at $19.23, up from $14.83 a year ago and $10.95 in 2009.

The NASS-surveyed butter price averaged $2.0852 per pound, up 5.6 cents from August. Nonfat dry milk averaged $1.5804, down 7.7 cents.
Cheese averaged $2.1529, up 2.2 cents, and dry whey averaged 56.39 cents, up 1.7 cents.

The jury is still out on what’s ahead in cash butter which closed Aug. 19 at $2.0875, up 1.50 cents on the week and 4.75 cents above a year ago when it jumped 12.25 cents to $2.04, eventually reaching $2.2350.

Weather was a big factor last year as well. Five cars were sold on the week. NASS butter averaged $2.0941, up 1.3 cents. NASS nonfat dry milk averaged $1.5889, up 1.6 cents, and dry whey averaged 56.48 cents, up 0.2 cent.
Buyers appear to be waiting for the butter price to fall more before the heavy end of year holiday sales season arrives, according to USDA. eDairy broker Dave Kurzawski warned that butter could fall below $2 within a couple of weeks.

He said the cash market looks at the futures market because it “tends to foreshadow sentiment going forward.”

He added that with all markets, from the Dow to milk and corn, “August is typically a very quiet month and we start to see more activity step in these markets as we roll past Labor Day.”

“That hasn’t been the case this year,” he concluded, “August has been extremely busy, extremely volatile, and we’re just trying to find the best possible price we can and, as weather cools off here in the Midwest particularly, we have this kind of bearish bias on these dairy prices going forward, not to mention the weakness in international prices that we’ve seen over the past few weeks.”

The views and opinions expressed in this column are those of the author and not necessarily those of Farm World.