By LEE MIELKE
Mielke Market Weekly 

Cash butter made history again last week, skyrocketing to an all time high of $3 per pound, up 15 1/2 cents on the week and an unbelievable $1.47 above a year ago when it jumped 10 cents, to $1.53. Seventeen cars traded hands last week in the cash market. The NDPSR-surveyed butter price hit $2.7512, up 8.3 cents.

The uncharted territory will have a lot of eyes focused on it as to how the consumer market will react. Butter has made a great recovery in the diets of American consumers, but concern mounts whether butter will price itself back out.

The concern is not just grocery shelf reaction but also the bakery and confectionery industries, which use butter as a staple ingredient. Once they make formulation changes, it may take months of lower prices before butter is restored.

But, when asked about that concern, Matt Gould, analyst at the Dairy & Food Market Analyst, replied, "I hear your concerns, Lee, but consumers want butter. It’s all natural and tastes great. Just a little dab will do you. These price levels won’t be around long enough to turn customers off."

The other issue is the strong magnet these exceptionally high prices will be on imports. It was the case not so very long ago that butter wasn’t available from anyone in the world, but the retaliatory Russian ban on imports may result in butter that needs to find another home, such as the U.S.

For now, we have the highest priced butter in the world, and as FC Stone Risk Management Specialist Derek Nelson wrote in his Insider Closing Bell: "Those who have waited for a pullback in the market to make purchases have been left with little choice at this point."

Central region butter production is steady to higher as churn operators focus on fulfilling growing obligations for the upcoming months, according to USDA’s Dairy Market News. Some butter makers noted using additional cream supplies. The market is steady. Current record prices haven’t curbed domestic demand as some expected. Contrast that to the GDT auction on Sept. 2: November contracts for New Zealand butter averaged $1.1635. Dutch quotes last week were at $1.82 for 82 percent butterfat. The spread between U.S. and global markets is not accommodating much export interest.

Cash cheese had a pretty good week as well, though the blocks were unchanged, ending six weeks of gain. They remain at $2.35 per pound, where they have been since the day after Labor Day, but they are 51 cents above a year ago.

The barrels, after slipping 2 cents the previous week, finished Friday, Sept. 12, at $2.3350, up a penny on the week and 52 1/4 cents above a year ago. Not one car of block or barrel was traded at the CME last week. NDPSR block Cheddar averaged $2.2242 a pound, up 6.3 cents, while the barrels averaged $2.3095, up 6.9 cents.

Cheese plants across the country are working full schedules, reports USDA’s Dairy Market News. Favorable prices and good demand are combining to spur production. Cheese demand is often above current offers. Some cheese makers are looking to increase yields with condensed skim or nonfat dry milk. Buyers are pushing to build their inventories for upcoming fall needs. While domestic demand is very good, export sales have slowed. Domestic buyers are often asking for any additional spot loads when they become available.

Cash Grade A nonfat dry milk finished last week at $1.34, up 3/4 cent. Four cars were sold on the week. NDPSR powder plunged 24 cents, averaging $1.4825, and dry whey averaged 68.18 cents per pound, down 0.5 cent.

Penn State’s Jim Dunn wrote in his monthly Dairy Outlook that prices of dairy products have been "schizophrenic in the last month." He says the price of butter has climbed 23 percent, to $2.96/lb. Butter inventories at the end of July were only 57 percent of last year’s levels, which means that domestic butter supplies will be low going into the holidays when butter usage is the highest.

Other dairy products are so valuable that producing butter has not been the best use of milk this year, he said, and given the continuing high exports of all dairy products, may not be in coming months either. The possibility exists to have butter imports this fall, especially with the butter exports to Russia from the European Union curtailed.

The U.S. dollar is up against the Euro and the Australian and New Zealand dollars since his last report, especially against the Euro, no doubt reflecting the negative impact of the Russian embargo on many exports from the EU and the other impacts of the continuing problems with Russia. Although Russia’s actions will impact the U.S., we are less dependent on sales to Russia than Europe is.

Russia imposed an import embargo Aug. 7 on a variety of products from the U.S. and the European Union. This embargo was in response to the economic sanctions put on Russia by these countries in response to the Russian-supported rebels in Ukraine shooting down the Malaysian airliner. Among the affected products are dairy imports. Russia is the largest butter importer and second largest cheese importer. Most of these purchases have come from the EU.

This embargo could have major implications on U.S. exports, according to Dunn, since a lot of EU dairy products must now find another home, potentially displacing U.S. exports in some markets.

The cheese market is a particularly interesting one because there is not enough surplus cheese from countries not on the embargoed list. Apparently some exports are going through Belarus from Poland. Kazakhstan is also a conduit, although far less convenient.

This embargo will have a big impact on Russian food costs. The average Russian is very poor, and the food price inflation from the embargo and other sanctions will hit the poor especially hard. Of course anyone selling to Russia must work around the banking sanctions, which precludes payment through normal channels. To read Dunn’s complete report, visit www.personal.psu.edu/faculty/w/jwd6/DairyOutlook%20sep%2014.pdf