By Lee Mielke
Mielke Market Report 

Cash dairy markets set new records last week on block and barrel cheese and butter as traders awaited the August Milk Production report Friday, Sept. 19. The Cheddar blocks closed that day at a record high $2.45 per pound, besting the March 24, 2014, high by 1 3/4 cents, up a dime on the week, and 65 1/2 cents above a year ago. Barrel closed at a record high $2.43, up 9 1/2 cents on the week and 66 1/4 cents above a year ago. Only one car of barrel was sold all week and none the week before. The NDPSR-surveyed U.S. average block price averaged $2.2910, up 6.7 cents. The barrels averaged $2.3465, up 3.4 cents.

U.S. cheese prices have risen to a level leading to some recent cheese export orders being returned to domestic sales, according to Dairy Market News (DMN). Manufacturers are cautious about the implications of building inventory levels at current price levels. Cheese buyers are also wary about stocking inventory too far ahead of current needs at current prices. The preferred course for manufacturers is to closely align production with orders already in hand.

Cheese orders have declined for some manufacturers. Cheddar aging typically picks up in the fall, but current price levels have slowed activity in this regard. However, mozzarella orders remain strong, driven by pizza manufacturing needs. A Midwest plant manufacturing cheese barrels closed, causing milk to be redirected elsewhere and ramping up production schedules in receiving plants.

Cheese production in the West is strong as manufacturers take advantage of strong retail demand and increasingly higher prices. Plants are running at full schedules at those with sufficient orders to clear production in a timely manner. Milk supplies are available to increase production, and manufacturers are also fortifying vats with nonfat dry milk and skim milk solids. Export demand is light, yet plants are struggling to fill the domestic demand.

Cash butter passed the planet "Pluto" last week, closing Friday, Sept. 19, at a record high $3.06 per pound, up 6 cents on the week and $1.46 above a year ago. Thirty one cars traded hands on the week. NDPSR butter averaged $2.7793, up 2.9 cents.

DMN says butter demand in the Central region is matching current record prices; however, raw material availability is lacking in comparison to requested butter orders across the market segments of retail, food service and ingredient. Butter manufacturers are generally producing at steady to higher rates.

Cream cheese manufacturers’ increased demand for cream and willingness to pay premiums to secure supplies has caused a few churn operators to take advantageous returns in the cream spot market.

Butter ingredient buyers are aware of lower-priced international butter, notably from Australia and New Zealand. Some of those buyers are making import purchases to satisfy current needs.

Butter production in the West is being geared to fulfill retail demand for the upcoming holidays. Bulk butter production is slowing as more butter moves to the print lines. Butter stocks continue to be tight.

Current high prices have cut into some of the demand, but orders continue to surpass supplies. Manufacturers are also cautious about building stocks above immediate demand. International prices are below U.S. prices and butter producers are worried about lower priced imports slowing demand after the holiday orders are completed.

Cash Grade A nonfat dry milk closed the week Sept. 19 at $1.3750, up 3 1/2 cents. Twenty cars were sold on the week. NDPSR powder averaged $1.4683, down 1.7 cents, and dry whey averaged 66.9 cents per pound, down 1.3 cents.

The USDA announced the October Federal order Class I base milk price Sept. 17 at $24.19 per cwt., up 56 cents from September, $4.99 above October 2013, which equates to about $2.08 per gallon. That put the 10-month Class I average at $23.28, up from $18.55 at this time a year ago and $16.74 in 2012.

The two-week NDPSR-surveyed butter price used to calculate the October Class I value was $2.7652 per pound, up 33.3 cents from September. Nonfat dry milk averaged $1.4766, down 3.3 cents. Cheese averaged $2.3062, up 24 cents, and dry whey averaged 67.47 cents per pound, down 1.8 cents.

For a point of comparison, the October Class I price in California was $26.09 per cwt. for the North and $26.36 for the South. Keep in mind, with the Federal order Class I base, each order adds its Class I differential to that base price to determine that particular order’s Class I milk price. Also, California prices off of the CME cash markets whereas Federal order prices are based off the National Dairy Products Sales Report, which lags the CME cash prices, so California prices reflect changes sooner.

The Tuesday Global Dairy Trade (GDT) auction Sept. 16 saw the weighted average for all products unchanged, following the 6 percent plunge in the Sept. 2 event, 0.6 percent decline Aug. 19, 8.4 percent loss Aug. 5, and 8.9 percent in the session before that.

Powder was up fractionally Tuesday, Sept. 16, rennet casein was up 1.3 percent, following a drop last time of 14.3 percent, while all other offered products were down. The price index has pretty much seen declines since reaching its high on Feb. 4.

The downfall last week was led by a 6.9 percent drop in buttermilk powder, down 12.9 percent last time, and Cheddar cheese was down 6.5 percent, following a 4.9 percent loss last time. Butter was next, down 2.5 percent Sept. 16, following a 5.6 percent loss in the Sept. 2 event, and anhydrous milkfat was down 2.2 percent, after a 5.8 percent drop last time.

Skim milk powder was up 0.9 percent, following a 9.5 percent plunge in the last event, and whole milk powder was up 0.6 percent, after a 4.3 percent loss last time.

FC Stone reports the average GDT butter price equated to about $1.2236 per pound U.S., down from $1.2489 in the Sept. 2 event ($1.1869/lb. on 80 percent butterfat, down from $1.2185/lb.). Contrast that to CME butter, which closed Friday, Sept. 19, at another record high of $3.06 per pound. The GDT Cheddar cheese average was $1.3959 per pound U.S., down from $1.4853. The U.S. block Cheddar CME price closed Sept. 19 at $2.45 per pound. GDT skim milk powder, at $1.1880 per pound U.S., is up from $1.1792, and the whole milk powder average at $1.2211 per pound U.S., is up from $1.2122 in the last event. The CME Grade A nonfat dry milk price closed Friday, Sept. 19, at $1.3750 per pound.