Lee Mielke: Dairy prices start 2019 mixed

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New Delhi, January 10, 2019: The block Cheddar cheese price closed the first Friday of 2019 at $1.4175 per pound, down 1 1/4-cents on the New Year’s holiday-shortened week and 7 3/4-cents below that week a year ago.

The barrels closed at $1.3025, up 1 1/4-cents on the week and 8 3/4-cents below a year ago. Two cars of block were sold last week at the market of last resort and four of barrel.

Monday’s trading took the blocks down 1 3/4-cents and they lost 2 cents Tuesday, on uncovered offers, and slipped to $1.38 per pound. The barrels were down a penny Monday and a penny and a half Tuesday, dipping to $1.2775, 10 1/4-cents below the blocks, with nine cars of barrel selling in the two days.

The markets will have less to digest in terms of USDA reports due to the partial government shutdown so rumors and speculation will play a bigger role. The November Dairy Products report, scheduled for Jan. 3, was the latest casualty, following the loss of the Ag Prices report on Dec. 27.

U.S. cheese markets were termed “quiet” by Dairy Market News. Contacts in the Midwest report that a number of plants are down for various reasons, particularly maintenance issues. Plant managers who had a smooth holiday run are now on increasingly busy schedules. Milk was heavily discounted over the Christmas weekend and into New Year’s Week, with prices ranging $2 to $4 under Class, although contacts suggest that late Christmas Week brought even lower prices according to capitalpress.com.

Some cheesemakers expect discounts until mid-month, when bottling starts to pick up. Cheese demand has been steady to mixed. Regional pizza cheese producers have remained busy throughout the holiday season, while most other producers have experienced expected seasonal slowdowns.

Western cheese shipments are moving steadily through existing contracts and the occasional spot sale. Mozzarella makers are hopeful for a lift in orders for the upcoming football playoffs and the return of kids to schools. Cheese demand is “a little subdued,” says DMN.

Block sales have slowed in the wake of the passing holidays. Plenty of milk is available and because components remain high, cheese yields are strong. Cheese inventories are heavy and DMN warns that it seems unlikely for cheese output to slow much soon, and without a boost in sales, cheese stocks could grow further.

The cash butter price saw a Friday finish at $2.25 per pound, up 3 1/4-cents on the week and 1 1/4-cents above a year ago. Seven loads traded hands on the week.

Butter lost 2 cents Monday and stayed there Tuesday at $2.23 per pound.

DMN reports that cream availability for churning was expected to increase but some contacts report that offers are “pouring in.”

It adds that “untimely maintenance issues have held some Midwestern butter production back, hence other plants are seeing more cream offers at multiples well below recent norms.”

Food service and retail butter sales continue to be positive to steady year over year but butter inventories are beginning to build for the spring push.

Cream is readily available in the West and trading at discounted prices. Most butter plants are running at full capacity.

Bakery sector interest for butter has slowed somewhat but other buyers are getting a head start on replenishing print butter inventories for use later in the year. Spot butter sales are light however prices remain mostly stable. Some connections report that current prices are “higher than anticipated.”

Spot Grade A nonfat dry milk closed Friday at 97 1/2-cents per pound, up 3 3/4-cents on the week and 29 1/2-cents above a year ago.

Monday’s powder was unchanged but gained 1 1/2-cents Tuesday, climbing to 99 cents per pound, possibly set to top $1 per pound for the first time at the CME since January 2017.

Spot dry whey was up a penny on the week, closing Friday at 49 cents per pound, with only one car selling in the four days of trading.

The whey was down three-quarters Monday and stayed there Tuesday at 48 1/4-cents per pound.

Milk pricing review

With the start of another new year, I remind readers of some important points on milk pricing. In most of the USA — California now included — milk prices are determined using complex formulas by the U.S. Agriculture Department but the system has evolved over the years from a simple volume/butterfat basis to the current multiple component pricing, which takes into consideration volume, butterfat, protein and various other components of the milk, as well as where the milk is to be used.

There are four Classes of milk; Class I is fluid in the bottle or jug and yields the highest rate of return to farmers. Class II is milk used in ice cream, yogurt and cream cheese. Class III is milk that goes to cheese and dry whey, and Class IV is milk used in butter, nonfat and whole milk powder.

It takes 9.6 pounds of milk to produce a pound of cheese, so every penny movement in the cheese price equates to about 10 cents on the Class III milk price.

Dry whey is a byproduct from making cheese. One hundred pounds of milk will yield about 10 pounds of cheese and 6 pounds of dry whey. A 1 cent movement in the dry whey price equals about 5.9 cents on the Class III milk price.

The Class IV milk price is driven by powder and butter. One hundred pounds of milk yields about 8.6 pounds of nonfat dry milk and 4.2 pounds of butter.

A penny movement on the nonfat dry milk price means about 8.6 cents on the Class IV price and a penny movement on butter results in a 4.2 cent impact on the Class IV price.

Dairy farmers receive a uniform or blend price (formerly over base price in California), which is determined by their region of the country, based upon how much of that farmer’s milk went into the four different classes in his or her milk market order. That is a simplified “Cliff Notes” perspective. Call your cooperative for complete details.

Benchmark falls

The December Federal order Class III benchmark milk price was announced by the Agriculture Department at $13.78 per hundredweight, down 66 cents from November and $1.66 below December 2017. It equates to $1.18 per gallon, down from $1.24 in November and $1.33 a year ago. It is the lowest Class III price since February 2018 and put the 2018 average at $14.61, down from $16.17 in 2017 and $14.87 in 2016.

California’s Class 4b cheese milk price averaged $15.20 in 2017 and $14.27 in 2016.

Monday’s Class III futures settlements portended a January price at $14.14; February, $14.57; and March at $14.98, with a peak at $16.72 in September.

The December Class IV price is $15.09, up 3 cents from November and 1.58 above a year ago and the highest Class IV price since September 2017. The Class IV averaged $14.23 in 2018, down from $15.16 in 2017 and compares to $13.77 in 2016.

GDT up 2.8 percent

The first Global Dairy Trade auction of 2019 saw its weighted average of products offered jump 2.8 percent, following the 1.7 percent rise on Dec. 18 and 2.2 percent on Dec. 4. Sellers brought 63.2 million pounds to market Wednesday, down from 79.8 million in the Dec. 18 session and the lowest amount since July 17, 2018.

All products offered were in the black, led by buttermilk powder, up 9.3 percent, followed by skim milk powder, up 7.9 percent, which follows a 3.4 percent rise last time. Anhydrous milkfat and butter were both up 3.9 percent, following a 4.0 and 4.9 percent respective gain in the December 18 event.

Cheddar was up 3.2 percent. Lactose was up 1.6 percent and rennet casein was up 1.3 percent. Whole milk powder brought up the bottom, up 1.2 percent, after it inched up 0.3 percent last time.

FC Stone equates the GDT 80 percent butterfat butter price to $1.8037 per pound U.S., up 6.6 cents from the last session. CME butter closed Tuesday at $2.23. GDT Cheddar cheese equated to $1.5289 per pound, up 4.9 cents from the last event and compares to Tuesday’s CME block Cheddar at $1.38.

GDT skim milk powder averaged 99.82 cents per pound, up from 92.63 cents last time, and whole milk powder averaged $1.2269, up from $1.2129. CME Grade A nonfat dry milk closed Tuesday at 99-cents per pound.

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