The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Farm milk prices moved higher for the third month in a row. The Agriculture Department announced the August Federal order Class III benchmark price at $17.73 per hundredweight, up $1.05 from July but still $3.94 below August 2011, and equates to about $1.52 per gallon. That put the 2012 Class III average at $16.23, down from $18.18 at this time a year ago, and compares to $13.80 in 2010 and $10.29 in 2009.
Looking ahead, the September contract was trading last Friday morning at $18.89; October, $19.75; November, $19.88; and December, $19.81.
The AMS-surveyed cheese price averaged $1.7682 per pound, up 8.3 cents from July. Butter averaged $1.6859, up 14.7 cents, nonfat dry milk averaged $1.2543, up 8 cents, and dry whey averaged 53.52 cents, up 3.3 cents from July.
The August Class IV price is $15.76, up $1.31 from July but $4.38 below a year ago. California's comparable 4a and 4b prices are scheduled to be announced Sept. 4 by the California Department of Food and Agriculture.
The cash cheese market ended August on a down note with the blocks closing Friday at $1.82 per pound, down 3¼ cents on the week but 3 cents above a year ago. Barrel closed at $1.7775, down 2½ cents on the week and 1¾ cents above a year ago. Thirteen carloads of block traded hands on the week and 24 of barrel. The AMS-surveyed, U.S. average block price hit $1.8121, up 5.8 cents on the week, while the barrels averaged $1.8320, up a nickel.
Cheese production is mostly steady to marginally below year ago levels, according to USDA's Dairy Market News. Wholesale cheese sales have been good, with Mozzarella increasing as schools begin to come back in session.
Export sales continue to be aided by the Cooperatives Working Together program, which accepted 14 requests for export assistance to sell 4.58 million pounds of cheese to customers in Asia, the Middle East, North Africa and the South Pacific. The product will be delivered through February and raised CWT's 2012 cheese exports to 78.3 million pounds plus 56.4 million of butter and anhydrous milk fat (adjusted for cancellations), to 33 countries.
Stewart Peterson's Matt Mattke pointed out in last Tuesday's DairyLine that the U.S. Cheddar price is about 20 cents higher than the international price, so that may be stalling the U.S. market. Milk and cheese futures, as of last Tuesday, were priced in the $1.90s, he said. "The cash market is having a tough time getting to $1.90."
He added that August was a good month for Class III milk prices, up 80 cents to $1 from July but stalled recently with fourth quarter prices getting up to $20.25 to $20.50. October, November and December milk of this year is currently trading at about 12 cent premiums over cash cheese, according to Mattke, so "It's going to be hard to see where that next leg of upside is going to come unless the cash market starts to pick up momentum or we see it in the whey market, which has been extremely quiet recently."
Meanwhile, as if we don't have enough issues to be concerned about, farmers are on high alert for the naturally occurring toxin in corn due to the drought. Trace amounts have been reportedly showing up and could push prices even higher of the reduced supply of untainted crop. The Iowa Department of Agriculture and Land Stewardship will require aflatoxin screening and testing of milk received in Iowa, beginning Aug. 31 and continuing indefinitely.
Churning activities across the country are mixed depending on cream availability and price, according to USDA. Students are returning to classrooms, thus school milk bottling schedules are resuming. Standardized cream volumes from increasing bottling schedules are becoming available for cream needs. Class II cream demand remains steady, although typically Class II needs will ease, especially for ice cream, once the Labor Day holiday has passed.
Churning is often not keeping pace with demand, thus inventoried stock is being used. Butter producers that are taking advantage of additional cream offerings and generating butter beyond current needs are clearing the extra production to inventory and "holding those stocks with confidence," says USDA.
Retail orders are often outpacing food service needs as many food service buyers are cutting back as the summer vacation season winds down. Food service buyers, especially in resort and vacation areas, indicate that traffic flow through their operations is slowing, but will hopefully remain fairly stable at least through the Labor Day holiday weekend.
DMN warns that milk supplies across the U.S. are short of expected levels due to the recent hot weather and higher feed costs. California production has leveled off, but remains short of full processing needs. Midwest milk volumes have increased with cooler temperatures. Eastern supplies are still tight.
Getting back to exports briefly, Dairy Profit Weekly reports that, compared to May's outlook, USDA raised its quarterly forecast for fiscal year 2012 dairy exports by $300 million in August. At $5 billion, fiscal year 2012 dairy exports would easily surpass fiscal year 2011's record high of $4.5 billion.
USDA also issued its first forecast for fiscal year 2013 dairy exports, at $4.8 billion. High feed costs are expected to reduce producer margins, leading to lower milk output and reduced dairy product supplies. That will result in a reduction of export volumes, leading to the $200 million decline from fiscal year 2012, according to DPW.
The fiscal year 2012 U.S. dairy import forecast was raised $100 million, to $3 billion, due to higher values and volumes. The forecast for fiscal year 2012 cheese imports was reduced to $1 billion.
It its first forecast for fiscal year 2013 imports, USDA forecast slight increases for cheese and total dairy products, at $1.1 billion and $3.1 billion, respectively. Butter, casein and miscellaneous milk products will lead import demand.
Despite a forecast for a modest appreciation in 2012 and 2013, the dollar will be relatively weak. That, and low interest rates, provide continued inexpensive credit for financing trade. Higher expected world growth, lower energy prices and more available credit make the outlook for U.S. agricultural trade promising in 2013.