The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Farmgate milk prices continue to rise. The Agriculture Department announced the September Federal order Class III price at $19 per hundredweight, up $1.27 from August, 7 cents below September 2011, $1.50 above California's comparable 4b cheese milk price, and equates to about $1.63 per gallon. The September Class IV price is $17.41, up $1.65 from August but $2.12 below a year ago.
The 2012 Class III average now stands at $16.54, down from $18.28 at this time a year ago and compares to $14.07 in 2010 and a painful $10.49 in 2009.
Looking ahead, the October Class III Futures contract was trading last Friday morning at $21.03; November at $21.13 and December at $20.45.
The AMS-surveyed cheese price averaged $1.8647 per pound, up 9.7 cents from August. Butter averaged $1.8269, up 14.1 cents. Nonfat dry milk averaged $1.3768, up 12.3 cents, and dry whey averaged 58.46 cents, up 4.9 cents.
Looking at what's driving milk prices, CME cash cheese saw a fifth week of gain the week of Oct. 1, with the blocks closing at $2.10 per pound, up another 2½ cents on the week, 33½ cents above a year ago, but 18½ cents shy of the record $2.2850 on May 23, 2008. The barrels closed at $2.06, also up 2½ cents on the week and 27½ cents above a year ago, when they rolled 14½ cents lower. Seventeen carloads of block traded hands last week and two of barrel. The AMS-surveyed block price averaged $1.8907, across the U.S., up 4.2 cents, and the barrels averaged $1.9051, up 7.7 cents on the week.
Cheese production is mostly steady with recent weeks as manufacturers look to secure more milk for cheese vats, according to USDA's Dairy Market News. Demand for Mozzarella is good as new pizza promotions are surfacing. Export sales are slower with the recent price increases, but the CWT program continues to aggressively promote sales with their assistance.
Ten CWT requests for export assistance were accepted last week to sell 4.25 million pounds of cheese and 200,621 pounds of butter to customers in Asia, Central America, the Middle East and North Africa.
The CME cash butter price had a meltdown last Friday, dropping 9¼ cents to $1.86, down 9 cents on the week but 9 cents above a year ago. Fourteen cars were sold on the week, 13 on Friday. The AMs butter price averaged $1.8791, up 3.6 cents.
Churning schedules across the country are increasing as butter producers take advantage of available cream supplies and are generating butter for fourth quarter, according to DMN. Producers indicate it will not be long before cream is absorbed into Class II cream-based holiday items and limit cream for churning.
Where's the milk going? The latest Dairy Products report showed August butter production at 129 million pounds, down 3.1 percent from July and 3.5 percent below August 2011. Nonfat dry milk output, at 106 million pounds, was down a whopping 30 percent from July and 7.8 percent below a year ago.
American type cheese, at 354 million pounds, was down .7 percent from July but 4.5 percent above a year ago. The increasingly growing importance of Italian type cheese, at 370 million pounds, was up a half-percent from July and 1.9 percent above a year ago. Total cheese output amounted to 884 million pounds, up a half-percent from July and 2.6 percent above a year ago.
Meanwhile, dairy product commercial disappearance in the first seven months of 2012 totaled 117.1 billion pounds, up 2.6 percent from 2011. Butter was up 4.2 percent; American cheese, up 1.1 percent; other cheese, up 2.2 percent; nonfat dry milk, up 42.7 percent; but fluid milk products were down 2.1 percent.
Milk production across the country varies from declines in the northern tier of states to slight increases in southern regions, according to USDA. Milk production in the Oceania region continues to seasonally build.
Most milk producers and handlers project milk output in Australia to be in the 1 percent to 2 percent growth range over recent years. New Zealand projections are for a 3 percent to 4 percent increase from the last two years.
In politics, Lori Fischer, executive director of the Dairy Business Assn., discussed the importance of getting a farm bill passed this year in last Wednesday's DairyLine. Speaking from the World Dairy Expo, where they held a press conference, Fischer said Wisconsin dairy farmers have even been asked by their governor to increase milk production to meet the demands of the specialty cheese market and she cited New York Gov. Andrew Cuomo's support of "the booming Greek yogurt industry" by "loosening regulations and increasing incentives for his dairy farmers to grow."
That desire to grow the industry runs contrary, however, to the proposed dairy title of the new farm bill, according to Fischer, by giving farmers a disincentive in its supply management scheme. She argued, "Dairy farmers want to have insurance for risk management purposes very similar to crop growers. But in the dairy side of things, if you want to have the insurance, you also have to participate in a program that forces dairy farmers to periodically limit milk production or be penalized."
She added, "Dairy farming isn't that nimble. You just can't tell a cow today you're going to need to produce less milk tomorrow." When the program shuts off, they're going to want the milk production and cows just don't jump back on."
Penalties to some of her members would have been as much as $18,000 per month, she said, and while the program would increase milk prices, it would increase consumer dairy product prices and foreign markets will look to other countries.
She said her members support an alternative by Rep. Bob Goodlatte (R-Va.) and David Scott (D-Ga.) which would remove the supply management provision but still "provide dairy farmers with the margin insurance that they're looking for."
National Milk took its message to World Dairy Expo as well. Dairy Profit Weekly reported that NMPF's Jerry Kozak and Jim Tillison said dairy policy debate in the 2012 Farm Bill is essentially over, with both the full Senate and House Ag Committee proposals embracing the major pieces of the "Dairy Security Act," which was built on NMPF's "Foundation for the Future" program.
They noted that the Goodlatte alternative had been already soundly defeated in the House Ag Committee by a 29-17 vote, and that the committee had approved a 2012 Farm Bill on a 35-11 vote.
"Due to higher costs which could limit availability of margin insurance to all dairy producers, the NMPF leaders contend the Goodlatte amendment would actually impose greater supply management controls," DPW reported.