Weekly Update

Alliance of Western Milk Producers

September 3, 2010       volume 32

Butter:  Still climbing but at a more modest pace

When two loads were made available on Tuesday they both sold well above the previous day’s high. Otherwise there was little trading with only a bid on Wednesday which moved the market up a penny.  No bids, offers or sales on the other three days.  Market comment contains many references to slower sales at retail because of higher prices. In the past many products have marked a peak with a few large jumps in price just before the peak and subsequent reduction in prices.  Butter just completed two sizeable jumps and then a modest increase. This run may be nearing its end – we shall see.

Page 2 of Alliance Weekly Update, September 3, 2010

Nonfat Dry Milk:  Volume up but price is down – but news is promising

This week’s gDT auction (Sept 1) put a fresh breeze into NDM prices.  The increases were in the range of 15% across all contract periods and the average value for SMP was $1.45 per pound. Prices were higher for the far out months. This strength was reflected in the current prices reported by DMN and resulted in a 3 cent bump-up in this week’s NDM market western ‘mostly’ average from $1.1175 to $1.1475.  In July, California plants produced 68 million pounds of NDM which is 15.4 million pounds a week.  Sales in August averaged about 18 million pounds a week which results in a needed reduction of inventories. 

4a cwt price is $16.88:  4b is $15.42

This weekly calculation is included to give the reader the sense of where values are right now but it does not reflect the actual prices that will be paid which are based on monthly averages and are weighted by actual sales volumes over that period.  However, it does give the best and most current measure of the value of the last unit of production to a California dairyman. In the case of virtually every California dairy the value of any added milk production is the Overbase price, which can reasonably be projected as the average of 4a and 4b.  In this case that is $16.15. The term “all milk average” has no meaning to the California dairyman.

Page 3 of Alliance Weekly Update, September 3, 2010

Cheese: Continued upward movement.

Block and Barrel prices have moved together all year.  Even when Barrel cheese dropped a half cent on Thursday when 5 loads were sold, the Barrel price was bid up 1.5 cents to close the week with a “proper” 3.5 cent split.  The fundamentals of milk supply and cheese inventories do not support the idea (let alone the reality) of steadily improving prices.  Add to that the new tariff barriers for sales to Mexico and the picture gets worse, not better.  I (and many other market watchers) am left with trying to find another factor(s) of sufficient magnitude to keep these prices climbing – or even hold at these levels.  At the moment it is mostly a head scratcher.

The graph above reaches back to Oct 2009 to show how this run-up in prices compares to the run at the end of last year.  The Block prices this week are now just barely higher than last year’s high and the Barrel prices are 22.5 cents higher than last year.   Of particular note is that back in 2009 Barrel prices did NOT go up with the Block prices – very unusual and odd situation.  This year both Barrel and Block stayed in lockstep (nearly) and this is a much stronger pricing situation. 

Whey Products:  Dry Whey comment and prices not in sync

WPC in it various forms (34%, 50% and 90%) is holding up well price wise even while being expanded.  This expansion is at the expense of Dry Whey volumes which as the volumes fall will respond with firmer prices.  Market comment paints this optimistic view even as prices of Dry Whey gradually slip.

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Page 4 of Alliance Weekly Update, September 3, 2010

A new line has been added to the table above.  California has long been reporting the production Monterey Jack cheese in its monthly Dairy Information Bulletin but the volumes produced have pretty much been overshadowed by Mozzarella and Cheddar.  However, with the slippage of Cheddar production in this state the importance of Monterey is worthy of separate tracking.  The new line is the second on the cheese list (colored green for those reading this on a computer).  Interestingly, California makes 27% of the ‘other American types’ [includes Colby, Monterey and Jack] produced in this country and the volume is nearly equal to the Cheddar production remaining in California .

On the bottom left of the table I have added the national production of SMP (Skim Milk Powder), BMP (Butter Milk Powder), WMP (Whole Milk Powder) and MPC (Milk Protein Concentrate).  While California makes some of each of these products the volumes are not reportable because of confidentially rules so it is impossible (for me anyway) to draw the comparisons.

Page 5 of Alliance Weekly Update, September 3, 2010

The production of Mozzarella cheese in California continues its recent growth hitting new record high of 106 million pounds in July.

Nearly 80% of California ’s added July milk used in cheese

In July 2010 there were 13 million more pounds of  solids-not-fat (SNF) pooled in California than in July 2009.  Below is a look at how the added pounds were used.  This table uses only pooled SNF because virtually none of the value differences between classes of milk are attached to the butterfat component. 

            Milk SNF usage comparison July 2009 and July 2010

                                    -- thousand pounds --

                        July 2009        July 2010        Difference       % of total

                                                                                                 change

Class 1                          46,371             44,540           -1,831             -13.9%

Class 2                          10,897             11,616               719                5.5%

Class 3                            8,039              7,401           -   638            - 4.9%

Class 4a            84,026             88,600             4,574             34.8%

Class 4b          110,732           121,059           10,327             78.5%

Total               260,065           273,216           13,151             100.0%

Class 1:  Fluid products are down 3.7% over the previous year.  Class 1 prices are much higher in July 2010 than they were in 2009.  It just may be that Class sales are much more sensitive to price levels than earlier data suggests.  Compared to 2009 Class 1 added 1.8 million pounds of SNF to be used elsewhere.

Class 2:  Cottage Cheese is showing surprising gains in the past two months as is Yogurt.

Compared to 2009 Class 2 products used an additional .7 million pounds of SNF.

Class 3:  Frozen Products usage was down compared to 2009.  One would think that given the tremendous prices ice cream plants have been paying for butterfat (which has been a major factor in driving up Butter prices) that ice cream sales would be up but they are instead down nearly 8% as measured by SNF usages.

Class 4a:  The utilization of SNF as 4a products (that would include NDM, SMP , BMP, WMP and MPC) increased by 4.5 million pounds in July 2010 compared to July 2009.  This means that 4a products absorbed 34.8% of the additional SNF pooled in California .  Remember the capacity of California powder plants was not an issue in either year.

Class 4b:  Cheese production has been growing substantially of late in California .  Overall production of cheese was up 12.8% in July 2010 compared to July 2009.  Because a growing amount of manufacturing milk that was formerly pooled (as Grade A milk) is now sold to some cheese plants without being pooled, the overall comparisons year-to-year are now somewhat skewed.  None-the-less the pooled SNF utilized as cheese gained 9.3% in July 2010 compared to July 2009.  Cheese plants absorbed 78.5% of the added pooled SNF available in California .