FOR IMMEDIATE RELEASE For additional information

Commodities used in California Formulas: Other prices of interest: $/lb change $/lb change

CME Block Cheese 1.6225 +.0225 CME Barrel Cheese* 1.6425 +.0625

CME Butter 2.0000 nc Dry Whey (mostly)** .5063 +.0188

California plant NDM 1.5463 -.0048 WPC 34%** 1.5100 +.1650

* Barrel cheese is not used in California formulas but is an important part of the Federal Order pricing and therefore is included here. The Friday price is used here.

**Dry Whey (average of the Western ‘mostly’) is used only in the Class 1 formula. WPC 34 (Whey Protein Concentrate 34% Protein) is the average of the weekly price report from DMN but is not used in California formulas. The appropriate valuation of whey in the California 4b formula is a topic of interest. Thus, we will report and comment upon these two whey values for the foreseeable future.

This is based on this week’s prices applied to the California Class 4a and 4b formulas.

The weekly 4a cwt. price is $19.38: 4b is $14.43: Overbase est. $17.10

The change from the week before -.25/cwt +$.23 +$0.05

The Overbase price used here is a projection of where the price will be in the near future. It is not intended to be an accurate calculation of prices to be paid and does not attempt to adjust for timing differences which can be significant in the short run but self- correct over time.

Nonfat Dry Milk: Amazing market for past 29 weeks

The graph above tracks the CWAP price from Jan 2009 to May 6, 2011. The last 29 weeks from Sept until now show a long and almost unbroken move upward from $1.08 a pound to above $1.50 for the past 6 weeks. This combined with high butter prices have pushed the 4a price to nearly $20.00 ($19.99 last week) using the weekly data. As of this week the cwt value of 4a is derived 62% from powder and 38% from butter.

Butter as shown above (left) has been remarkably strong all of this year and has held near $2.00 per pound for nearly all that time. NDM milk in the meantime has climbed steadily. The fundamentals of inventory and sales continue to be strong but are showing signs of wanting to set a fairly narrow range for trading. The other graph above (right) shows that four weeks ago the CWAP price closed with the DMN mostly quote. Since then CWAP had a little slippage in values while the DMN climbed a bit (which is excellent news).

Butter: Lost 17 cents this week but finished with Friday uptick

For such a big drop there were very few loads changing hands. There was one trade per day on Monday through Thursday and a price drop of 17 cents. On Friday 5 loads were traded but ended with a very nice price jump of 2.5 cents. Buyers (and manufacturers) may now be more willing to build inventory

The graph on the right shows the weekly cwt value of 4a milk (butter/powder) and 4b milk (cheese) which is calculated using the 4a and 4b formulas each week. The average difference since the middle of March is $4.99 cents per cwt. Part of this difference is because the make allowance factors for 4a and 4b have not been adjusted on a timely basis and now the 4a price is about 43 cents higher than it should be while the 4b price is about 26 cents less than it should be. Also the whey factor in the 4b formula is too low.

Since the collapse of cheese prices in the middle of March, the price has been bouncing along at about $1.60. There is some news developing that cheese inventories are gradually improving in a time period that usually generates significant inventory growth. Cheese exports have been very good but the volumes are not yet big enough to carry our prices upward and then hold them there. In March the US exported 42 million pounds of cheese but this is only 5% of our production. For NDM/SMP export pounds were 82 million pounds but this was 43% of the powder produced. Thus on cheese the domestic supply/demand is the determining factor.

Prices of WPC are now to the point where NDM is being considered as an alternative by some buyers. This is not bad news at all so long as the alternatives being considered are other products from the dairy complex. The value of the whey portion of 4b milk has been climbing steadily since early in 2008 and has now reached levels that ‘value wise’ are far above the 25 cent fixed whey value used in the California 4b formula. This whey value shortfall now exceeds a full dollar per cwt compared to the whey value generated by the Federal Order Class III formula.

The last hearing held to adjust the Class 4a and 4b formulas was held in October 2007. The data used for that hearing was related to 2006. There have been no hearings on this issue since then and thus no changes. The data now available is for 2010. The major things that have changed since 2006 are: first, the addition to two very large (and expensive) dryers at CDI and the major expansion of the Leprino mozzarella plant and second, there is enough capacity for handle the current milk supply. The latter in addition to the new capacity is due to production bases being established by the cooperatives (and Hilmar Cheese) as well as the adjustments forced on producers by the dairy depression of 2009. If the new costs are inserted into the 4a formula as requested by CDI the 4a price would decrease by 43 cents per cwt.

It is believed (and totally logical) that other organizations will now petition to include the 4b formula in the hearing. The factors related to cheese are lower than before and are likely to result in a higher 4b milk price which would help offset the lower 4a milk price. The issue of whey value is also lingering out there and may be included. It is also possible that the Secretary at her own motion will expand the hearing to include 4b. The Secretary now has 15 days to respond to the petition and as always one of her options would be to deny the petition.

Prices for SMP were up across all contract periods but the big 27cent jump for the current period may have been bolstered by some odd bidding. It appears someone needed some ultra-high temp powder and bid high enough to get their needed volume at the expense of other products in the auction. I expect that price to drop quite a bit at next week’s auction. The other two periods each posted nice gains.

This week CDI announced that they are making plans to begin participating in gDT beginning in September of this year. The product offered will be Skim Milk Powder and like Fonterra the volumes to be traded will be announced prior to each auction. This is a cautious first step but it is still a big step to take and it is also a major step toward establishing a long term presence in the world market. Of no little import, also note that this could be a really big step for gDT in that CDI is the first ‘non-Oceania’ country to begin marketing via gDT.

SB 104 (Steinberg) is scheduled to be voted on by the Assembly on Monday and if this occurs the bill will be given to Gov Brown later in the week. The Alliance is part of a much larger Ag coalition standing in opposition to this bill.

Weekly Update

Alliance of Western Milk Producers