Weekly Update

Alliance of Western Milk Producers

March 5, 2010         volume 7

Changes are for past three weeks

Nonfat Dry Milk: Dropped and hopefully bottomed

NDM prices dropped close to 9 cents in the last three weeks.  The biggest price drop occurred 6 weeks ago and a comparison of the average price in most recent 6 weeks ($1.051) to the 6 weeks previous to that ($1.285) shows - what we hope is full extent of the drop – is $.233 per pound or just over $2.00 per cwt on the 4a price.  Some observers are openly speculating that NDM prices could drop all the way to the support price of 80 cents per pound.  That would be a worrisome outcome but it seems unlikely since the globalDairyTrade auction (which this week included Skim Milk Powder for the first time) set the May 2010 price at $1.28 (US$) did a lot to remove that fear.  Prices were significantly higher in the next two pricing periods (Jun thru Aug at $1.42; and Sep thru Nov at $1.32) which lend even more comfort.   

Today’s prices applied to Class 4a milk formula generate a price of $12.84 per cwt.  While disappointing it is $1.62 higher than the 4b price which works out to $11.22 per cwt.  All told this is a quite discouraging price drop.  The past several months have been almost exciting with steadily climbing prices.  However, there is no large disaster (like a drought) to curtail production in some part of the world which will drive milk prices to new highs.  World prices will settle at a price level that will attract sufficient supply.  All the literature and studies continue to indicate that the world will continue to need product from the US .  If true, that price will have to be high enough to cover the costs of our producers, but it does not follow that we will again hit $20.00 per cwt.  

Cheese:  Prices pressing aggressively lower 

Both Block and Barrel cheese prices have crashed right through the “floor” of $1.40 that seemed to have been established over the past four months.  In fact, both are now below the $1.30 level.  Inventories of cheese continue to be burdensome and overhang the market.  While overall milk production in the country is down a bit it is not down in Wisconsin (+4.7%) and Minnesota (+3.6%) and to my knowledge these states - because of a lack of powder plants – must convert nearly all the new milk into cheese.  Overall cheese production did hit a new all time record in January.  There is little indication in this week’s market that we have yet hit the bottom of this price swing.    

Whey Products: Down a bit

Both Dry Whey and WPC are down a bit.  Market comment indicates that inventories are not burdensome but that because of increasing cheese production the production of both whey categories is increasing also.  With NDM prices dropping like they are and with the whey product volumes increasing, buyers will be sitting on their hands waiting for downward price adjustments or compelling proof that prices will not be dropping.

Butter: There is some good news – Butter prices climbing nicely

This is the third run-up in Butter price since October (see chart).  This time it has a nice fairly gentle slope that hopefully indicates the product will be able to hold at higher levels.  Easter is still four full weeks away so that alone should result in three weeks of good prices.  Inventory numbers are pretty low right now and disappearance should be high because of Easter so there is a chance that prices may stay up.

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California January Production down ONLY 2.3%

 Page 4 Weekly Update March 5, 2010

The magnitude of the January milk production increase in California is not easily seen in the comparisons to last year.  Just three months ago California production was running 5% or more below the previous year.  In Dec it was 4.3% but in January it was 2.3%.  Look at the right side of the graph on the bottom of page 3.  The steady climb in daily average production was only just a bit higher than normal seasonal changes thru December but the jump in January (the last square) was much higher.  The two arrows on the chart point to Jan 2007 and to Jan 2010.  Those numbers are nearly identical.  This means something because the year 2007 is the base number used for the base plans (which cover nearly 80% of put in place in 2008).  None of these base plans have been lifted. This is the strongest indicator so far that California production is poised to match the 2007 level of production.  The level of response will largely depend on the response of producers to the current price levels.

Louie Barcellos died on Feb 18, 2010 at 90 years of age

Another influential dairy leader of the putting-pooling-together era has died.  I first met Louie when I took the job as General Manager of the League of California Milk Producers in 1970.  He was 51 and I was 27.  He was the Manager of Associated Dairymen which was a member of the League.  I had the schooling but he had the knowledge.  More importantly, he was willing to share that knowledge and spent endless hours sharing it with me.  Louie explained to me how pooling was put together and how it worked but more importantly he shared why it was put together as it was as well as the intention of each section.

Louie was one of the smartest and most persuasive people I have ever worked with. He was also an amazing teacher and, for me, a wonderful mentor. My wife, Carol, and I shared many meals with Louie and Pat. Anyone who spent time with them was witness to a loving couple that was truly committed to each other.  She died several years ago but now they are together again.  Louie has been looking forward to that reunion for every day of those several years.  Goodbye dear friends, may you rest in peace.   

                                                                   Until next week,             Bill Van Dam