The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Cash dairy product prices were on a roller coaster the last week of August. After all, this is fair season. The bearish July Milk Production and Cold Storage reports provided the downward ride; demand was the uplifting force. Block Cheddar cheese lost 8¼ cents by last Thursday but regained 4¼ last Friday to close at $1.70, down 4 cents on the week and 63 cents below a year ago. The barrels finished at $1.60, down 9½ cents on the week, 74½ cents below a year ago, and an unsustainable 10 cents below the blocks.
Product is making its way to Chicago, particularly barrel, as 10 cars of block traded hands on the week and 31 of barrel. The lagging NDPSR-surveyed U.S. average block price gained 2.7 cents, hitting $1.7365, while the barrels averaged $1.7471, up a penny.
Some Central cheese manufacturers report milk intakes are down slightly, due to the seasonal decline and the increased bottling demand for schools, reports Dairy Market News. A short stretch of hot, humid days created a little dip in milk production, but with cooler temperatures and the good cross-ventilation of newer cow barns, the impact has been minimal, says DMN.
Cheese production is active, with little extra capacity available. Cheese makers are buying occasional loads of milk to fill capacity, but only when they can be purchased at or below class. Cheese demand continues to be good.
Western cheese output is steady. The beginning of school terms and increase in bottling has pulled some milk away from processing, but the impact has been minimal. Manufacturers report a slow seasonal decline in milk production but an adequate supply for processing. Domestic cheese demand and retail sales have been strong throughout the summer, according to DMN.
Spot butter, after skyrocketing 30½ cents last week, shed almost 8 cents last week in reaction to last Friday's Cold Storage data, and dropped to $2.2925 per pound. It regained a nickel last Thursday, slipped a quarter-cent last Friday, and closed at $2.34, down 3 cents on the week and 41½ cents below a year ago. Four cars were sold this week. NDPSR butter averaged $2.0210 per pound, up 3.8 cents.
Cream availability for churning is tight as butterfat content in milk remains low, says DMN. Some processors prefer to sell cream as demand and multiples remain strong. Consequently, butter production is marginally lower. At this point, the market tone is unsettled but some manufacturers expect an increase in production this fall to meet the seasonal fourth quarter high demand.
Looking westward, DMN reports that butter demand is steady, but the increased draw down of butter supplies normally seen in late summer has not fully started. Some manufacturers are beginning to see retail orders build for the holidays. Current production is steady to lower depending on the strategies of cream use.
Ice cream production is slowing somewhat, but processors trying to build or maintain retail freezer space are still creating demand for cream. The increase in school milk bottling is also making more milk fat available for butter or ice cream.
Cash Grade A nonfat dry milk climbed to 81 cents per pound last Thursday, highest spot price since July 8, but lost 4 cents last Friday and closed at 77 cents per pounds, down 1½ cents on the week and 55½ cents below a year ago. A whopping 33 cars traded hands at the CME, "the market of last resort." NDPSR-powder averaged 73.55 cents per pound, down 2.2 cents, and dry whey averaged 29.96 cents per pound, down 4.2 cents. California's latest surveyed nonfat dry milk price was 74.6 cents per pound, down 3.7 cents on the week.
Cold Storage Report
The aforementioned Cold Storage report showed July butter stocks at 254.5 million pounds, down just 1.55 million pounds or 1 percent from June but, surprise, stocks were up 73.6 million pounds or 41 percent from July, 2014 and revisions added 1.3 million pounds of butter to the original June estimate.
American type cheese, at 698.3 million pounds, was up 12.55 million pounds or 2 percent from June and 37.9 million pounds or 6 percent above a year ago as shrinking exports result in more product going to storage. The total cheese inventory on July 31 stood at 1.16 billion pounds, up 20.2 million pounds or 2 percent from June and 107.5 million or 10 percent above a year ago. The report adds more bearishness to the markets, especially on butter, and the highest butter price in the world has resulted in a magnet and banner year for imports.
It was a rocky road last week for Wall Street due to, what the Drudge Report called, "the Great Fall of China," and CME dairy prices came under pressure in reaction to last week's bearish July Milk Production report and last Friday's bearish Cold Storage data. EU milk production was up 3.9 percent in June and Mexico was up 2.5 percent.
HighGround Dairy broker, Eric Meyer, speaking in last Friday's DairyLine, stated, "There's certainly a lot of volatility," but he pointed back to the Aug. 18 Global Dairy Trade auction which he said, "caused a bit of angst in the dairy industry." He admitted that the previously mentioned factors have also had a negative impact on the U.S. cheese market and, while butter and nonfat dry milk have seen a bit of a lift, Meyer viewed that as "temporary and seasonal."
The 1.2 percent increase in July milk doesn't sound like much, he reasoned, but it was above expectations and needs to be viewed against the 3.5 percent growth in the second half of 2014.
The Cold Storage data for both cheese and butter were "disappointing for dairy farmers," according to Meyer, "as stocks rose instead of contracting as is sometimes seen this time of year and that put a damper to the market."
He viewed last Thursday's rally in butter as "seasonal and fleeting" and said the gain in the nonfat dry milk price is "somewhat temporary as we feel the global market is still on the skids and still could have room to float. Those prices don't translate well into an all-milk price for U.S. farmers," he said.
Meyer is concerned about the cheese market heading into the end of the year and advised dairy producers to "view the international markets and the volatility there as something to be very cautious over as they could bring our prices down by the end of the year and the first half of 2016." And, when asked how low they'd go, Meyer said he's nervous that cheese could fall to $1.30 to $1.40 by year end and hold there through first quarter "as we try and reshuffle." "Our milk production is just not falling at a rate that it needs to," he concluded.
Milk Sales Jump
On a brighter note, June 2015 packaged fluid milk sales totaled 3.8 billion pounds, up 1.4 percent from June 2014, according to USDA tracking, first increase since December 2014. June sales of conventional products totaled 3.6 billion pounds, up 1.5 percent from a year ago, while organic products, at 199 million pounds, were unchanged. Organic represented about 5.2 percent of total sales for the month.
Looking at January to June, total packaged fluid sales, at 24.6 billion pounds, were down 1.8 percent from the same period a year earlier.
Year-to-date sales of conventional products, at 23.4 billion pounds, were down 1.8 percent; organic products, at 1.2 billion pounds, were down 1.6 percent. Organic represented about 4.96 percent of total fluid milk sales in the first six months of 2015.