Weekly Update

Alliance of Western Milk Producers

July 18, 2008          volume 27, 2008  

Cheese – $2.00 again

The Block market had another rather amazing week and again climbed to the $2.00 level.   Most noticeable was the lack of loads offered and sold at the CME.  Last week 63 loads of cheese (both Block and Barrel) were traded.  This week no loads of Block and only 3 of Barrel were traded.  The week ended with Barrel at a nice normal sedate 3 cents below Block.  It looks like the range of $1.80 to $2.20, which has now been firmly in place for over a year, will continue for a while, but there is no indication of big increases.   

Butter – Demand good

Prices dropped two cents early in the week and then held even the balance of the week.  Sales volume at the CME was only 4 loads.  Supply and demand seem in reasonable balance.

Nonfat Dry Milk – upward trend still in place for US

CWAP price down nearly 2.4 cents but volume is excellent and current market shows prices better than reported averages.  There will be some continued up-ticks in our prices but Europe and Oceania reports use the term “generally steady” to describe their market and the current European market value of $1.79 (less freight), in the absence of major weather events, may well mark the top of the NDM market for the time being.  

Whey products:

It is hard to find much optimism in these markets.  Dry Whey mostly prices are unchanged and some processors do not have building inventories, which means, of course, others do have growing inventories.  Dry Whey NASS price declined 0.6 cents but with high volumes sold. WPC 34 prices continue to slide but not quite so rapidly as in past weeks.

Page 2:  Weekly Update July 18, 2008

Cheese utilization percentage dropping:

A year ago 50.6 % of the milk solids-not-fat pooled in California was used to make cheese.  This year the number dropped to 43.2%.  The change is occurring in reaction to rational economic factors such as the huge growth in cheese production in areas that are a thousand miles closer to the customers and the fact that because of fuel costs the thousand mile difference is becoming more important.  None-the-less, cheese at 43% remains the most important piece of sales and at the prices noted on the table above clearly is the most important factor in keeping our overall prices as high as they are.  Because Class 1 prices also ride on the “higher of” pricing the direct impact of cheese values on your prices is nearly 60%.

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Whey Review Committee – it was the final meeting

Last Thursday the WRC met for the last time.  The cold reporting would simply say that on a vote of 8 to 5 (13 of the 14 members were present) the committee recommended to the Secretary that the current 25 cents fixed factor be left in place.  On one front this is good news for producers since, as was reported here last week, the current fixed formula generates about $6 million per month more producer income than our proposed formula would have.  But the interesting part of that observation is that (based on expressed views and some knowledge of who the 5 votes for the other proposal were) all 7 processor representatives on the committee voted FOR that. I would say that the 5 and the 7 each voted their own long term interests.  Processors are willing to pay extra now so they will not have to share any of the market gains as whey prices recover.  The 5 producer representatives are willing to take less now in order to share in the market gains as whey prices recover.   

A second vote of some interest is the recommendation to consider a much larger study/review of the whole cheese pricing system, specifically including the consideration of partial (or complete) deregulation of 4b prices.  This suggestion was approved by a vote of 10 to 3.  

CDFA staff will prepare a ‘white paper’ recommendation to the Secretary which will be circulated to the committee prior to delivery.  Without doubt there will be much more to report on this matter in the weeks to come.    

CWT accepts 209 bids in fifth round 

Given the uncertainty of the times, I am surprised that there were not more bids acceptable to CWT.  The West once again had the highest number of cows accepted but there is no breakdown between the Northwest and California .  The new heifer program did not attract many bids (bids that were accepted anyway).  Only 358 bred heifers were accepted which is only 1.4% of the cows accepted – far from the average number of bred heifers available on a typical dairy.  Including bred heifers is attractive because it removes a portion of the next generation and improves the effectiveness of the program.  CWT will, as always, review the results of the heifer program and adjust as necessary.  

California milk supply up 2.5% in June.

I track the milk supply in Idaho , New Mexico and Texas not because California is in any kind of race with them but because they are the ones that are producing cheese 1,000 miles closer to the next customer to whom we would have sold cheese.  Their combined gains are impressive with both New Mexico (+10.2%) and Texas (+16.3%) increasing at double digit rates.  Idaho at 8.8% was equally impressive.  In total these three states put out 2.4 billion pounds of milk in June compared to California at 3.4 billion pounds.  

Corn Con: Opinion shifting

Keith Collins, former chief economist for USDA this week put out a fantastic insider view of last Decembers ethanol debate when he said that they expected the ethanol mandates to increase the price of corn from about $2 per bushel to $3 a bushel which was judged to be an acceptable price shift “cost”.  At that level everyone would be reasonably happy. Kind of misjudged that one, did they not?  Come on Senators Harkin, Grassley and Obama, admit that you overshot the target.  It is time to review entire program.  Mandates are a seriously flawed policy device – go back to incentives.  You can have your tariff and subsidies but not the mandates.  

Bill Van Dam