August milk prices track closely to July prices

Class III milk and component prices for August were announced on Friday, September 2.  They tracked very closely to the July prices.  When compared to July's activity where the change was -5% to + 28%, August prices changes ranged only from -3% to +6%.  Milk protein remained nearly the same at $3.83/lb.

During July, all factors influencing butter prices remained stable and will be reviewed below.  However, cheese production declined significantly and inventories increased significantly.  This has caused a very significant drop in the price of cheese on the CME.  The NASS prices lag behind the CME prices by about two weeks, but so far the drop on the CME has not impacted the NASS cheese prices.  Because milk protein prices are calculated based on the NASS cheese prices, there was essentially no change in cheese or protein prices between July and August.

The long term graph of butterfat and milk protein prices shows amazing stability between July and August.

CHEESE

There was a lot of fluctuation in the cheese markets in the last three weeks of August.  While the results can be seen in cheese inventories and  CME pricing, the reasons behind the changes in demand for August cannot be analyzed until the August import and export data and domestic consumption information are calculated and published.

Cheese production dropped dramatically in July (August numbers are not yet available).

Cheese inventories of both  processed and natural cheese increased significantly in July.

With production down, inventories would be expected to drop, not increase.  This means that the demand side has softened due to fewer exports, increased imports, or reduced domestic consumption.  The most recent available data (June, 2011) for exports and imports does not show any weakness.  Exports remain high and imports remain low.

With the increase in inventories, cheese prices on the CME have dropped dramatically, falling from around $2.15/lb to $1.80/lb, a 16% drop. The chart below shows changes to Cheddar block prices.  Barrel prices are similar.

NASS prices typically follow the CME prices with about a two week lag.  There is no reason to think that this will not happen in September.  If NASS cheese prices drop 16%, the milk protein price will drop by over one dollar and the Class III price will drop by over three dollars.  The best guess is that this will happen in September.

BUTTER

Very little is happening with butter prices.  Prices remain very stable with both CME and NASS prices just shy of $2.10/lb.

Butter inventories remain low with normal seasonal variation.

Butter production remains above historical levels, although production did take a slightly strong dip in July.

Exports remain reasonably strong, and imports remains low.

Eventually, inventories will rebuild and butter and butterfat prices will drop, but this will take many months at the current production and demand rates.

NONFAT DRY MILK


Nonfat Dry Milk is not typically discussed in this blog, because it has very little direct impact on Class III milk pricing.  A review of the formulas was undertaken in a previous blog and can be reviewed at this link.  However, Nonfat Dry Milk does have an indirect impact by using milk that is then not available for cheese production.

The Nonfat Dry Milk exports have been very strong and imports remained minimal.

 Nonfat Dry Milk Production has remained near "normal levels"

While nonfat dry milk exports remain a huge product for the dairy export markets, and those exports are healthy, they do have very little impact on Class III prices and milk checks.

NEXT MONTH

It certainly looks like next month will show significant drops in milk prices.  However, the long term fundamentals of supply and demand appear to be in good shape.  Exchange rates remain favorable for exports and with a reasonably healthy economic environment, long term prices should remain strong.