Sunday, November 6, 2011

Lower prices for October, but fundamentals improve

The October Class III milk and component prices were released November 4.  The posted format is a little different this month, but the same information is in the report.  Class III milk was announced at $18.03/cwt with butterfat at $1.96/lb and milk protein at $2.92/lb.

The Dashboard shows a lot of red as most of the prices fell as predicted in this blog last month.  It's hard to ignore falling cheese prices as they will have a direct impact on Class III milk prices.  The only gainers for the month were Dry Whey prices and Other Solids which are linked to Dry Whey prices.

Although lower, it has brought the long term protein and butterfat prices more in line with their historical trends.  Inventories seem to be recovering for both cheese and butter.  Inventories will be explored later in this blog post.

With the October prices, the milk check has returned to a more normal ratio with milk protein payment making up the biggest slice of the milk check.


For the second month is a row, butter  inventories have exceeded the  2010 level.  If this trend continues, by November the 2011 level may surpass the 2009 level and by year end, butter inventories will be back to normal levels.  Of course, this will impact butter prices.

Butter production typically hits a low in August.  As can be seen in the chart below, the 2011 low point was much higher than 2009 and 2010.  With the higher level of production, it is not surprising that inventories are reaching more normal levels.

Butter net exports (exports less imports) remain positive, but below the 2011 peaks and well below the late 2008 record peaks.

Primarily due to increased production, inventories have increased which has impacted butter and therefore butterfat prices.  October's value of $1.88/lb was well below the $2.00+ prices seen earlier in 2011, but still above the historical prices.


Cheese  Inventories started a downward trend after two years of abnormal highs.  That leaves the inventories high, but headed in a corrective direction.  It will probably take many more months to return to more normal levels.

Cheese consumption continues to grow and exports remain healthy however,  natural cheese stocks are still well above the trend lines and are therefore not putting pressure on cheese prices to rise.

With the Euro weaker and dollar stronger, exports could be a weak link.  Cheese export reporting lags by a few months, but the chart below shows a softening in August.  August is still a record for this time of the year, but the level is below the pace of earlier in 2011.

For the month of October, cheese prices have remained strong although below prior months levels.


After a volatile period, it appears that the U.S. dairy products are returning to more normal levels of production and inventories.  The most important parameters to watch are those impacting cheese prices.  Butter prices have a minor impact on Class III milk prices.  With Cheese inventories falling and a strong export program in place, cheese prices should slowly gain for the remainder of 2011, with a similar impact on milk prices.

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