Sunday, February 9, 2014

Milk Protein Above $4, Class III Above $21 - No Evidence of Pricing Bubbles

Class and Component prices for January 2014 were announced February 5. All parameters on the dashboard were up, with milk protein increasing the most to $4.19/lb.  The Class III milk price was $21.15/cwt.


The January prices were at or above the long term trends, for all components.  Protein prices were above $4/lb. for the first time since the 2008 price spikes.


With the large increase in the value of milk protein, the pie chart showing the value of each component shows a record 69% of the Class III milk price coming from milk protein payment.  Producers should be doing everything possible to maximize protein production.


Exports continue to push the demand for dairy products.  An analysis of exports will be posted to this blog as soon as new data is available.

Also, the strong international demand for Skim Milk Powder/Nonfat Dry Milk is keeping U.S. Class IV price unusually high.  For an explanation of this impact, see the October 6, 2013  and January 5, 2014 posts to this blog.  An upcoming post to this blog will further analyze the 2013 impact of this major change which has been very positive for dairy producers.

The dynamics of cheese, butter, and dry whey will be analyzed below.  Please see the April 23, 2009 post to this blog to understand the the impact of cheese, butter, and dry whey on milk protein, fat, and other solids.

The strong demand for dairy products and the resulting strong pricing is driven by exports.  as previously mentioned, exports for 2013 will be reviewed in an upcoming post to this blog.

CHEESE

Inventory levels for Natural and American Cheese are slightly low as shown below.


With the low inventories and strong export demand, the NASS cheese price for January was near the all time highs.  Cheese exports hit all time highs in December, 2013.  Cheese was valued by NASS at $2.08/lb. for the month of January.  The CME prices for blocks and barrels of cheese are above $2.20/lb. so the February NASS price may set a new record.


Cheese production has stayed on the normal growth curve, with no major spikes that could cause a price bubble later.


BUTTER

Butter Inventory is extremely low, below the levels of 2011 and 2012 for December.


This has kept prices healthy, at $1.65/lb. in January 2014.  However,  the prices are not near the record highs.  There is no sign of an approaching bubble in butter prices.   The price of butter is the basis for the butterfat price, and also has an impact on protein prices as explained in the August 8, 2013 post to this blog.



DRY WHEY

Whey inventories are not especially low, but exports remain strong and the price has remained stable.



The NASS price of dry whey was $.60/lb. in January 2014.  This was a ten month high for dry whey, which has kept "Other Solids" at a comfortable price of $.42/lb.  This has allowed "Other Solids" to contribute $2.38/cwt. to the January Class III price.

NONFAT DRY MILK

The unusual contribution made by the high price of Nonfat Dry Milk in 2013 deserves separate analysis and will be covered in a separate post.  This unusually high pricing is driven by strong exports.

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