Sunday, June 5, 2016

Cheese Price Falls Again

On June 2, 2016, May Class and Component milk prices were announced.  Cheese and therefore the Class III milk price were down significantly.  Class III milk fell to $12.76/cwt. and milk protein fell 19.1% to $1.49/lb. The high inventory levels of cheese and the resulting low price were responsible for this drop.  Cheese was covered in some detail in the prior post and there are no updated analytics available at this time.  For this reason there will be little coverage of cheese data in this post.  Low exports and rising imports and the resulting high inventories are responsible.

The Class IV price rose slightly on a small gain in the international price of nonfat dry milk.  Dry whey and butter prices had very little movement resulting in relatively stable month-to-month pricing.  By formula, the value of other solids and butterfat also remained relatively stable.

The low price for milk protein is near the 2015 year end prices, which were 16 year lows not seen since the year 2000.

Butter inventories are rising to levels not seen since 2013.  Butter inventories have increased as low priced imports have risen.

With higher inventories, prices typically drop.  While the price of butter is still over $2/lb., with inventories now running at 2013 levels, a price drop to 2013 level pricing is inevitable.  This would reduce the price of butter to the $1.50/lb. level, a 25% drop in value.  The futures markets have not reflected this change in spite of the four month running increase in butter inventories to 2013 levels.

The value of Other Solids have been hovering close to a zero since mid 2015 as the price of dry whey, the basis of Other Solids pricing, remains low.    Inventories are running slightly above historical levels so little improvement in pricing can be expected.  If the value of dry whey falls further, it may not be economical to spend the money to dry the whey.  Dry whey is primarily an export item.

One developing positive trend is the growing production of whole milk powder.  Whole milk powder is more expensive to package and transport as the butterfat in WMP must be protected from oxygen and heat.  The international market for WMP is much greater than NDM, but U.S. production of WMP has ranged below 10% of the NDM production levels.  The long-term trend of growth is positive despite low international prices.

WMP prices by formula do not impact dairy producer prices, but can impact overall demand for milk and thereby have a pricing influence.

In summary, there is little reason to be positive on cheese, milk protein, dry whey, or other solids pricing.  The only change that analytics suggest is a drop in the price of butter and a resulting drop in the price of butterfat.  Until international oversupply is reduced, there is little hope for improved pricing.  While the oversupply will eventually be corrected, there is little to support a quick resolution.  

This will certainly eliminate any inefficient U.S. dairy producers, but that will not resolve the international oversupply.  

When data is available, the next post will cover U.S. dairy exports and imports and the international market influences.

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