Spot cheese on the Chicago Mercantile Exchange (CME) advanced this week, while butter traded lower. By Wednesday, block cheddar had gained a penny over the previous midweek at $1.7250/lb and barrels had gained four cents over the previous midweek at $1.6850/lb. On Wednesday, October 5, four loads of blocks and five loads of barrels traded hands.
Butter, on the other hand, weakened on an uncovered offer Wednesday pegged at $1.7575/lb Wednesday compared with $1.76/lb the previous Wednesday.
Class III futures rallied Tuesday for the remaining contract months of 2011 and those fourth quarter contracts increased again on Wednesday for a net average gain of 50 cents/cwt in two days. This rally put the November contract back above $17 after being in the $16 range since Sept. 27.
Strength in fourth quarter Class III future contract prices came on the heels of the stronger prices on the CME cash cheese market this week.
Class III 2012 future contracts were mixed, but still the expected margins are beating the 10-year average as corn and soybean future contract prices have declined ever since USDA announced a harvest figure that was more positive than previous crop progress reports and industry estimates.
Aug. Cheddar production off 2.4%, lowest since 2007
Cheddar cheese production declined seasonally in August according to USDA’s Dairy Products report this week. But what is noteworth is that U.S. Cheddar Production has been below year ago since February (see CME Daily Dairy Report Chart below).
USDA reported cheddar production of 255.0 million pounds, which is 2.4% lower than August a year ago, and the lowest August cheddar production since 2007. Year-to-date cheddar production is down 2.9%, according to the USDA report.
Total output of all cheese (excluding cottage cheese) was 868 million pounds in August. This is 0.3% below August 2010, but 1.5% above July 2011.
Italian cheese production was 0.2% below August 2010 but 0.6% above July 2011, while production in the whole American type cheese category (including cheddar) totaled 347 million pounds, 1% below August 2010 and 0.9% below July 2011.
As for butter, August production was 31% above August 2010. However, this was 1.6% below July 2011, according to the USDA report. The increase over year ago should also take into consideration that last year’s butter production was well below the previous year and well below normal. Nonfat dry milk production in August was down 5.1% from year ago, while skim milk powder production was up 156.6%. Dry whey production decreased 2.1% and whey protein concentrates were up 1.2%. Ice cream production grew 4.7% over year ago, and yogurt was up double digits in both fresh and frozen categories.