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  March 5, 2010

The Feb. Class III milk price was announced today (Mar. 5) at $14.28 with Class IV at $12.90. This is the third consecutive month of declining Federal Order minimum prices. From what is happening on the CME cheese market and in the milk futures, it looks like this downward pressure will continue for awhile as cheese prices slipped to their lowest levels since September 2009.   Cheese prices and Class III milk futures started the week firm but then slipped daily through Friday with block cheddar prices closing the week under the $1.30 mark at $1.2975/lb and barrels at $1.25/lb. Class III futures fell back below $13/cwt for nearby contracts and only three far away contracts remain just slightly over $15--they are Aug., Sep., and Oct. While some analysts point to burdensome total natural cheese inventories compared with a year ago, other analysts refer to January's cheese output as a puzzle. 

According to USDA’s January dairy products report released Tuesday, March 2, cheese output remained heavy in the first month of the new year, but this was prompted by strong demand for mozzarella and a very large increase in production of fresh cream cheese. While the burst in production of these fresh cheeses---up 6.4% for mozzarella and up 25.6% for cream/neufchatel---has pushed total cheese production higher, the flip side is that other cheese production was down 2%, including cheddar cheese production down 2.7% from January a year ago.

USDA Dairy Market News reports that cheese plants in the East and Midwest are still easing back on production according to the current demand, but, according to the Milk Producers Council (California) Friday Market Update... "Plants in the West continue to keep producing, to maintain 'efficiencies.' It’s beginning to look like the answer to how low cheese prices will go may come from the company that has been selling most of the cheese on the CME."

The Milk Producers Council market update for March 5 also reports that, "In the past several weeks about 90% of all CME-traded cheese was sold by a single plant. The plant is large and efficient, is located in an unregulated area, and is part of a national firm that has two other plants located in federal order areas."

Butter is now selling a full 14 cents per pound above block cheddar on the CME ($1.44/lb) with production reportedly down 7.2% below year ago.

The U.S. milk powder market continues to move opposite to international pricing trends. According to USDA Dairy Market News, international milk powder prices are reported higher for the first time since late November, with Oceania skim milk powder (SMP) selling between $1.13 and $1.44. U.S. prices, on the other hand, continue to fall despite the fact that U.S. powder production and inventories are shrinking. January milk powder production in the U.S. was 13.9% below year ago and inventories were reported by USDA at levels that are one-third lower than a year ago.

According to USDA Dairy Market News, western nonfat dry milk is selling mostly at $1 to $1.07/lb. This is the lowest since last October when the temporary higher price support expired. USDA also reported this week that 23 million pounds of old powder were sold from CCC stockpiles at a price of 75 cents per pound for animal use.  


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