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  September 16, 2010
Class III milk gain ground; Corn tops $5

Class III milk futures gained ground this week, particularly on the nearby months as cheddar cheese on the CME rose to $1.7350/lb on blocks and $1.71/lb on barrels by midweek.

Supporting the advance also was a steady butter quote at $2.225/lb again this week.

Analysts say the dramatic increases in cheese and butter exports this summer are moving the entire dairy complex to higher ground with indications that dairy products are in tight supply despite Cold Storage reports that show backlogs of cheese inventory.

The fact that the close up months for milk future contracts are priced more than $2 per hundredweight above the far off months of late 2011 gives a clear signal that supplies are tight.

This, despite the year-over-year increases in milk production reported by USDA over the summer months. Dairy producers in different parts of the country wonder about the accuracy of recent production reports given the extreme heat this summer and seeing the impact it is having on their herds’ production.

Throughout the summer, this has mainly shown up in the tight supply of cream.

While the Class III milk future contract for the current month of September and the next month of October traded above $16 by the end of this week (Sept 17), the far off contracts for 2011 are trading between $13.94 and $14.74, with multiple months next year showing potential to trigger MILC payments. Typically, the far off contracts sell at a price advantage over the close up months, but that pattern is topsy-turvy at the moment.

USDA released its monthly World Supply and Demand Estimates last Friday (Sept. 10). The Department raised its price forecasts for 2010 and 2011 due to the stronger projected demand for cheese and butter.

USDA also raised its production estimates for 2010 and 2011, but sees increased demand as capable of absorbing the increased supply. Much of that is based on the huge increases in U.S. dairy exports in the past few months, which are expected to continue.

USDA forecasts an all-milk price of $16.25-$16.45 for 2010 and $15.85-$16.85 for 2011. This compares with $12.81 for 2009. Total dairy exports are expected to end the year up 34% at 20.2 billion pounds milk equivalent.

Meanwhile: Corn tops $5

Corn futures marched higher after USDA’s Crop Production Report last Friday cut yield estimates by to 162.5 bu/acre. Production is now projected at 13.16 billion bushels, down 205 million from the August report. This is still a record production, but there is speculation that the next Crop Production Report may trim the number further. The big issue is ending stocks forcasts are lowered to 1.116 billion bushels, the lowest stocks-to-use ratio since 1995-96. USDA forecasted corn to average $4.00-$4.80 this marketing year, competing with 2007-08 as the highest average ever.




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