The relentless decline of barrel cheese price and Class III futures prices came to a halt during the week. A retracement in future prices was due, but was not happening as long as barrel cheese continued to weaken. Continued widening of the block/barrel spread increased the likelihood of a price correction. The last day of January provided this correction when barrel price increased 0.25 cents. This was the first price increase since the first day of the year. Barrel price was able to extend the gain on Friday with price increasing another penny. The result of the barrel price increase was initial short-covering of Class III contracts by traders followed by new buying interest. However, traders remain cautious.
Current fundamentals do not suggest a change in the overall price trend. Milk supply remains plentiful satisfying bottling and manufacturing demand. Excess milk is still moving around at a discount in order to entice buyer interest. For the week ending Feb. 2, Cheddar blocks remained unchanged at $1.6450. Barrels closed at $1.5425, down 2 3/4 cents. There were two loads of blocks and 12 loads of barrels changing hands. Butter price closed the week at $1.5550, up 5 cents with 12 loads changing hands. This increase surprised most in the industry due to ample supply of butter.
Buyers stepped up to the plate once price began increasing. Purchases for inventory were made as a hedge against further price increases as well as building supply for later this year. USDA announced the January class prices with Class II at $18.19, down $0.11; Class III is $18.14, down $0.52; and Class IV at $17.63, down $0.20. February will show a greater decline if prices remain where they are. February milk futures currently indicate price could be near $17.15. This price will be virtually set by mid-February showing limited movement thereafter until prices are announced.
INCOME-OVER-FEED DECLINES
USDA’s January “Agricultural Prices†report indicated the All-milk price declined 90 cents for December to average $20.00. The average corn price increased 11 cents to $6.98. Soybean price declined 20 cents to an average of $14.10. The alfalfa hay price remained steady at $217.00 per ton. This resulted in an income-over-feed cost of $7.34, the lowest since September.
REDUCED HEIFER INVENTORY
The bi-annual inventory report indicated dairy cow numbers on Jan. 1 at 9.22 million head, virtually unchanged from a year ago. Replacement heifers totaled 4.55 million head, down 2 percent from last year. However, this is the third highest number of replacement heifers over the past 20 years. The percentage of heifers to milk cows is 49.4 percent and the fourth largest in history.
DRY WHEY PRICE TOPS
Dry whey price in the Central region may have topped with price steady to slightly lower for the “mostly†series. Spot loads are readily available from both manufacturers and resellers. Buyers are mainly interested in purchasing on an as-needed basis. Whey production is higher as a result of strong cheese production. Other regions also show weakness as supply increases.
AMS PRICES
For the week ending Jan. 26, Agricultural Marketing Service (AMS) prices were mixed. Prices for 40-pound cheddar blocks decreased 0.9 cents to $1.74. The price for 500-pound barrels, adjusted to 38 percent moisture, averaged $1.71, down 1.9 cents. USDA grade AA butter averaged $1.50 for the week, up 2.2 cents. Nonfat dry milk averaged $1.55, down 2.2 cents. Dry whey averaged 65.4 cents, up 1.0 cent.
The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is risk of loss in commodity trading may not be suitable for recipients of this publication.
Robin Schmahl is the owner of AgDairy LLC, a full-service commodity brokerage firm located in Elkhart Lake, specializing in marketing plans and trade execution in all agricultural markets. He can be reached at 877-256-3253 or rschmahl@agdairy.com.
Source: Agri-View
