DY, DAIRY MD_DA950 MD DA950 NATIONAL DAIRY MARKET AT A GLANCE July 3, 2008 MADISON, WI (REPORT 27) CHICAGO MERCANTILE EXCHANGE (CME) CASH MARKETS (7/3): BUTTER: Grade AA closed at $1.5525. The weekly average for Grade AA is $1.5519 (+.0204). CHEESE: Barrels closed at $1.8750 and 40# blocks at $1.9225. The weekly average for barrels is $1.8881 (-.0479) and blocks, $1.9238 (-.0007). BUTTER HIGHLIGHTS: The butter price at the CME Group cash market remains firm. The weekly close of $1.5525 is the highest thus far this year and within a penny of last year's high. Churning across the country is trending lower as cream supplies tighten. A few factors that are impacting lighter cream volumes for churning are: fat tests on incoming milk are lower, Class II interest is seasonally strong, and overall milk volumes are lighter as summer temperatures impact milk production. In some instances, butter producers are choosing to sell a portion of their cream versus churn at this time. In most instances, current production is not keeping pace with demand, thus inventoried stock is supplementing fresh production. Producers and handlers state that the drawdown of inventory is occurring earlier than anticipated. The weekly CME inventory report for the 27th week of the year stands at 110.8 million pounds, 4.7 million pounds lower than the previous week and nearly 36 million pounds lower than last year at this time. Domestic butter interest is fair to good. Some retail outlets are featuring butter this week along with other 4th of July picnic items. Some domestic butter producers are considering participation in the recent emergency butter tender issued by Japan. Specific specifications within the tender, very recent butter makes coupled with a near term delivery time, might limit some U.S. participation. CHEESE HIGHLIGHTS: The cheese market is unsettled to weak. Barrels, in particular, were under pressure with a combined 8.5 cents total over the four trading sessions at the CME Group. Process and packaging firms are planning to operate on holiday reduced schedules and bulk needs are lighter. Many had built some cushion inventory in recent weeks. Orders are generally steady though some buyers were starting to order to rebuild depleted stocks after slowing purchases during recent declines. Plant offerings have increased as demand slowed while prices were falling. Current cheese production remains seasonally active in the upper Midwest and steady to lighter elsewhere. FLUID MILK Milk production is mostly steady in the Northern tier of states, while there are some declines noted from the Southeast and Southwest as daytime temperatures and humidity levels increase seasonally and impact cow comfort. For dairy farmers, high prices on hay and feed are sources of concern. Hay prices in the Northwest are reportedly reaching $290/ton delivered. Some Utah first cutting hay is priced at up to $280/ton delivered in California. The first cutting of alfalfa has been delayed in the Central region due to recent heavy rains and flooding. This is leading to lower quality forage and a higher probability of reduced yields for the season. Cream demand is variable. Higher demand for cream in the Central region and California has moved multiples higher. Manufacturers are producing ice cream and mix as well as dips for the upcoming holiday. In the East, lower cream multiples based on decreased demand from Class II plants fostered additional churning activity for the week. Various plants are taking advantage of this buying opportunity to bolster butter inventories. Demand for condensed skim milk on the spot market is mostly lower. DRY PRODUCTS: The dry products markets are mixed. Nonfat dry milk mostly price ranges narrowed in both the Central/East and Western markets. Current interest is steady to lower during the holiday week. Dry buttermilk prices are generally unchanged, but those in the market are noting some resistance to current prices, which are close to NDM pricing. Whey markets are mostly unchanged, but some building inventories and fewer opportunities to export from the Central region are creating pricing pressure in the region. The Eastern and Western whey markets are steady. Brokers/traders in the Western region have divergent opinions on market direction. Lactose prices are unchanged as the second quarter draws to a close. Interest in finalizing third quarter contracts is lagging as buyers are finding spot load pricing is currently cost effective. Prices on whey protein concentrate 34% declined markedly. Long inventories are spurring spot market offers below the AOM, but buyers are reluctant to purchase in the current market when lower prices may be available in the next few weeks. INTERNATIONAL OVERVIEW (AMS): International dairy markets are little changed from recent weeks, although a firm undertone prevails for many manufactured products. In Europe, milk production is edging lower from a seasonal high that began earlier than usual. In the Oceania region, milk producers are looking forward to the upcoming season with optimism. International buyer interest is quiet on most fronts, with buyers often moving forward cautiously. For those buyers that are in the marketplace, they are often purchasing for near term needs with minimal long term contracts being negotiated. The recent emergency butter tender issued from Japan has many butter producers and handlers looking at this opportunity. Basically Oceania traders are not going to be able to take advantage of this opportunity as they are outside of their butter production season. Stocks sourced from Europe and the U.S. are greater possibilities. JUNE AGRICULTURAL PRICES HIGHLIGHTS (NASS): The index of prices paid by farmers for commodities and services, interest, taxes, and wage rates in June 2008 advanced 3 points to 189. Compared with June 2007, the index was up 28 points (17.4%). The index of prices received by farmers for dairy products advanced 8 points during the month of June 2008 to 149. Compared with June 2007, the index was down 6 points (3.9%). Prices received by farmers in June with changes from May were: for All Milk, $19.40, up $1.00; Fluid Grade Milk, $19.40, up $1.00; and for Manufacturing Grade Milk, $19.50, up $.80. JULY ANNOUNCED COOPERATIVE CLASS I PRICES (DAIRY PROGRAMS): For July 2008, the all-city average announced cooperative Class I price was $26.09, $2.67 higher than the Federal milk order (FMO) Class I price average for these cities. The July cooperative Class I price was $2.65 higher than the June price, while the Federal order Class I price was $2.60 higher. On an individual city basis, the difference between the Federal order and announced cooperative Class I price ranged from $.50 in Phoenix, AZ, to $4.59 in Miami, FL. For July 2007, the all-city average announced cooperative Class I price was $25.25, $1.81 higher than the Federal order Class I price average for these cities. Note: For most cities, the Announced Cooperative Class I Price now includes premiums paid for milk not produced with rBSt. CLASS AND COMPONENT PRICES (DAIRY PROGRAMS): The following are the June 2008 prices under the Federal Milk Order pricing system: Class II $16.19(+$0.68), Class III $20.25(+$2.07); and Class IV $15.92(+$0.66). Product price averages used in computing Class prices are: butter $1.4669, NDM $1.3508, cheese $2.1609, and dry whey $0.2758. The Class II butterfat price is $1.6230 and the Class III/IV butterfat price is $1.6160. Further information may be found at: www.ams.usda.gov/dyfmos/mib/classprcacnmt.pdf 200 CT janet.linder@usda.gov 608.250.3207