MD_DA950 DY, DAIRY MD DA950 NATIONAL DAIRY MARKET AT A GLANCE January 29, 2010 MADISON, WI (REPORT 4) CME GROUP CASH MARKETS (01/29): BUTTER: Grade AA closed at $1.3300. The weekly average for Grade AA is $1.3790 (-.1054). CHEESE: Barrels closed at $1.5050 and 40# blocks at $1.5150. The weekly average for barrels is $1.5070 (+.0157) and blocks, $1.5130 (+.0467). BUTTER HIGHLIGHTS: The CME cash butter price continued to steadily decline for most of the week and closed the week at $1.3300. The 13 3/4 cent decline this week, coupled with the 5 3/4 cent decline last week, contrasts with the 18 cent increase two weeks ago. Churning activity across the country remains seasonally active as available cream offerings are often keeping butter operations at desired levels. As the cash price declines, buyer interest has slowed. In many instances, buyers are procuring for very short term needs with longer term purchases being put on hold at this time. Buyers are waiting until the current trend stabilizes. Butter stocks are readily available and currently are entering inventory programs at a faster pace than in recent weeks. Many butter producers and handlers are OK with this, as many feel that butterfat and butter will be less available during the second half of the year. CHEESE HIGHLIGHTS: CME Group cash market prices were steady to higher and the barrel/block spread returned to a normal, though narrow 1 cent. Current orders are steady to occasionally slower. Finished product buyers entered 2010 with inventories often above last January, so refilling the finished product pipeline does not need as much cheese. Natural interest generally remains stronger than process. Cheese promotions geared to the Super Bowl have been minimal thus far. Bulk orders are being filled under normal lead times as plants have adequate milk supplies or can purchase additional with minimal difficulty. FLUID MILK: Milk production across the country is generally steady with recent weeks. Weather conditions, from cold temperatures in the Upper Midwest to wet and soggy conditions in the Southeast, are some factors that are currently impacting production patterns. In the Southern part of the country from Florida across Texas, into Arizona and Southern California, signs of seasonal increases are being reported. Some of these increases are being noted due to more milk clearing to other class usages verse Class I. Producers are seeing higher output due to increasing milk prices, better feed costs, and the addition of fresh heifers and cows into the milk herd. Further north, milk production remains at seasonally low levels, although signs of increases are developing. Cream markets are weaker and unsettled. Pricing multiples are holding in the 110 - 120 range and vary depending on class usage and basing points. Currently, cream buyers are cautious with their purchases as the CME cash butter price weakens which is often used as the basis for cream pricing. DRY PRODUCTS: Nonfat dry milk markets are weak with prices lower to sharply lower. The most significant correction to the market was brought on by some large sales volumes at reduced pricing in the Western part of the country. The impact moved beyond those sales to other transactions as market prices gravitated lower. As prices trend lower, buyer interest has slowed. Buyers indicate that their intentions are to allow the NDM market to settle down before making additional spot load purchases. Dry buttermilk markets are weak with prices lower. With the recent price adjustments in the NDM market, spot buttermilk market activity is lackluster as market participants are awaiting improved buying opportunities in the near term. Dry whey prices are mostly steady, but the market undertone is mixed. Inventories are variable with manufacturers and are opting for production of specialty type products versus commodity type whey to keep inventories of dry whey at comfortable levels. Lactose prices are both higher and lower on a transitional market. Some producers report interest for both contract and spot loads is above current plant capacities and shipping delays are occurring. ORGANIC DAIRY MARKET OVERVIEW (AMS): The year opened with a continuing increase in the percentage of organic dairy content in supermarket newspaper ads. Organic dairy content this period surpassed the last reporting period, which had surpassed any of the reporting periods in 2009, dating to early October when this survey series began. During the second period, organic dairy ads were included in 48.7% of 9,124 surveyed supermarket ads appearing in newspapers throughout the United States. However, this lags non-organic dairy which appeared in nearly 100% of surveyed ads this period. Also for the first time in this series, three of the six regions of the United States topped 50% of ads having organic dairy content. The Southwest dominated all regions in the percentage of ads for the second consecutive period, with 72.3% organic dairy content. Second was the Northeast with 63.1% organic content, closely followed by the Northwest with 59.1%. Some organic dairy processors report sales results for the opening of 2010 as being better than for the opening of 2009. Organic milk sales from a national perspective are described as "strong" related to expectations by some processors. Sales of organic milk and dairy products are believed to be driven not only by absolute price, but also by the price of non-organic milk and dairy products. A smaller gap is more likely to encourage higher organic dairy sales. The overall national gap is perceived by some organic processors as having narrowed, which helped organic dairy sales. Although most organic milk above single serving size is sold in half gallons and gallons, more placements of organic milk quarts have appeared in recent weeks. COLD STORAGE (NASS): On December 31, U.S. cold storage holdings of butter totaled 133.7 million pounds, 6% lower than a month ago, but 12% higher than December 2008. Natural American cheese holdings totaled 586.8 million pounds, 1% more than November and 9% higher than a year ago. Total cheese stocks were 966.9 million pounds, 1% more than last month and 13% higher than last December. COMMERCIAL DISAPPEARANCE (ERS, AMS): Commercial disappearance of dairy products during the first eleven months of 2009 totals 174.2 billion pounds, 1.3% below the same period in 2008. Comparing disappearance levels with year earlier levels: butter is -8.6%; American cheese, +3.1%; other cheese, +1.4%; NDM, -3.8; and fluid milk products, +1.2%. CONSUMER PRICE INDEX (BLS): The December CPI for all food is 217.6, down 0.5% from December 2008. The dairy products index is 194.8, down 7.6% from a year ago. The following are the December to December changes for selected products: fresh whole milk is -12.8%; cheese, - 9.3%; and butter, -11.5%. FEBRUARY ANNOUNCED COOPERATIVE CLASS I PRICES (AMS): For February 2010, the all-city average announced cooperative Class I price was $20.01 per cwt., $2.53 higher than the Federal milk order (FMO) Class I price average for these cities. The February cooperative Class I price was $0.16 lower than the revised January price, while the Federal order Class I price was $0.19 lower. On an individual city basis, the difference between the Federal order and announced cooperative Class I price ranged from $0.50 in Phoenix, AZ. to $3.89 in Miami, FL. For February 2009, the all-city average announced cooperative Class I price was $15.88, $2.53 higher than the Federal order Class I price average for these cities. 1200C Steve Schneeberger (608)250-3204