MD_DA950 DY, DAIRY MD DA950 NATIONAL DAIRY MARKET AT A GLANCE November 20, 2009 MADISON, WI (REPORT 46) CME GROUP CASH MARKETS (11/20): BUTTER: Grade AA closed at $1.5250. The weekly average for Grade AA is $1.5250 (N.C.). CHEESE: Barrels closed at $1.5000 and 40# blocks at $1.6000. The weekly average for barrels is $1.4540 (-.0200) and blocks, $1.5860 (+.0150). BUTTER HIGHLIGHTS: The cash butter price at the CME continues to hold steady at $1.5250. Churning activity across the country is trending lower as milk volumes decline and cream becomes more competitive. Cream supplies are tightening to the point that cream is moving westward from the Central part of the country. Some butter producers are anticipating that cream supplies will increase during the upcoming week when some Class II operations reduce production schedules for the holiday period. Butter stocks are reported to be in balance with current and near term needs. Most suppliers indicate that the year end holiday period is pulling heavy volumes of print butter. Especially this week, retail promotions are prevalent in print ads with various locations featuring 1 pound prints under $1.00 per pound. Recent promotions and current activities are projected to clear heavy volumes of print butter. Butter stocks are generally sufficient for current and yearend needs. Traders and handlers continue to report international buyer interest. Some butter handlers will be filling this interest before years end with others anticipating to become more active in 2010. CHEESE HIGHLIGHTS: CME Group cash cheese prices were mostly steady until Friday (11/20) when blocks closed at a 2009 annual high of $1.60 per pound and barrels increased to $1.50. Current cheese supplies are adequate. Natural packagers have been using overtime to fill orders though some time used is to build stocks ahead of next week's holiday shortened schedules. Barrel offerings are heavy with process interest seasonal. Bulk cheese needs will generally be lighter next week. Strong milk interest from bottlers was reducing volumes entering cheese vats. However, after fluid demand slows early next week, more will return to manufacturing. According to FAS, cheese and curd exports for the first nine months of 2009 total 170.6 million pounds, down 58.7 million pounds (6%) from the same period in 2008. Total quota imports of cheese for the first ten months of 2009 total 163.9 million pounds, up 13% from 2008 and are 55% of the annual quota. Imports of High-Tier cheese (above quota and with a penalty) for the ten months total 19.3 million pounds, 70% of the volume during the same period last year. Thus far in 2009, 1054 loads of blocks and 520 loads of barrels have been sold on the CME Group cash cheese market, the largest combined total for any year of trading at the CME Group. FLUID MILK: Milk volumes across the country this week continue to be lower than most desire. Most milk handlers anticipate that they will have no problem in processing milk volumes over the upcoming holiday period. Class I demand is strong this week which is typical for the period prior to a holiday. For Thanksgiving bottled milk demand is often more active due to the timing (4 days) of the holiday versus the yearend holidays which are spread out over a longer period of time. Most schools will recess by Wednesday which will also provide additional milk volumes for manufacturing. Cream markets remain firm and supplies are competitive. Milk production is lower in the Western part of the country, thus cream is moving from the Central part of the country to supplement Western shortages. Churning activity is dependent on cream availability and often lighter than desired. Cream suppliers and handlers are anticipating that tight cream supplies will ease during the coming week when Class II operations reduce production schedules and, in some instances, shutter their operations for a few days. DRY PRODUCTS: NDM markets remain generally firm with prices unchanged to higher. There are some sellers that are indicating that it is harder to move loads at higher prices; whereas others are still shorting contract customers. Drying schedules are often lower this week as Class I demand is strong prior to the upcoming holiday period. NDM stocks are limited and often fully committed. Buttermilk powder markets and prices are firm. Buttermilk production varies from coast to coast, fully dependent on cream availability and churning schedules. Basically, buttermilk stocks are light with some powder moving from one region to another to fill demand. Whey powder markets are steady to firm with prices generally higher. Whey powder stocks are often limited with buyers in the Eastern and Western parts of the country looking to the Midwest for spot availability. Casein markets remain firm with prices firm. Stocks of casein are available to regular and ongoing customers, but suppliers indicate that will have minimal, if any, available for spot or additional buyer interest. The Commodity Credit Corporation (CCC) is seeking competitive offers to buy up to approximately 1 million pounds of CCC owned nonfat dry milk for the manufacture of edible rennet or acid dry casein or caseinate. Offers are due by December 1, with notification to successful offerors by December 2. ORGANIC DAIRY MARKET OVERVIEW (DMN): Advertised prices for organic fluid milk in half gallon containers predominated newspaper weekly special advertising among all products within the entire category of organic milk and dairy products. Even so, only about 25.6% of ads surveyed contained advertising for organic fluid milk or products, down from 35% 2 weeks ago. However, ads for organic milk, separate from ads for organic dairy products, appeared in only 3 of the 6 surveyed regions: the Northeast; the Midwest; and the Southeast. There were no ads for organic milk this period in surveyed ads appearing in the Northwest, the Southwest, and South Central Regions; unlike last period when fluid organic milk was advertised in surveyed ads in all regions. However, all regions contained ads for at least 1 type of organic dairy product, even if organic milk was not advertised. In contrast, surveyed ads in all 6 regions contained advertising for non-organic milk this period. The range of prices for organic half gallons compressed from last period, with the bottom of the range increasing 10 cents to $2.59 and the top of the range falling 10 cents to $3.89. The weighted average advertised price this period increased 24 cents to $3.35. The second most advertised organic dairy product last period with 541 ads, 1 pound boxes of butter, increased in number this period to 658 ads. Prices ranged from $3.89 to $5.89, with the weighted average advertised price being $4.16, down from $4.44 last period. However, a significant increase in ads for organic yogurt in 6 ounce and 5.3 ounce containers totaling 811 ads this period, claimed the number 2 spot. All 6 ounce yogurt was advertised at 60 cents and the 5.3 ounce yogurt, which was Greek Yogurt, was all advertised at $1.00. The overall result this period is an increase in numbers of ads for organic butter and yogurt while organic milk ads declined in number and geographic scope. OCTOBER MILK PRODCUTION (NASS): Milk production in the 23 major states during October totaled 14.3 billion pounds, 156 million pounds (-1.1%) lower than October 2008. Production per cow in the 23 states averaged 1,721 pounds for October, 21 pounds (1.2%) above October 2008. The number of milk cows on farms in the surveyed states were 8.3 million head, 196,000 (-2.3%) less than last October and 26,000 head less than September. OCTOBER PRICE AND POOL SUMMARY (DAIRY PROGRAMS): During October, about 10.0 billion pounds of milk were received from producers. This volume of milk is 13.1% higher than the October 2008 volume. In October 2008 and October 2009, there were significant volumes of milk not pooled due to intraorder disadvantageous price relationships. About 4.0 billion pounds of producer milk were used in Class I products, 0.1% higher than the previous year. Calendar composition likely had a positive impact on milk used in Class I in 2009 as compared to 2008. The all- market average Class utilization percentages were: Class I = 40%, Class II = 13%, Class III = 40% and Class IV = 7%. The weighted average statistical uniform price was $13.62, $0.99 higher than last month, but $3.61 lower than last year. FEDERAL MILK ORDER ADVANCE PRICE HIGHLIGHTS (DAIRY PROGRAMS): Under the Federal milk order pricing system, the base price for Class I milk for December 2009 is $13.99, up $1.13 from November. This price is derived from the Class III skim milk pricing factor of $9.31 and the advanced butterfat pricing factor of $1.4310. Class I differentials specific to each county are added to the base price to determine the Class I price. The Class II skim milk price for December is $9.14 and the Class II solids price is $1.0156 per pound. The following are the two-week product price averages: butter $1.3532, nonfat dry milk $1.1147, cheese $1.5113, and dry whey $0.3452. DAIRY OUTLOOK (ERS): Dairy cow numbers are expected to continue to decline throughout 2010. The U.S. dairy cow herd is expected to average about 2% smaller in 2010 than 2009; this contraction comes on the heels of an expected 3% herd reduction in 2009 compared with 2008. Year-over-year milk per cow is expected to move toward trend level increases as a result of a gradually improving milk-feed price ratio. Corn prices fell in 2008/09 to average $4.06 a bushel and are expected to moderate further to average $3.25- $3.85 in 2009/10. Soybean meal prices averaged $331 a ton in 2008/09, but are forecast to decline this year to average $250-$310. Alfalfa prices are expected to decline in 2009 from 2008 and will likely remain moderate next year. The decline in feed prices combined with higher milk prices will improve the milk-feed profitability ratio, but not to a level that signals expansion. The improving returns outlook show support for rising yields per cow over the course of 2010, raising production per cow to 20,950 next year after increasing to a projected 20,570 in 2009. On balance, however, there will be less milk next year as production is forecast at 187.7 billion pounds, a 0.8% slide from the expected 189.1 billion pound production in 2009. Production in 2009 is forecast to decline from 2008 and will be the first decline since 2001. Rebounding global demand is contributing to the improved price outlook. World demand, especially for butter and powder products, is improving the export outlook on both a fats and skim-solids basis. An improved outlook for economic recovery in the rest of the world, especially in Asia, combined with lower-than-forecast milk production from Oceania, form the basis for the robust export forecast. Stocks for cheese, butter, and NDM remain above year-earlier levels, according to the latest Cold Storage report. In fact, stocks for cheese have been above both 2007 and 2008 levels all year. Despite high stocks, prices continue to strengthen, especially for butter and NDM. The improved demand outlook and the prospect of less milk next year will tighten stocks over the course of 2010, strengthening prices across the board. Prices are forecast higher next year for all major dairy products. Forecasts for season average prices call for prices to climb for all dairy products.