MD_DA950 DY, DAIRY MD DA950 NATIONAL DAIRY MARKET AT A GLANCE FEBRUARY 3, 2012 MADISON, WI (REPORT 5) CME GROUP CASH MARKETS (02/03): BUTTER: Grade AA closed at $1.4925. The weekly average for Grade AA is $1.4980 (-.0600). CHEESE: Barrels closed at $1.4950 and 40# blocks at $1.4850. The weekly average for barrels is $1.4925 (+.0055) and blocks, $1.4965 (- .0095). BUTTER HIGHLIGHTS: The CME cash butter price continues to decline and settled at $1.4925 at week's end, the lowest cash price since late March 2010. Churning activity across the country remains strong as cream supplies are reported to be plentiful to the churn. Although cream supplies are plentiful, some cream handlers report that dispersal of the cream this week was not as hectic as last week. In many instances, churns were running at or very near capacity levels. With churning as active as it is, butter volumes are generally surpassing demand, thus clearances to inventory continue. Commercial butter demand is fair at best. Many buyers are fully aware of the weak trend in the CME cash butter price and are hesitant to place large orders in a declining market. International sales have also been limited, but early this week, Cooperatives Working Together (CWT) announced the acceptance of export assistance requests for nearly 11 million pounds of 82% unsalted butter for shipment now through June 2012. The announcement also included cheese assistance with the destinations for the various dairy products being: Asia, Europe, the Middle East, and Northern Africa. This is the first butter export assistance since October 2010. CHEESE HIGHLIGHTS: Cheese prices were uneven this week. Early trading was steady to weak, with Friday's trade steady to higher. Last week's late week activity at the CME Group was followed this week with another flurry of activity on Friday. Friday's close again saw active trading, although this week it was blocks with 10 sales reported at steady prices. Mild winter weather across much of the country is helping to increase milk production and thus more milk is finding it's way to cheese factories. Inventories are building as sales are reported slow after the New Year. CWT is accepting requests for export assistance and helping to move some excess inventories. Lower prices have increased interest from aging operations, although buyers are reported cautious as they attempt to find the low price. FLUID MILK: Mild weather patterns across the country are contributing to stable or stronger milk output. In most regions, the winter season has been much less stressful on the milking herd and increasing milk receipts at processing facilities are being reported. Except for Florida, milk volumes are building to the point from coast to coast that milk is not moving from one region to another to supplement shortages. Milk volumes are increasing, but processing capacity is generally sufficient within close proximity of production at this time. Some milk handlers are already looking forward and questioning processing capacity during the upcoming spring flush. Cream markets are weak and pricing multiples are easing. Cream volumes are heavy and often clearing from one region to another to find processing capacity. Producers of higher-class cream product items are seeing declines in finished product orders after a recent boost from football related interest, thus more cream is available to churns from coast to coast. DRY PRODUCTS: Market tones for many manufactured dairy products are weak with prices generally lower. Nonfat dry milk markets are weak with prices unchanged to generally lower from coast to coast. Trade contacts expect the price adjustments in NDM markets to continue as producers use lower prices to move any uncommitted stocks. Drying schedules are increasing to process the added milk supplies in many areas of the country. Some powder producers are generating high heat powder at this time due to capacity availability, before heavier spring flush milk volumes limit high heat production capabilities. Buttermilk powder markets and prices are weak. Buttermilk volumes across the country are increasing as churnings schedules are strong. Condensed buttermilk sales are limited, thus drying schedules are increasing. Stocks of buttermilk powder are moderate to heavy and building. Whey powder markets are weak with prices unchanged to lower across the board. Milk production increases are leading to increased cheese and dry whey production. Whey sellers are looking at their inventory holdings and feel that this may be a good time to reduce inventories. Some are looking to international markets for this reduction possibility. Lactose and whey protein markets are more stable and prices are holding. INTERNATIONAL DAIRY MARKET OVERVIEW (DMN): The Oceania milk production season continues to trend lower, although not at an accelerated pace. Milk producers and handlers in both Australia and New Zealand indicate that milk volumes are maintaining levels on the downside of production that are welcomed. In New Zealand, weather patterns are quite favorable for good milk production at this time of the annual production cycle. Milk handlers continue to project a 3 - 4% annual increase over last season, with some milk handlers now adjusting their estimates to a strong 4% plus increase. In Australia, fluctuating weather patterns are not having an overall negative impact on milk output. Milk producers and handlers are indicating that milk volumes are lower, but maintaining levels that are often higher than projected. In recent weeks, short periods of hot temperatures are eased by cooler temperatures and period of moisture are followed by sunny days, which is having minimal negative impact on overall milk production on the downside of the season. The Gippsland region of Victoria continues to struggle with very wet conditions which are limiting milk output this season. Through December, cumulative milk production in Australia, for the first half of the fiscal year, is running 3 1/2% ahead of the previous year. Australian producers continue to project a 2 - 3% annual increase when the current fiscal year ends in June. Current favorable milk receipts are causing some milk handlers to project annual volumes to be at the upper end of projections, but they also indicate that a lot of negative factors could come into play during the final 6 months of the season that could potentially reduce favorable optimism. Manufacturers and handlers are indicating that stocks are basically fully committed and order books are in a strong position. During the g/DT auction #61 on February 1, all contract average prices were lower. Milk production across Western Europe countries is steady to trending higher over the past few weeks. Many countries are seeing milk output at levels above a year ago for the similar period. Reports are noting that milk volumes were higher in December versus year earlier for: Germany, France, Austria, Netherlands, and the United Kingdom. In Germany and other Western European countries, current, bitterly cold temperatures are being recorded. Farmers and processors are monitoring the situation to see what effects the conditions are having on milk cows and production. Milk prices have remained relatively high. Feed prices have stabilized and the positive margins are creating opportunities for milk growth. Plant capacity is adequate to handle the planned manufacturing of the product mix. The Euro has strengthened over the past two weeks and has begun to close down some export opportunities that had opened. The next European Dairy Commission meeting will be February 16. Private Storage Assistance (PSA) program will open on March 1. The Commission will announce pricing and volume at the February 16th meeting. Expectations are that butter will be entered into PSA upon the opening. Cold weather conditions are prevalent over much of Eastern Europe. The impact on milk production is being assessed, but many handlers expect milk receipts to decline. Milk production was higher than a year ago in December in Poland with the yearly total surpassing year ago levels. Dairy product demand is fair for the current, seasonally limited offerings across the finished product spectrum. More whey powder offerings are being made into export channels as pricing levels are favorable for international buyers. DECEMBER 2011 DAIRY PRODUCT HIGHLIGHTS (NASS, ASB): During December 2011, butter production was 165.9 million pounds, 5.2% above December 2010 and 8.9% above November 2011. American type cheese output totaled 370.7 million pounds, 1.2% above December 2010 and 5.6% above November 2011. Total cheese output (excluding cottage cheese) totaled 929.5 million pounds, 2.4% above December 2010 and 4.2% above November 2011. Nonfat dry milk production, for human food, totaled 150.2 million pounds, 8.0% above December 2010 and 24.8% above November 2011. Skim milk production totaled 36.6 million pounds, 34.6% more than December 2010, but 7.6% less than November. Dry whey production, for human food, was 77.4 million pounds, 8.0% below December 2010, but 7.0% above November 2011. Hard ice cream production totaled 50.3 million gallons, slightly below December 2010 and 3.8% below November 2011. OVER ORDER CHARGES ON PRODUCER MILK IN FMMOS (DAIRY PROGRAMS): For November 2011, the all reporting areas combined average over-order charge on producer milk used in Class I was $2.15 per cwt., down $0.03 from the October 2011 average. Ninety percent of the producer milk used in Class I carried an over-order charge. On an individual order basis, Class I over-order charges ranged from $0.80 in the Pacific Northwest to $3.00 in the Appalachian Order. For producer milk used in Class II, the all reporting areas combined average over-order charge was $1.13 per cwt., down $0.05 per cwt. from the October 2011 average. Seventy-five percent of the producer milk used in Class II carried an over-order charge. JANUARY 1 MILK COW INVENTORY SUMMARY (NASS, ASB): The number of milk cows in the United States as of January 1, 2012, totaled 9.2 million head, up 1% from January 1, 2011. Milk cow replacement heifers totaled 4.5 million head, down 1% from a year ago. The number of milk cow replacement heifers per 100 milk cows on January 1, 2012 was 49.0, down 1.8% from last January. Milk cow replacement heifers expected to calve during the year totaled 3.03 million head, down 1% from January 1, 2011. JANUARY AGRICULTURAL PRICES HIGHLIGHTS (NASS, ASB): The All Milk price received by farmers was $19.20 in January, down $0.60 from December 2011 and up $2.50 from January 2011. Milk Cows price was $1,460 in January, up $160 from January 2011. Alfalfa hay price was $192.00 in January, up $71.00 from January 2011. Corn price was $5.90 in January, up $0.96 from January 2011. Soybean price was $11.70 in January, up $0.10 from January 2011. The milk-feed price ratio was 1.77 in January, down 0.19 from January 2011. The index of prices received by farmers for dairy products decreased 5 points during the month of January 2012 to 147. Compared with January 2011, the index was up 19 points (14.8%). The index of prices paid by farmers for commodities and services, interest, taxes, and wage rates in January 2012 increased 2 points to 207. Compared with January 2011, the index was up 12 points (6.2%). CLASS AND COMPONENT PRICES (DAIRY PROGRAMS): The January Class II, III, and IV prices and changes from December are: Class II $17.67, -$0.41; Class III $17.05, -$1.72; and Class IV $16.56, -$0.31. Under the Federal milk order pricing system, the butterfat price for January 2012 is $1.7178 per pound. Thus, the Class II butterfat price is $1.7248. The protein and other solids prices for January are $2.7326 and $0.5032 per pound, respectively. These component prices set the Class III skim milk price at $11.44 per cwt. The January Class IV skim milk price is $10.93 which is derived from the nonfat solids price of $1.2141 per pound. The product price averages for January are: butter $1.5900, nonfat dry milk $1.3942, cheese $1.6097, and dry whey $0.6876. 1200c steve Schneeberger (608)278-4154