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US COMMODITIES CORNER

Dairy prices down, but US market looking 'healthy'

By John Geuss , 15-Jan-2013

US dairy commodities blogger, John Geuss.
US dairy commodities blogger, John Geuss.

US dairy commodity prices dropped in December 2012, but low inventories and high exports have left the market still looking "healthy." US commodities expert and MilkPrice blogger John Geuss gave DairyReporter.com a breakdown of US dairy commodity price movements in the last month of 2012.

As expected cheese and butter prices declined bringing milk protein and milk fat prices down.

The Class III milk price was $18.66 per hundredweight (cwt), down from the last two months, but still good.  Very importantly, the fundamentals of high exports, low inventories, and favorable exchange rates indicate a healthy market.

The component prices continue to tell an important story.

 Protein fell, but remained strong at $3.31 per pound (lb).  Butterfat fell to $1.73 per lb approaching its longer term level of $1.50.  Other Solids actually increased to $0.48 per lb continuing to show strength that may represent a new long term higher value. 

After the October and November record prices, December's price was a significant drop.

The December price of $18.66 per cwt was not a record, but it was a good price.  The extremely high December, 2007 price was clearly better, but this month's price is still one of the best prices for the month of December.

The component values that make up the Class III milk price of $18.66 per cwt was based on the continuing dominant value for milk protein, a declining value of butterfat, and a very significant value for other solids. 
Cheese and whey from cheese making currently make up 68% of the milk check.  A dairy producer really needs to emphasize milk protein to maximize his income.

The dominant relationship of cheese on Class III milk prices continues. The correlation of 96% confirms this relationship.However, there is one detail that is shifting.  While the correlation continues to be strong, the price of Class III milk is more positive than the relationship would predict for Class III milk prices. (The blue line in the chart below has changed from being below the yellow cheese line to being above it.)  

This reflects the increasing value of whey, and therefore other milk solids, over the last 4 years. 

For part two of John's monthly commodities update, and "expected changes" in January 2013, visit www.dairyreporter.com  on Wednesday 16 January 2013.

You can also see John's month-to-month dairy commodities breakdown at his blog, MilkPrice .

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