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US COMMODITIES CORNER

November prices remain high, but cheese suffers 'unusual' drop

By John Geuss , 11-Dec-2012

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

US cheese prices remain high at more than $2 per pound (lb), but are 'falling rapidly' - an unexpected result considering October's 'tight inventories.' US commodities expert and MilkPrice blogger John Geuss gave DairyReporter.com a breakdown of November's dairy commodity price movements.

The November Class and Component Prices  were announced on December 5. The Class III milk price of $20.83 per hundredweight (cwt) was down by only 1% from the October price of $21.02.  While both butter and cheese prices fell, protein remained high at $3.72 per lb.  

Because butter prices fell more than cheese prices, milk protein prices remained almost unchanged, down only 0.3%.  

The long term component price trends are shown below.  Milk protein continues to be valued well above the trend line at a value that represents historical highs, excluding the period in 2007/08 when protein was briefly priced above $4 per lb.

Butter prices did fall about 4%, but this has very little impact on the Class III milk price.    

'Other solids' have not had much impact on Class III milk prices in the past, but the high price of dry whey is making the value of 'other solids'  a critical part of the Class III milk calculation.  

The price of 'other solids' is determined by this formula - Other Solids Price = (Dry whey price – 0.1991) times 1.03.

In the month of November, cheese, butter, and dry whey, contributed the amounts shown in the table below to the Class III milk price.  By comparison, the contributions for November, 2009 are also shown. This illustrates the dynamics that are happening in dairy pricing.  

Over the last three years, the price of dry whey and therefore 'other solids' has steadily increased.  While cheese and butter prices have gone up by 33% and 32% respectively, dry whey has gone up 86%.

In November, 2009 'other solids' made up 6% of the Class III price but by November, 2012, 'other solids' made up 13% of the Class III price.  

Whey is being recognized more as a co-product than a by-product of cheese manufacturing and is establishing its value as a food product, not a by-product. This is a market dynamic that may be permanently shifting the Class III milk prices.  Assuming that it continues, it could have nearly a $2 per cwt positive impact on the Class III milk price.

Protein continues to dominate the Class III milk check and milk protein development remains key to a producer’s revenue.

For part two of John's monthly commodities update and a look ahead to December, visit www.dairyreporter.com on Wednesday 12 December 2012.

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

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