Weekly Update -- Alliance of Western Milk Producers

Commodity Prices used in California Formulas:

Friday price Weekly average

$/lb change $/lb change

CME Butter 1.3225 -.0125 1.3300 -.0020

CME Block Cheese 1.9500+.0200 1.8490 -.1645

CME Barrel Cheese* 1.9000 -.0975 1.8475-.2540

California plant NDM does not apply 1.7705-.0434

Western Dry Whey (mostly)** does not apply .4350 -.0075

Whey Protein Concentrate 34%** does not apply 1.2400 -.0075

*Barrel cheese is not used in California formulas but is an important part of the Federal Order pricing and therefore is included here.

**Dry Whey and WPC 34 are not used in California formulas. The appropriate valuation of whey in the California 4b formula is a topic of great interest. Thus, we will report and comment upon these values for the foreseeable future.

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Cheese – what a week!

After a near record drop last week and continued drops early in the week Block cheese had a great Friday posting a 14.5 cent increase closing at $1.95 after hitting bottom at $1.805 on Wed. Barrel followed a similar route dropping 22.5 cents on Tue to a low of $1.77 and then climbing a total of 13 cents on Thu and Fri to close at $1.90. The strength of this market is derived from demand in Europe where cheese prices are reported at $2.50 per pound. An interesting market comment note from DMN is that Australia has been importing US cheese to meet demand there.

Nonfat Dry Milk – CWAP slips to $1.77 on better (but not great) volume.

DMN reports have the bottom of the ‘mostly’ price dropping yet another 10 cents to $1.55 and the top has dropped 5 cents this week. The higher volumes reported this week are somewhat encouraging but comment from Europe is that their production is going up a bit and that they have to lower prices to meet the offerings from other areas. Prices quoted in Europe range from $1.63 to $1.72. The price adjustment is not over yet. And prices of NDM must be in the area of $1.60 per pound to be of interest to the cheese plants – if their prices stay at the current $1.90 range.

Whey products – lower and trending down

There is a continuing disconnect between NASS reported Dry Whey prices and all other reporting. NASS prices are up just a bit (+.32 cents to 45.84 cents) but DMN reports prices are down and inventories up both here and overseas. The Dry Whey futures market does not believe these price levels can be maintained next year. April 08 contracts dropped to 31.75 cents this week before rallying to 34 cents. The average futures price for 2008 is now down to 36 cents which is a far cry from the commonly projected value of 50 to 60 cents for the year. WPC continues its protracted slide losing 3/4ths of a cent this week. There is nothing in these reports to make me believe the market has found a bottom yet.

Butter – continues steady

Butter continues to trade in a narrow range.

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Corn Con: Energy bill signed this week

With much excitement and hoopla the Energy bill with its huge increases in mandatory ethanol (made from corn) usage requirements was signed. It is hard to understand how something like this gains, and continues to have, such tremendous political momentum. The questioning of the logic behind using food for fuel is widespread but that seems to have had no impact on the debate. Let us hope that the emergency escape provisions reportedly included in this bill are well written.

Production Report: California up 5.5% = 6.1 million lbs per day

The increase in November over the same month last year is 6.1 million pounds of milk per day in California . All ten of the biggest dairy states have gains in production. Of these, the biggest percentage gains were in Texas (+7.9%) and Michigan (+7.6%) but their daily increases did not even equal half of the increase in California volume. Forty percent of the gain in the top ten states is in California . For the first 11 months of this year the average daily increase in California over the previous year is 5.1 million pounds.

Whey Formula Committee announced – first meeting on Dec 28

The names of the 14 members of the Special Whey Formula Committee have been named this week. These people were chosen from among those nominated by various organizations in the state. Representing the producers are 5 dairymen (Scott Magneson – CDC; Tony Mendes CDI; Ray Souza – WUD; Sean Tollenaar - DFA and Geoffery Vanden Heuvel - MPC), one Coop manager representative (Tom Wegner – LOL) and one Association Manager (that would be me). Representing processors are six representatives of cheese making companies (Andrew Branagh – Mozzarella Fresca; Scott Hofferber – Farmdale Creamery; John Jeter – Hilmar Cheese; Mike McCully – Kraft Foods; Sue Taylor – Leprino Foods; Joe Paris – Joseph Gallo Farms) and one Association Economist (Bill Schiek – Dairy Institute).

The first meeting will be held on Friday, Dec 28th at the Department of Agriculture, 1220 N Street, Sacramento at 10:00 a.m. According to the agenda, the meeting will be over at 2:30 p.m. As noted last week the meeting is open to the public.

Health Care proposal passed by Special Session Assembly

The bill has been named The Health Care Security and Cost Reduction Act. It passed the Assembly handily but still must get through the Senate which will not act on it until after the first of the year. After passing there it will be voted on by the people of California as an Initiative on the November 2008 General Election ballot. You will be hearing a lot about this between now and November. Nothing on water issues yet.

Export education: more factoids

As of 2006 Asia is the world’s largest milk production region and accounts for 34% of world production. India is the largest milk producing country in the world. The production of milk in China is increasing at an incredible rate (but the demand for milk in China is growing even faster)

In contrast, the total production of milk in Oceania ( New Zealand and Australia ) is only 4% of world total production, BUT the area makes up 33% of world trade. California by way of comparison makes up 3% of world production. We’ll consider how we fit into the world export scheme of things over the next few weeks.