GENERAL OVERVIEW:
Nearby Class III futures took a beating despite no change in the block cheese price. Class IV futures did not decline as much as would have been expected in response to the decline in butter and nonfat dry milk. Dairy manufacturers are spending $11 billion on new and expanding dairy manufacturing projects.
MILK:
Class IV milk futures cannot catch a break with further weakness in butter and nonfat dry milk. Milk production is decreasing, leaving less extra milk available for bottling and manufacturing. Milk production seasonally decreases during this time of year, leaving this as no surprise. However, less milk output results in less milk being available on the spot market. Spot milk prices in the Central region are flat to $5.00 over Class. Some plants have opted to reduce production schedules rather than pay the higher price for spot milk to keep plants running full. The bearish implications of the June Milk Production Report may limit the upside potential for prices. Even though production has declined due to increased temperatures, milk output is expected to remain above a year ago. The June report showed only two of the top 24 states with reduced milk production in June compared to a year ago. Virginia declined 0.9 percent, and Washington declined 0.4 percent. I think this is the first time I have seen only two states posting declines. The state with the largest increase was Kansas, up 16.7 percent. The second-largest percentage gain was Oregon, with an increase of 8.1 percent. Georgia increased 5.8 percent, South Dakota increased 5.6 percent, and Colorado increased 5.1 percent. The rest of the top 24 states showed increases of less than 5.0 percent.
AVERAGE CLASS III PRICES:
| 3 Month: | $17.02 |
| 6 Month: | $17.39 |
| 9 Month: | $17.43 |
| 12 Month: | $17.47 |
CHEESE:
The inability of the block cheese price to increase today increased the caution of traders. Buyers may not be willing to continue to bid aggressively to purchase supplies, seeing that milk production remains strong. Higher milk production provides confidence that supplies will be available during the higher-demand period. Once buyers' needs are satisfied, they may pull back to purchase less aggressively and at lower prices.
BUTTER:
The butter price has moved to the bottom end of the trading range. Cream supplies have decreased but are sufficient to maintain the demand from manufacturing plants. Some plants are focusing on unsalted butter production to prepare for the increase in demand for baking during the fall and holiday season. The June Cold Storage Report will be released tomorrow. Butter stocks are expected to be lower than the previous year, indicating good demand.
OUTSIDE MARKETS SUMMARY:
December corn closed up 2.75 cents per bushel at $4.8750, November soybeans closed up 4.75 cents at $12.4375, and December soybean meal closed down $1.00 per ton at $331.90. September Chicago wheat closed down 9.50 cents at $6.9625. October live cattle closed up $2.18 at $221.38. September crude oil is up $5.40 per barrel at $92.23. The Dow Jones Industrial Average is down 507 points at 51,712, with the NASDAQ down 553 points at 25,138.
