Updating a story from last week; Dairy Profit Weekly reports that the California Department of Food & Agriculture (CDFA) denied a hearing petition to consider modifying the California Class 4a milk price formula. California Dairies, Inc. (CDI) had proposed an increase in the “make allowance,” the amount processors can deduct from the minimum milk price paid to producers to cover manufacturing costs. CDI also asked that the “f.o.b. adjuster” for butter be lowered.

Using the same argument it used when denying an earlier request from producer groups to consider a hearing to modify the California Class 4b whey factor, CDFA said the current Class 4a pricing formula was last adjusted Sept. 1, 2011, and the short 4-month period did not warrant another change.

One producer group, the California Dairy Campaign, submitted a letter opposing the Class 4a hearing. Another letter, signed by representatives of Land O’Lakes, Dairy Farmers of America, Security Milk Producers, Western United Dairymen, the Milk Producers Council and the California Dairy Campaign, requested the scope of the CDI request be expanded to reconsider the earlier Class 4b petition. For details, log on to www.cdfa.ca.gov/dairy/dairy_hearings_matrix.html

Whey is the bright spot in the domestic and global dairy market, according to FC Stone Dairy Economist Bill Brooks. Speaking in Tuesday’s DairyLine radio program, Brooks said there was positive news on the grains side of things for dairy producers as corn and soybean meal futures prices are down so that will be a reprieve on feed costs but not so good for those farmers who sell corn.

Cheese prices haven’t seen a lot of change and have bounced around some, Brooks said. Prices attracted buyers, but that hadn’t moved futures prices much. Milk prices are below what they were a year ago, he said, but costs are still high so they’re not real excited about selling.

Buyers aren’t excited about those prices either, according to Brooks, and feel there may be some downturn ahead because we are in first quarter and we’ll see more milk coming on, anticipating the seasonal downturn in cheese markets.

Whey, on the other hand has been like a rocket ship, Brooks said, continuing to work its way higher as new contracts came into effect for the First Quarter. Western and Central mostly prices topped 70 cents per pound and approach levels not seen since 2007, Brooks reported. It still has a ways to go to hit the record, but he doesn’t see anything that would cause that price to turn around. That’s also lending support to the Class III market, according to Brooks, as the value it adds to the Class III price is over $2.

Meanwhile, cheese production has slowed as less milk is available with Class I needs returning to normal after the holidays, according to USDA. Demand for cheese is being fed by increased retail orders for NFL playoff parties. Processors are increasing purchases as normal operations resume after the holidays.    

Cash cheese prices at the Chicago Mercantile Exchange headed down in the Martin Luther King Day holiday-shortened week as the markets anticipated Friday afternoon’s December Cold Storage report. The blocks closed that Friday at $1.5050 per pound, down 9 cents on the week and 2 cents below a year ago. The barrels rolled 4.75 cents lower, to $1.5025, three-quarter cents below a year ago. Thirteen cars of block traded hands on the week and nine of barrel. The lagging NASS-surveyed U.S. average block price averaged $1.5724, down 0.9 cent. The barrels averaged $1.6081, up a half cent.

Spot butter also dropped the third week of the New Year, closing Friday at $1.57, down 4.25 cents on the week, and 53 cents below a year ago. No butter was sold in the spot market all week. NASS butter averaged $1.5828, down 1.9 cents. NASS nonfat dry milk averaged $1.4151, down 0.1 cent, and incredibly, dry whey jumped another 2.3 cents, to 70.2 cents per pound.

Churning schedules across the country are active, according to USDA, but lighter than during the recent yearend holiday period. Cream supplies are often more available to the churn than anticipated. Class II operations are once again absorbing cream supplies that were surplus to the churn during the holidays. Overall butter buying interest is fair at best. Orders being placed are for near term needs with upcoming Easter/Passover needs entering discussions. Most retailers are indicating that feature activity will be limited until possibly the Easter/Passover holiday in early April.

Looking “back to the futures;” the Class III milk price average for the first six months of 2011 stood at $17.16 per cwt. on Dec. 2, $16.84 on Dec. 9, $17.07 on Dec. 16, $17.04 on Dec. 23, $17.60 on Jan. 6, $17.28 on Jan. 13, and was averaging $16.85 late morning Jan. 20.

The February 2012 Federal order Class I base milk price was announced Friday at $17.03 per cwt., down $1.77 from January, but $1.14 above February 2011, and equates to about $1.46 per gallon. Analyst Alan Levitt says an MILC payment of around 15 cents to producers is possible, but we won’t know for five weeks.

The two-week NASS-surveyed butter price averaged $1.5893 per pound, down 1.9 cents from January. Nonfat dry milk averaged $1.4155, down 2.6 cents. Cheese averaged $1.6052, 20.5 cents, and dry whey averaged 69.15 cents, up 3.7 cents.

Another bright spot is in the export picture. One of the things often cited for improving the U.S. economy is increasing exports, and dairy continues to do its part, according to Dairy Profit Weekly Editor Dave Natzke in Friday’s DairyLine. USDA recently released November trade estimates, noting high, and in some cases record-high, monthly and annual dairy exports. The value of November 2011 U.S. dairy exports topped $400 million for the ninth consecutive month, Natzke reported, pushing the year-to-date (Y-T-D) total to nearly $4.5 billion. 

Through the first 11 months of 2011, dairy exports were up 30 percent compared to the same period in 2010. USDA estimated YTD dairy imports at under $2.7 billion, yielding a 2011 dairy trade surplus of nearly $1.8 billion. 

November exports represented about 14 percent of total dairy solids production for the month, compared to imports representing just 2.9 percent. Based on volume, dry whey, nonfat dry milk and skim milk powder remain the leading dairy products exported, although Cheddar, other cheese, and butter are trending ahead of the past 3-4 years.

“And while Mexico remains the leading export market for U.S. dairy products, Southeast Asia, China, Japan and South Korea are showing strong gains,” Natzke said, “With exports to China up 59 percent from the previous year, and sales to South Korea up 81 percent.”

Improved trade isn’t limited to dairy products. U.S. dairy heifers remain in strong demand, with November exports topping 6,000 head for the fifth month in 2011, and brought the YTD total to more than 66,600 head, compared to less than 38,000 head for all of 2010.

At nearly 48,000 head, Turkey is the leading market for U.S. dairy heifers, representing about 72 percent of all dairy heifer exports. Mexico remains the second-leading U.S. dairy heifer market, at more than 10,500 head.