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Milk futures a little nervous about supply

A mixed day in the dairy markets on Thursday, cash cheese continues to move higher, barrels on the Chicago Mercantile Exchange increased 2 cents to $1.32 per pound while blocks gained 1.75 cents to $1.35. But the futures markets backed-off as much as 31 cents most likely in reaction to the World Supply and Demand Report from USDA on Wednesday.

The Ag Department’s Outlook Board raised their milk production estimates for 2009 and 2010 citing slower-than-expected culling in the dairy herd. Of course you have to remember that culling slowed considerably when bids were being accepted for the two back-to-back CWT herd retirement programs and the latest has yet to remove the estimated 87,000 cows. Once those bids are confirmed, we could see a restart of culling beyond that as producers who were hoping to get into the program but didn’t, will have to liquidate their herds through traditional avenues. The report also lowered 2010 export estimates on thinking the higher support prices will make U.S. dairy products less competitive on the world market.

Cash cheese is now estimated to run $1.235 to $1.255 per pound in 2009, $1.51 to $1.61 in 2010
Thanks to the support increase, cash milk price estimates were raised for 2009 and reduced for 2010:

Class III milk $10.70 to $10.90 per hundredweight in 2009, $13.75 to $14.75 in 2010
Class IV milk $1.15 to $10.45 in 2009, $12.10 to $13.20 in 2010
All Milk $12.10 to $12.30 in 2009, $14.65 to $15.65 in 2010

USDA Ag Market News reports imports of high tier and quota cheese for the first six months of this year totaled 114.5 million pounds. Quota imports were 102.3 million pounds, 19.7% above a year ago although you may remember, last year Oceania was in the third year of drought and U.S. imports were almost non-existent. Imports of high tier cheese from January through June totaled 12.2 million pounds, down 35.4% from a year ago.

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