Class III futures prices (nearby contract) have gone up 28 cents since July 30. Does any of it have to do with the temporary price-support increase announced by the USDA at end of July?
“Not really,” says Dave Kurzawski, dairy broker with Downes-O’Neill.
“I think the market was already in an advance prior to (the USDA) announcing that,” Kurzawski says. The advance has been predicated on supply-and-demand fundamentals, he adds.
The government announced that it would temporarily increase the price paid for nonfat dry milk from 80 cents to 92 cents per pound, the price paid for cheddar blocks from $1.13 per pound to $1.31 per pound, and the price of cheddar barrels from $1.10 per pound to $1.28 per pound.
Kurzawski says it will take a month or two to determine what effect, if any, the USDA announcement will have on Class III milk prices. It’s “highly unlikely,” he adds, that anyone will be selling cheese to the government between now and Oct. 1.
“Cheese manufacturers, historically, have had little interest in selling cheese to the government, and I don’t think the $1.31 (support) price is high enough for them to change that opinion,” he says.
The support price for cheese only has an impact on the National Agricultural Statistics Service dairy product price survey, which determines class and component pricing for milk, if cheese is actually sold to the government.
Last week, we suggested that the temporary hike in dairy price supports, announced by the USDA on July 31, could potentially raise Class III milk prices by $1.80 per hundredweight. Well, we blew it!
A week later, it looks like the USDA announcement may only have a psychological effect, at best. Supply-and-demand market forces will be the main determinant of dairy prices rather than a temporary hike in price supports.
Fortunately, supply-and-demand market forces seem to be taking us to higher prices on their own. But don’t tell that to the government bureaucrats. They will try to take the credit regardless. — Thomas Quaife, editor