By LEE MIELKE

For the Capital Press

Milk production showed signs of leveling off at or near the seasonal peak in the Southeast and Mid-Atlantic regions.

Arizona had marginally lower production, caused by recent heat. California production was uneven; Florida was steady with the rest of the nation showing various degrees of increased milk production.

Coops in the Pacific Northwest are warning dairy producers of possible penalties, like those imposed in California, for excess milk above their established bases.

Processors across the nation are operating plants on extended schedules. The added volumes of finished dairy products are creating more supplies that are not readily clearing the market.

Demand for cream from ice cream plants has registered only slight improvement, according to USDA.

Milk production is strong the world over. The European production season is off to a strong start. Some handlers project peak output may only be 4 weeks away. Preliminary reports indicate volume is running 2.5-3 percent ahead of last year.

The Oceania milk production season continues to wind down but remains positive. New Zealand milk output is projected to be 9-10 percent ahead of last season and Australia up around 4 percent.

Speaking of the international market; FC Stone reported in its May 1 e-Dairy Insider Closing Bell that this week's Global Dairy Trade prices were mixed, but the trade-weighted average price for all products fell 2.4 percent.

Anhydrous milkfat plunged 13.6 percent, to $1.2937 per pound, or $1.037 per pound adjusted to 80 percent butterfat equivalent. Milk protein concentrate 70 prices dropped 11.7 percent to $1.8099 per pound.

Other product prices that moved lower include rennet casein, down 0.5 percent to $2.9008 per pound; skim milk powder, off 4.6 percent to $1.2383 per pound; and whole milk powder, down 2.2 percent to $1.2592 per pound. Only cheddar and lactose prices moved higher: The average price for cheddar rose 3.1 percent to $1.3336 per pound; and lactose advanced 3 percent to 91.45 cents per pound.

Back at home; increased milk production is being funneled to the churn and the dryer. March butter production amounted to 176 million pounds, up 3.9 percent from February and 6.4 percent above March 2011, according to USDA's latest Dairy Products report. Nonfat dry milk output hit 188.6 million pounds, up 9.7 percent from February and a whopping 49.9 percent above a year ago.

American cheese amounted to 382.3 million pounds, up 9.9 percent from February and 4.1 percent above a year ago. Total cheese production hit 946.3 million pounds, up 10.3 percent from February and 3.7 percent above a year ago.

While there are signs the nation's economy may be improving, the situation for U.S. dairy farmers appears to be headed in the opposite direction, according to Dairy Profit Weekly editor Dave Natzke in Friday's DairyLine.

He was referring to the April 2012 milk-feed price ratio in USDA's latest Ag Prices report. He said the ratio may be the lowest in almost two decades, even below June 2009, "when we saw extremely low milk prices and dairy producer income bottomed out, or more accurately, when economic losses were the greatest."

The index is based on the current milk price in relationship to feed prices for a ration of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. The higher hay and soybean prices, combined with lower U.S. average milk prices, sent the April milk-feed price ratio to 1.45, down from a revised estimate of 1.48 in March and 1.81 in April. At $16.90 per cwt., the U.S. average milk price is the lowest since January 2011, Natzke reported.

Corn prices averaged $6.14 per bushel in April, down 21 cents from March, but soybean prices rose to $13.80 per bushel, up 80 cents; and alfalfa hay prices rose $6 per ton to $207 per ton.

Looking back into USDA National Ag Statistics Service archives, Natzke found milk-feed price ratios frequently averaged 1.3 to 1.4 in the early 1990s. However, in some cases those ratios were revised up substantially a couple years later.

With milk prices headed lower, so are the prices dairy farmers are willing to pay for replacement cows, according to Natzke. USDA announced an April average of $1,440 per head, down $20 from the previous quarter. And, even though it's up slightly from a year ago, average replacement cow prices remain about 30 percent below their peaks in 2007 and 2008.

"There is some good news for dairy farmers who want to sell cows for beef," Natzke said. "The April average cull cow price reached a record high of nearly $85 per hundred pounds. That's up $6 from a year ago, and puts the beef value of a cull cow at more than $1,000."

The Ag Prices report also established the March Milk Income Loss Contract payment to producers at 82.62 cents per cwt. according to the University of Wisconsin's Dr. Brian Gould who expects MILC payments to top $1 into early fall. For complete details and Gould's future projections, log on to http://future.aae.wisc.edu/collection/software/current_MILC_est.xis

Cooperatives Working Together accepted 13 requests for export assistance this week to sell a total of 866,417 pounds of cheese and 1.57 million pounds of butter to customers in Africa, Asia, the Middle East and South America. The product will be delivered through July 2012 and raises CWT's 2012 cheese exports to 46.9 million pounds plus 40.8 million pounds of butter to 26 countries. On a butterfat basis, the milk equivalent of these exports is 1.322 billion pounds, or the same as the annual milk production of 62,950 cows.

The nation's benchmark farm milk price took a breather following four months of decline.

The Agriculture Department announced the April Federal order (FO) Class III price at $15.72 per hundredweight (cwt.), unchanged from March, but $1.15 below April 2011, $2.29 above California's comparable 4b cheese milk price, and equates to about $1.35 per gallon.

That put the 2012 Class III average at $16.14, down from $16.69 at this time a year ago, and compares to $13.62 in 2010 and meager $10.33 in 2009. The April Class IV price is $14.80, down 55 cents from March and $4.98 below a year ago.

Class III futures portend further declines in May and June and were trading late Friday morning as follows: May, $15.06; June, $14.19; July, $14.27; August, $14.73; September, $15.33; October, $15.45; November, $15.60; and December at $15.39 per cwt.

The AMS-surveyed cheese price averaged $1.5361 per pound, up 1.1 cent from March. Butter averaged $1.4634, up 2.9 cents. Nonfat dry milk averaged $1.2514, down 8 cents, and dry whey averaged 59.21 cents, down 1.9 cents.

The California Department of Food and Agriculture announced its April 4b cheese milk price at $13.43 per cwt., down 24 cents from March, 91 cents below April 2011 and as stated above well below the FO Class III.

Taking a quick look back, it has lagged the Class III from as little as 8 cents in February 2011 to as much as $3.63 in December 2011. The 4b 2012 average now stands at $13.69, down from $15.13 at this time a year ago, but above the $12.28 in 2010.

The 4a butter-powder price is $14.72, down 61 cents from March, the eighth consecutive month of decline, and $4.73 below a year ago. The 4a average now stands at $15.44, down from $18.22 a year ago but up from $13.23 in 2010.

Meanwhile; California's Farmdale Creamery has proposed a "new," but old alternative for consideration when a hearing is held on the state's 4b milk pricing formula, May 31-June 1.

Headquartered in San Bernardino, Farmdale said the value of whey used in determining the price farmers receive for milk processed into cheese should go back to 25 cents per cwt., as it was prior to adjustments made on September 1, 2011. Details are posted at CDFA's website.

The cash dairy markets don't portend much hope. The CME block cheese price finished the first week of May at $1.5350 per pound, unchanged on the week but 11 1/4-cents below a year ago. The barrels gained almost 7 cents to correct the spread with the blocks but gave some of it back and closed Friday at $1.47, up 3 1/2-cents on the week but 19 cents below a year ago and still 6 1/2 cents below the blocks. Eight cars of block found new homes on the week and 14 of barrel.

The lagging AMS-surveyed block price averaged $1.5030, down 0.2 cent. The barrels averaged $1.4904, down 1.3 cents.

Cheese production across the country is robust. Milk supplies are up and much of that production is finding its way to cheese plants. Excess milk volumes are often being discounted to encourage additional cheese manufacturing. Cheese inventories are building and this was reflected in the March Cold Storage data.

Cash butter fell for the sixth consecutive week and is now at the lowest level since February 2010, closing May 4 at $1.31, down a nickel on the week and 78 1/2-cents below a year ago. Thirteen cars traded hands on the week. AMS butter averaged $1.4268, down 1.3 cents. AMS Nonfat dry milk averaged $1.2180, down 2.4 cents, and dry whey averaged 57.13 cents, down 2 cents.

Churning schedules remain seasonally strong as cream supplies are readily available, according to USDA. In most instances, churning was surpassing demand, thus clearances to inventory are strong.

Butter producers and handlers indicate that buying interest is fair at best with most buyers cautious and procuring near term needs.

Retailers state that butter feature activity has slowed significantly since the recent Easter/Passover holiday period and overall butter demand is typical for this time of year. Food service buyers report fairly steady needs as traffic flow through restaurants is holding steady at fairly good levels.