Cheese prices rally
Mid-January cash dairy prices remain mixed. The CME Cheddar blocks closed the third Friday of 2020 at $1.9625 per pound, up 9.25 cents on the week, highest since Dec. 9 and 56.25 cents above a year ago.
The barrels fell to $1.4675 last Tuesday, lowest since March 13 widening the spread to a second all-time high of 40.25 cents. But they rallied, closing Friday at $1.5625, 4 cents higher on the week, 36.25 cents above a year ago, and 40 cents below the blocks. Only 2 cars of block traded last week at the CME but 40 of barrel.
The markets were closed Monday for Martin Luther King Day but the blocks inched a quarter-cent higher Tuesday, hitting $1.9650, as traders absorbed the morning’s Global Dairy Trade results and anticipated Wednesday afternoon’s December Cold Storage report and Thursday’s December Milk Production report.
The barrels were up 3.50 cents Tuesday, to $1.5975.
Football-Super Bowl cheese orders have kept demand healthy into January and will support orders in the near term, predicted HighGround Dairy in its Jan. 13 "Monday Morning Huddle." But, it warned that “milk production is plentiful across most areas of the country, pushing larger volumes into cheese plants who have resumed normal full week operating schedules post-holidays. While cheese production is strong, decent demand has mostly kept pace to support an overall balanced market, preventing prices from declining further.
"Looking ahead, it is likely that demand will drop slightly lower on a normal, seasonal basis throughout first quarter, and there is potential for cheese markets to continue to move lower as milk output remains strong throughout the next several months.”
FC Stone adds that while the December Milk Production report won’t be issued until Thursday, December component data is available and was basically flat against last year. “Feed quality issues may be impacting things in a more meaningful way,” according to FC Stone.
Meanwhile, Midwestern cheesemakers tell Dairy Market News that “in spite of the confused markets, week to week sales are mostly steady if not slightly improved. It is prime time for mozzarella and provolone sales, with football playoffs prompting retailers to push cheese/pizza advertisements.”
Spot milk prices remain “solely discounted,” however, discounts are slighter and moving a bit closer to Class. Market tones are far from healthy, says DMN, citing the block to barrel price gap.
Western cheesemakers report cheese demand is steady but there is plenty of milk to keep plants running near full capacity. Cheese inventories are not necessarily burdensome but some contacts say they are “heavy enough.”
With adequate stocks on hand and abundant milk supplies, contacts think a few manufacturers have shifted production to barrels from blocks, thus pressuring the cash barrel market.
Cash butter dropped a nickel last Monday, jumped 7 cents Tuesday to $1.94, but closed Friday at $1.88, down 4 on the week and 36 cents below a year ago, on 11 sales.
Tuesday’s butter was unchanged.
Midwest cream supplies remain plentiful, says DMN, though there was a slight downward shift but by no means are butter producers concerned about shortages in the near term. They expect at least two more weeks, or more, of easily accessible cream. Butter sales are slower but meeting seasonal expectations.
Western churns are also being actively used. Low cream prices induced some processors to make additional butter while others have not seen low enough prices to commit to picking up more cream than needed. Expensive freight costs are also preventing some from taking advantage of the lower cream prices in other areas. Butter retail orders are starting to come in as buyers cover 1st and 2nd quarters' needs.
Grade A nonfat dry milk was steady until last Wednesday when it gained a penny and closed Friday at $1.29, up 1.75 cents on the week and the highest since Oct. 23, 2014. It is 26 cents above a year ago; 24 cars exchanged hands last week at the CME.
Tuesday’s powder was up a half-cent, to $1.2950.
Dry whey saw a Friday close at 36.75 cents per pound, up 2 cents but still 13.75 cents below a year ago, with 34 cars sold on the week at the CME.
The whey backed down a half-cent Tuesday, to 36.25 cents per pound.
GDT up 1.7%
The second Global Dairy Trade auction of 2020 seemed to affirm the first session’s reversal with a 1.7% rise in the weighted average of products offered. Though down from the 2.8% rise on Jan. 7, you’ll recall the last GDT of 2019 dropped 5.1%.
The uptick was led by butter, up 5.5%, which followed a 3.7% rise last time. Rennet casein was up 4.7% and whole milk powder was up 2.4%, following a 1.7% rise. Skim milk powder was up 0.7%, after a 5.4% boost, and GDT Cheddar inched 0.6% higher, after jumping 3.7% last time. Lactose rounded up the gains, up 0.5%.
The only product in negative territory was anhydrous milkfat, down 2.6%, after it gained 2.3% in the last event.
FC Stone equated the GDT 80 percent butterfat butter price to $1.8807 per pound U.S., up 9.8 cents from the last event. CME butter closed Tuesday at $1.88. GDT Cheddar cheese equated to $1.8363 per pound, up 1.5 cents, and compares to Tuesday’s CME block Cheddar at $1.9650. GDT skim milk powder averaged $1.3770 per pound and compares to $1.3724 last time. Whole milk powder averaged $1.4663, up from $1.4288. CME Grade A nonfat dry milk closed Tuesday at $1.2950 per pound.
Hope for exports
Even as the impeachment drums kept beating in the second full week of the New Year, the Trump administration racked up at least two victories on the trade front. First was the signing of the phase one agreement with China and the second was Senate passage of the U.S.-Mexico-Canada Agreement.
The International Dairy Foods Association (IDFA) praised the phase one signing, saying it begins to “restore a positive, mutually beneficial trade relationship, and dairy producers and processors across the U.S. are grateful.”
The U.S. Dairy Export Council and National Milk Producers Federation stated that the signing “makes important advances on nontariff issues harming U.S. dairy trade.
While promises of additional Chinese purchases of U.S. agricultural products in the next two years are encouraging, the benefits for the dairy industry remain unclear. Given that China's retaliatory tariffs remain a significant impediment to U.S. dairy sales in China, the USDEC and NMPF stress that work with China is not complete until the retaliatory tariffs against all U.S. dairy exports are fully lifted.”
The Senate, by an 89-10 vote, approved the USMCA, sending it to the president for his signature. The USDEC and NMPF urged U.S. officials to “carefully monitor Canada and Mexico’s USMCA commitments once the trade deal takes effect to ensure its provisions are enforced accordingly so that the dairy industry is able to reap the full benefits of the agreement.”
U.S. dairy product commercial disappearance data shows total November cheese was down 0.4% from November 2018 and down 1.8% from October, though October was at a record high. Butter was down 8.6% from a year ago and only up 0.5% from October. Nonfat dry milk and skim milk disappearance was up a whopping 28.3% from a year ago and dry whey was off 4.6%.
FC Stone dairy broker Dave Kurzawski pointed out in the Jan. 20 "Dairy Radio Now" broadcast that, on a milk equivalent basis, we were down 2.4%. But he gave it some perspective, reporting that 2019 domestic disappearance of milk solids was up 2.8% year to date. On a 12-month rolling average of November 2018 to November 2019, it was up 3%, he said, and he called them “astronomical demand numbers,” and “that’s the story.”
The November data was maybe a “glitch on the radar,” perhaps driven by the rally in prices across the complex, with the exception of butter, he said. “Prices rallied in October so you probably had some people step away from it but does that really say anything about what’s going on in demand?” He admitted there’s troubling data on fluid milk but concluded, “The rest of demand is really strong.”