Dairy Market: Poor price prospects ahead
CME dairy prices didn’t respond much to last week’s jump in the GDT, in fact most prices weakened.
The Cheddar blocks slipped to $1.3875 per pound Thursday but closed Friday at $1.40, down a penny on the week and 16 1/2-cents below a year ago.
The barrels sank to $1.1850 Thursday but climbed back to $1.20 Friday, still down 4 1/2-cents on the week and 14 1/2-cents below a year ago.
The markets were closed Monday for the Martin Luther King Day holiday. The blocks gave up a penny Tuesday, slipping to $1.39, while the barrels dropped 2 1/4-cents and dipped to $1.1775, lowest CME price since July 27, 2009, and a whopping 21 1/4-cents below the blocks.
Dairy Market News reports that Central cheese production has scaled back since the holidays as manufacturers manage their post-holiday inventories. Spot milk prices ranged $2 under to 50 cents over class but the gap between block and barrel prices drew more attention. DMN says barrel producers who can shift production to other varieties and/or sell milk back on the spot market are doing so.
Block producers are reportedly concerned and “suggest that even though there is a chance barrel prices could ascend to meet block prices, the inverse possibility of block prices declining to converge with barrel prices creates hesitant buyers and a generally inferior market dynamic.”
Western cheese makers continue to run their vats at or near capacity, as there’s plenty of milk. Mozzarella demand is solid due to the football playoffs and pizza season.
However, “the winter holiday season that generates peak consumption is a memory and processed cheese demand continues to struggle.”
The retail cheese market is seasonally slower, and some contacts suggest sales are lagging while others say demand is as would be expected, but production is outpacing demand. Stocks are weighing heavily on cheese prices and end users report getting many offers for consideration.
The spread between block and barrel prices has western manufacturers “adapting to this through a number of means, using risk management strategies or offsetting the milk intake costs with greater value generation in the whey protein complex,” says DMN.
FC Stone’s Early Morning Update Friday candidly stated, “At the moment there seems to be no light at the end of the tunnel for the cheese market. It sounds as though milk flows are strong enough to keep Class IV plants full at the moment and still leave plenty of excess available for milk to make its way into cheese plants.”
Cash butter closed Friday at $2.24 per pound, down 1 3/4-cents on the week but 12 cents above a year ago.
Tuesday’s butter was down three-quarters cents to $2.2325.
Cream situations last week were similar to the previous week for butter producers, says DMN. Cream prices have been reported at or near the same range, therefore butter churning remains active. Plants are preparing for the spring push and multiple contacts have said this is the peak of butter production for the year.
Butter demand remains healthy, as well as the market tone. Contacts suggest that “with bullish powder markets, dryers will be more active, and this could weigh on butter markets but they also point out the resiliency of recent butter markets, and their tendency to ignore otherwise bearish indicators.”
Western churns are full of cream as processors take advantage of cheap prices to seasonally build butter inventories. Stocks are heavy and will likely get heavier in the coming months but processors are comfortable with their holdings. Export demand is stable but sellers hope it will respond positively to competitive domestic prices.
Grade A nonfat dry milk hit $1.0450 per pound last Tuesday, the highest CME price since Jan. 6, 2017, but slipped Wednesday and Thursday to close the week unchanged at $1.03, but 32 1/4-cents above a year ago.
The powder lost a penny and a half Tuesday, falling to $1.0150.
Spot dry whey climbed to 52 1/2-cents per pound last Wednesday, highest level since mid-October 2018, but finished Friday at 50 1/2-cents, up a penny on the week.
Tuesday’s whey was down 4 cents, to 46 1/2-cents per pound, lowest price since Dec. 17, 2018, and the biggest single day drop since Oct. 23, 2018.
Class I up
One function that the Agriculture Department is still performing is announcing milk prices. The February Federal order Class I base price is $15.30 per hundredweight, up 18 cents from January, $1.05 above February 2018, and the highest Class I price since November 2018. It equates to $1.32 per gallon, up from $1.23 a year ago, and put the two-month average at $15.21, up from $14.85 a year ago but compares to $17.09 in 2017.
Week four of 2019 became week five of the partial government shutdown. Lost USDA reports that the dairy industry relies on are stacking up. They include the November Dairy Products report, the January World Agricultural Supply and demand Estimates, monthly U.S. trade data from the Bureau of Census, weekly dairy slaughter data, the month’s Livestock, Dairy and Poultry Outlook, and grain stocks data, plus this week’s December Cold Storage and Milk Production reports and Livestock Slaughter report.
FC Stone dairy broker Dave Kurzawski played down the loss of information from the missing USDA reports in the Jan. 21 Dairy Radio Now broadcast, stating, “The markets do a pretty good job of determining whether buyers are panicking in the country or sellers are panicking in the country.”
He admitted that the data is important and “gives us a good frame of reference for what’s going on out there,” but “the markets reflect what is actually happening in the country and if there’s too many people selling cheese, the market will go down, it doesn’t take a USDA report to figure that out.”
“The data is also aged,” he said, “And while I’d rather be in a world that had the data, I don’t think that it’s as critical as we initially thought.”
Of more importance to Kurzawski, for example, is the loss of “E-Verify,” the web-based system that allows enrolled employers to confirm the eligibility of employees to work in the U.S. That is very important, he said and agrees that for now, the shutdown has replaced the tariff wars but that issue hasn’t gone away, and he says we will address that again in the future.