Milk hits bottom; rebound ahead
Last week was a week of contrast as we entered June Dairy Month.
Cash block cheese set a record high price while the Agriculture Department announced the May Federal order Class III benchmark milk price at its lowest level in 11 years.
The COVID-incited plunge in milk prices fell to $12.14 per hundredweight, down 93 cents from April, $4.24 below May 2019, and the lowest Class III price since September 2009.
The 2020 Class III average stands at $15.10, up from $15.05 a year ago and $14.25 in 2018.
Monday’s Class III futures settlements, however, portended a rebound in June to $20.14, with July at $18.94; August, $17.47; September, $17.10; October, $16.85; November, $16.75; and December at $16.36.
The May Class IV price is $10.67, down 73 cents from April, $5.62 below a year ago, and the lowest since August 2009.
The Class IV average stands at $13.96, down from $15.81 a year ago and compares to $13.42 in 2018.
Cheddar block cheese set a record $2.5050 per pound last Tuesday but pushed even higher, closing Friday at $2.5525, up 32.25 cents on the week and the seventh week of gain, 80 cents above a year ago, and surpassed the previous high of $2.45 per pound on Sept. 19, 2014.
The barrels climbed to $2.37 Thursday but closed Friday at $2.36, up 33.75 cents on the week and 82.5 cents above a year ago but 19.25 cents below the blocks. Six cars of block were sold last week at the CME and 10 of barrel.
Traders took the blocks up another 3.25 cents Monday, setting another record at $2.5850, but they tumbled Tuesday, losing 4.5 cents, and fell to $2.54.
The barrels were unchanged Monday but jumped 6.5 cents Tuesday, climbing to $2.4250, 6.5 cents shy of their record high $2.49 on Sept. 22, 2014, and reduced the spread to 11.5 cents.
Midwest cheesemakers are busy, according to Dairy Market News. Milk was still at “somewhat affordable rates” mid-week on the spot market, $1 to $3 over Class III.
Cheesemakers who had been selling milk are now using it and most are running 6- to 7-day weeks. Pizza establishments in the Midwest and East are busy after areas reopened from COVID closures. Retail cheese sales remain busy and newly produced cheese is very tight, says DMN, and “Calling cheese markets bullish would be understated,” as some expect $3 block prices ahead.
Block cheese is tight in the West, says DMN, and when food service demand dried up due to COVID-19, many manufacturers pivoted to selling the orphaned cheese into export markets.
With the easing of shelter-at-home restrictions, there has now been a surge in food service buying, but loads of cheese are hard to find as a lot of cheese is tied up in short-term contracts with export buyers.
Government purchases and food box programs have also tightened stocks. Some of the companies with the food box awards are reportedly trying to buy cheese off the national exchanges but are struggling to find the product they need in the time allotted, plus the run-up in prices isn’t making things easy.
Butter jumped 29 cents last Thursday and hit $2.0150 per pound, highest CME price since Dec. 27, 2019, but it relapsed Friday, losing 9 cents, and fell back to a $1.9250 close, still 26.5 cents higher on the week but a long 47.25 cents below a year ago; 42 cars were sold on the week.
Monday’s butter was unchanged but it inched a quarter-cent lower Tuesday, to $1.9225 per pound.
FC Stone dairy broker Dave Kurzawski credited restaurants re-opening and seasonal ice cream pull for butter’s climb, but says a lack of available cream is the big issue.
“Cheese plants may also play a role,” he said, “as they hold onto more cream to mix with skim. That may reveal an overall snugness on the available supply of fresh milk,” he said.
“Demand has been the key driver, but perhaps supply of fresh milk, or lack thereof, is playing a larger role.”
DMN warns that butter makers have a growing concern of shortages in the fall. Interest for bulk butter has increased significantly and spot cream prices have “pushed past the point of financial feasibility.” Retail ordering remains busy, says DMN, “and foodservice orders have grown to replenish nearly depleted pipelines although the numbers still lack in comparison to previous years, but so does cream.”
Western cream supplies are tightening. Some butter makers are taking advantage of the higher prices by selling cream instead of producing butter. Butter inventories are still plentiful. Bulk butter interest has been flat and retail sales backed off slightly last week, but remain good. Restaurants and foodservices are reopening but butter requests remain below expectations, according to DMN.
Grade A nonfat dry milk, which had strengthened the last few weeks likely due to cheesemakers fortifying their vats with the powder, weakened last week and finished Friday at 97.75 cents per pound, down 5.25 cents on the week and 7.75 cents below a year ago, on 24 reported sales.
The powder lost 1.75 cents Monday and was down 0.75 cents Tuesday, hitting 95.25 cents per pound, with 10 cars being unloaded on the day.
CME dry whey, after slipping 5.75 cents the previous week, closed Friday at 34.50 cents per pound, up 4 cents on the week but 2 cents below a year ago, on 26 sales.
Monday’s whey was down a penny and it fell 0.75 cents Tuesday, to 32.75 cents per pound.
Butter output record
You’ll recall that April milk output was reported at 18.7 billion pounds, up 1.4% from April 2019, but that total included what the Dairy and Food Market Analyst estimated to be about 187 million pounds of milk that was dumped. The April Dairy Products report shows where the milk that wasn’t dumped ended up.
April cheese output totaled 1.07 billion pounds, down 5.1% from March and 1.7% below April 2019. The year to date total stood at 4.3 billion pounds, up 0.1% from a year ago.
Wisconsin produced 266.9 million pounds of the April total, down 6.6% from March and 4.6% below a year ago.
California output, at 200.8 million pounds, was down 4.8% from March and 5.4% below a year ago.
Idaho contributed 85.5 million pounds, down 4.2% from March but 2.0% above a year ago.
Italian type cheese totaled 451.7 million pounds, down 7.2% from March and 5.0% below a year ago. YTD output came to 1.87 billion pounds, down 1.1%.
American type cheese totaled 446.0 million pounds, down 0.9% from March and 3.6% below a year ago. YTD American was at 1.75 billion pounds, up 1.6%.
Mozzarella output fell to 352.5 million pounds, down 5.4% from a year ago, with YTD at 1.48 billion pounds, down 1.0%.
Cheddar output, the cheese that is traded at the CME, shot up to 330.4 million pounds, up 12.1 million pounds or 3.8% from March and 23.9 million or 7.8% above April 2019. Year to date Cheddar stood at 1.3 billion pounds, up 1.8% from this time a year ago.
Butter production climbed to a record high 215.7 million pounds, up 19.8 million pounds or 10.1% from March and a whopping 43.3 million pounds or 25.1% above a year ago, the ninth consecutive month it topped a year ago. YTD butter output stood at 793.1 million pounds, up 9.5% from 2019.
Dry whey totaled 77.8 million pounds, down 5.2% from March but 3.8% above a year ago, with YTD at 320.7 million pounds, up 3.0%. Dry whey stocks totaled 75.4 million pounds, up 3.7% from March and 0.5% below a year ago.
Nonfat dry milk output totaled 183.3 million pounds, up 10.9 million pounds or 6.3% from March and 15.5 million or 9.3% above a year ago. YTD powder production is at 691.1 million pounds, up 4.7% from 2019. Stocks swelled to a record high 392.6 million pounds, up 43.5 million or 12.5% from March and 114.3 million or 41.1% above 2019.
Skim milk powder output, at 40.4 million pounds, was down 400,000 pounds or 1.1% from March and 5.8 million pounds or 12.6% below a year ago. YTD skim powder hit 159.8 million pounds, down 2.9% from a year ago.
FC Stone says “the report looks overwhelmingly bearish versus current spot and futures price levels. Of course, that was mostly as expected given that we are looking back at April data. The shift that occurred due to the Covid-19 outbreak appears to have favored higher production of the class IV products and more production of Cheddar as well versus the other cheeses,” adding that “it appears the physical participants wanted to know there was an outlet for the cheese in that they could at least sell Cheddar on the spot exchange.”