Dairy Market: Benchmark price soars $8.90
The Agriculture Department announced the June Federal order Class III benchmark milk price at $21.04 per hundredweight, up a record month-to-month increase of $8.90 from May and $4.77 above June 2019.
It is the highest Class III price since November 2014 and boosts the 2020 Class III average to $16.09, up from $15.25 at this time a year ago and $14.41 in 2018.
Monday’s Class III futures settlements portended a July price at $23.25, $1.35 shy of the all-time record high of $24.60 in September, 2014. August was at $21.64; September, $19.15; October, $18.00; November, $17.33; and December was at $16.54.
The May Class IV price is $12.90, up $2.23 from May but $3.93 below a year ago. Its six-month average sits at $13.78, down from $15.98 a year ago and compares to $13.67 in 2018.
GDT skyrockets 8.3%
Whole milk powder led the way but significant gains in most products offered Tuesday propelled the Global Dairy Trade auction’s weighted average up 8.3%, following its 1.9% jump on June 16, and orchestrated the biggest spike since Nov. 1, 2016 when it jumped 11.4%.
Whole milk powder shot up 14.0%, following a 2.2% climb last time. Buttermilk powder was up 3.8% and skim milk powder was up 3.5%, after leading the gains last time with a 3.1% jump. GDT Cheddar was up 3.3%, after gaining 1.4% last time, and butter was up 3.0%, after slipping 1.0%. Lactose was up 1.9%.
Anhydrous milkfat was off 0.2% after inching up 0.8% in the last event.
StoneX equated the GDT 80% butterfat butter price to $1.6450 per pound U.S., up 5.3 cents from the last event. CME butter closed Tuesday at $1.7375. GDT Cheddar cheese equated to $1.7065 per pound, up 6 cents, but compares to Tuesday’s CME block Cheddar at the world’s most expensive price of $2.71. GDT skim milk powder averaged $1.2219 per pound, up from $1.1834, and whole milk powder averaged $1.4553, up from $1.2833. CME Grade A nonfat dry milk closed Tuesday at $1.0325 per pound.
CME prices entered National Ice Cream Month stronger, except for butter and powder. The 4th of July holiday-shortened week saw the Cheddar blocks close Thursday at $2.6750 per pound, up a dime on the week and 82.75 cents above a year ago.
The barrels finished at $2.4150, 1.5 cents higher on the week and 63.5 cents above a year ago.
The long weekend ended with Monday’s block price climbing 2.5 cents and then gaining a penny Tuesday, hitting $2.71 per pound, as traders absorbed the morning’s GDT results and speculated on what effects current high temperatures in the Midwest will have on milk output.
The barrels reversed direction Monday, falling 4.5 cents, and stayed there Tuesday at $2.37, 34 cents below the blocks.
StoneX dairy broker Dave Kurzawski wrote in Tuesday’s Early Morning Update: “August Class III closed higher for the 7th straight session and saw its 4th straight day of 50 cent-plus gains! I truly cannot believe that’s a sentence that can even be typed!
“The chatter still seems to be much the same around block tightness, even post-holiday. Barrels seem to be available and perhaps a bit more available than they were last week so we’ll see if the spot market continues to widen out for the next few sessions. I think most participants and the futures market reflect the belief that blocks will eventually come down to meet the barrels but I’m not sure we’re any closer to identifying when that might be.”
Dairy Market News reports that spot milk prices were coming in below Class last week and spot milk availability was opening up early in the week.
Western cheesemakers report production is still running at or above design capacity for many. Retail demand has been the “stalwart foundation for the cheese industry over the last few months,” says DMN, and “some speculate that with summer grilling season on hand, and the safer at home mentality still fresh in consumers’ minds, demand for single-serve slices has been strong.”
Earlier this spring, cheese processors aggressively pursued export markets, selling a lot of cheese forward overseas, according to DMN, however, as prices increased, contacts said they were seeing fewer future bookings. Food service demand has increased and government purchases have made cheese stocks tight.
Spot butter saw its fourth consecutive week of decline, closing at $1.7375 per pound, down 2.75 cents on the week, lowest since June 3, and 66.75 cents below a year ago.
The butter eked out a 0.75-cent gain Monday on an unfilled bid, first positive move since June 19, but gave it back Tuesday, slipping to Friday’s close of $1.7375.
The Dairy and Food Market Analyst reports that “IRI data showed retail sales growth of butter has decreased for three consecutive weeks. Sales were up 51% five weeks ago, 39% four weeks ago, 29% three weeks ago and 21% two weeks ago. The slowing gains are causing companies to revise their demand forecasts lower. Butter industry contacts had been celebrating 'permanently changed consumer habits’ just a couple of weeks ago. Now, our colleagues are walking back those claims.”
Central butter makers found cream prices more within reach as they started July, according to DMN, “but the longevity of churning is in question.” Butter demand is and has been strong on the retail side and food service has picked up in recent weeks, however, it still lags previous years' figures by a sizable margin.
The Western butter market is steady to a bit weaker. Cream is still tight but not like a few weeks ago though it remains out of the reach of some butter manufacturers.
Grade A nonfat dry milk weakened, closing Thursday at $1.01 per pound, down a penny on the week and 3 cents below a year ago.
Monday’s powder inched a quarter-cent higher, then added 2 cents Tuesday, hitting $1.0325, with 24 cars exchanging hands on the day.
Dry whey saw its Thursday finish at 33 cents per pound, up 1.75 cents on the week and 0.25 cents above a year ago.
The whey was down 1.75 cents Monday and gave up another 2.5 cents Tuesday, falling to 28.75 cents per pound.
Uncle Sam’s rescue
The Agriculture Department last week approved up to $1.27 billion in extended contracts and up to $202 million in new contracts to support American producers and communities through the USDA Farmers to Families Food Box program. This second round means $512 million in fresh fruits and vegetables will be purchased, $288 million in dairy products, $233 million in meat products and $444 million in a combination box of fresh produce, dairy or meat.
HighGround Dairy’s Lucas Fuess reported in the July 6 "Dairy Radio Now" broadcast that the announcement is in addition to other government programs.
HGD points out that while the latest announcement of $288 million for dairy is about 32.5% less in total dollars than Round 1, “the market cares less about the dollars and more about the total volume being consumed by the program.”
Fuess stated that vendors had to submit prices for all four potential rounds when the initial bids were due May 1 but product prices were at a much lower level. He said that vendors likely planned on higher prices ahead but the highest price for CME cash-settled cheese futures on May 1 was $1.67 (Oct). As of July 1, CME block Cheddar was $2.64, up 58% from the highest May 1 futures board price.
This will create challenges for vendors procuring product, he said, but will most likely provide continued support under cheese markets through summer and prevent a price crash. He cautioned that the coronavirus continues to spread in the South and West and, if restaurants start closing again, “that may be a warning sign on the horizon.”
May U.S. cheese output totaled 1.1 billion pounds, up 3.2% from April but 0.7% below May 2019, according to the USDA’s latest Dairy Products report. The year to date total hit 5.4 billion pounds, down 0.1% from a year ago.
Wisconsin produced 280.7 million pounds of the May total, up 4.9% from April but 1.8% below a year ago.
California output, at 209.7 million pounds, was up 6.0% from April but 3.8 below a year ago.
Idaho vats added 80.6 million pounds, down 5.7% from April but 3.0% above a year ago.
Italian type cheese totaled 481.7 million pounds, up 6.8% from April and 1.5% above a year ago. YTD output is at 2.35 billion pounds, down 0.6%.
American type cheese totaled 442.6 million pounds, down 1.0% from April and 0.2% below a year ago. YTD American was at 2.2 billion pounds, up 1.3%.
Mozzarella output climbed to 378.2 million pounds, up 0.9% from a year ago, with YTD at 1.85 billion pounds, down 0.7%.
Cheddar, the cheese traded at the CME, slipped to 319.4 million pounds, down 11.5 million pounds or 3.5% from April and 1.7 million or 0.5% below May 2019. Year to date cheddar stood at 1.6 billion pounds, up 1.4% from this time a year ago.
Butter production fell to 178.3 million pounds, down 39.2 million pounds or 18.0% from April but was 8.3 million pounds or 4.9% above a year ago, the 10th consecutive month it topped a year ago. YTD butter output was at 973.2 million pounds, up 8.8% from 2019.
Dry whey totaled 86.2 million pounds, up 10.8% from April and 9.0% above a year ago, with YTD at 406.9 million pounds, up 4.2%.
Dry whey stocks totaled 84.8 million pounds, up 12.4% from April and 18.9 million or 28.6% above a year ago.
Nonfat dry milk output totaled 157.7 million pounds, down 37.5 million pounds or 19.2% from April and 16 million or 9.2% above a year ago. YTD powder sits at 860.6 million pounds, up 3.2% from 2019.
Stocks fell to 344.7 million pounds from what was a record 392.6 million pounds in April, down 47.9 million or 12.2% from April but 54.6 million or 18.8% below 2019.
Skim milk powder output, at 47.1 million pounds, was up 6.7 million pounds or 16.5% from April and a hefty 20.5 million pounds or 76.9% above a year ago. YTD skim powder hit 206.9 million pounds, up 8.2% from a year ago.
Milk ratio on COVID slide
Lower feed costs did not offset a lower All Milk price and pulled the May milk feed price ratio lower for the sixth month in a row. The USDA’s latest Ag Prices report put the ratio at 1.77, down from 1.84 in April, and compares to 2.10 in May 2019.
The index is based on the current milk price in relationship to feed prices for a dairy ration consisting of 51% corn, 8% soybeans and 41% alfalfa hay. One pound of milk could only purchase 1.77 pounds of dairy feed of that blend in May.
The U.S. All-Milk price averaged $13.60 per hundredweight, down 80 cents from April and $4.40 below May 2019 as falling milk prices resulting from the COVID pandemic found their way to the farmgate.
The national average corn price averaged $3.20 per bushel, down 9 cents per bushel from April and 43 cents per bushel below May 2019. Soybeans averaged $8.28 per bushel, down 7 cents from April but 26 cents per bushel above a year ago. Alfalfa hay averaged $179 per ton, down $2 per ton from April and $25 per ton below a year ago.
The May cull price for beef and dairy combined averaged $68.30 per cwt., up $4.30 from April, $2.70 above May 2019, but was $3.30 below the 2011 base average of $71.60 per cwt.