Dairy Market: Cheese dips
Just as roller coasters climb they also come down and the first week of November saw that happen in cheese. The Cheddar blocks closed Nov. 8 at $2.0150 per pound, down 14 cents on the week but still 63.5 cents above a year ago.
The barrels soared to $2.39 per pound last Wednesday, highest since Sept. 25, 2014 and a dime shy of the record set Sept. 22 of that year, but they fell to a Friday close at $2.33, a half-cent higher on the week, $1.0250 above a year ago, and an inverted 31.5 cents above the blocks.
Traders left the blocks unchanged on Veterans Day, but took them down 7.5 cents Tuesday, to $1.94, lowest since Sept. 26 and 29.75 cents below their Sept. 16 peak for the year.
The barrels were also unchanged Monday but lost 1.5 cents Tuesday, slipping to $2.3150, an inverted record 37.5 cents above the blocks.
“Fresh spot selling sparked a futures market pummeling,” explained FC Stone’s Dave Kurzawski in his Nov. 8 Early Morning Update, and he says that “Fundamentally $1.90-$2.00 cheese seems to make more sense than $2.40, but we’ve had some special circumstances recently that have further tightened the fresh cheese market by upwards of 30 million pounds.” He adds that “We need to figure out if all supply/demand imbalances are resolved or if this is a rather normal correction in a bull market. We think the latter.”
Cheese markets were the hot topic not only in cheese circles but in agricultural commodity circles nationwide last week, according to Dairy Market News, as prices have not been this bullish since third quarter 2014.
For context, $2.49 was a market high in late September of that same year. Notably, by New Year’s Eve, 2014 barrel prices were roughly $1 below their autumn acme. Barrel producers continue to report being behind on orders but milk production reports continue to show heavier component levels and spot milk prices saw a drop-off last week: $1.50 under Class to $1 over by midweek.
Consumer cheese demand is solid in the west but buyers are hesitant to take extra loads at current prices. Seasonal sales were flowing steadily but manufacturers suggest the run up in CME prices “squelched additional demand.” Cheese production is steady and strong and ample milk is available, says DMN. Inventory is adequate for block and aged cheese but tighter for fresh barrels.
Butter finished Nov. 8 at $2.0375 per pound, down 4.25 cents on the week and 15.5 cents below a year ago when it fell 10.75 cents.
The butter started Monday with a 3 cent jump and stayed there Tuesday at $2.0675.
Cream offerings are plentiful and churning remains slightly more active than expected, according to Central plant managers. Cream is readily available from Western suppliers and plentiful enough to offset freight costs. Production and supplies are not alarmingly higher, says DMN, but “import and export figures do not bode well for long term strength.” “Market tones still remain generally steady and contacts who view things with a bearish lens suggest first quarter 2020 prices could bridge the $1.80-$1.90 range.” November 2016 was the last time butter prices fell below $2 per pound.
Western butter prices are weak and lower international prices could be one of the causes, says DMN, as buyers continue to seek the best deals possible, including ones offshore. Butter supplies are more prevalent than usual for this time of the year and orders for the holiday are reported as good, but not as good as expected.
Grade A nonfat dry milk closed Nov. 8 at $1.2050 per pound, up 2.25 cents on the week and 34.5 cents above a year ago.
Monday’s powder was steady but Tuesday’s trading tacked on 1.25 cents, taking the powder to $1.2175, highest CME price since Nov. 4, 2014.
Dry whey saw a Nov. 8 finish at 27.5 cents per pound, down 0.75 cents on the week and 58.5 cents below a year ago. Lots of product continues to find its way to Chicago, with 58 cars trading last week at the market of last resort.
The whey was unchanged Monday but gained 0.75 cents Tuesday, climbing to 28.25 cents per pound, with 10 cars selling Monday and 11 more on Tuesday.
China’s African Swine Fever continues to be the primary driver of the whey market and China’s Ag minister says its hog herd is 41% smaller than a year ago.
Milk to butter and powder
U.S. cheese production slipped to 1.08 billion pounds in September, down 3.7% from August but 2.1% above September 2018, according to the latest Dairy Products report. Year-to-date cheese output is at 9.77 billion pounds, up 1.1% from a year ago.
Wisconsin produced 281.3 million pounds of the September total, down 2.2% percent from August but 0.7% above a year ago. California output fell to 203.5 million pounds, down 4.5% from August and 0.9% below a year ago. Idaho contributed 83.7 million pounds, down 5.3% from August and 1.3% below a year ago.
Italian cheese totaled 469 million pounds, up 0.4% from August and 4.0% above a year ago, and brought year to date output to 4.2 billion pounds, up 2.6%.
American type cheese totaled 418.1 million pounds, down 9.0% from August and 1.4% below a year ago. YTD American is at 3.89 billion pounds, down 0.7%.
Cheddar, the cheese traded at the CME, totaled 288.4 million pounds, down 36.7 million pounds or 11.3% from the revised August figure and 9.2 million pounds or 3.1% below a year ago. YTD Cheddar is at 2.77 billion pounds, down 2.3%.
Butter output, at 136.6 million pounds, was down 0.5% from August but the highest September total since 2011 and up 1.6 million pounds or 1.2% from a year ago. YTD butter is at 1.4 billion pounds, down 0.5% from 2018.
Yogurt output hit 357.2 million pounds, down 3.5% from a year ago, with YTD at 3.3 billion pounds, down 3.3%.
Dry whey totaled 92 million pounds, up 8.3% from August and 31.5% above a year ago, with YTD at 729.8 million pounds, down 5.0%. Stocks totaled 79.3 million pounds, up 9.8% from August and 14% above those a year ago.
Nonfat dry milk production totaled 123.0 million pounds, up 7.9% from August but 8.0% below a year ago. YTD powder is at 1.4 billion pounds, up 2.3% from 2018. Stocks fell to 254.1 million pounds, down 15.6 million or 5.8% from August and 7.5 million pounds or 2.9% below the 2018 level.
Skim milk powder output slipped to 48.8 million pounds, down 2.6 million or 4.9% from August but were 2.1 million pounds or 4.6% above a year ago. YTD skim hit 373.6 million pounds, down 12.1% from a year ago.
The Agriculture Department raised its milk production estimates in the latest World Agricultural Supply and Demand Estimates report, as “stronger growth in milk per cow more than offsets a slower expected recovery in the cow inventory.”
2019 production and marketings were estimated at 218.6 and 217.5 billion pounds respectively, up 400 million pounds from last month’s estimate on both. If realized, 2019 production would be up 1 billion pounds or 0.5% from 2018.
2020 production and marketings were estimated at 222.4 and 221.4 billion pounds respectively, up 800 million and 900 million pounds respectively from last month’s estimates.
If realized, 2020 production would be up 3.8 billion pounds or 1.7% from 2019. I’ll have more details, including milk price estimates, next week.
Cheese and nonfat dry milk (NDM) price forecasts for both 2019 and 2020 were raised from last month on strength in demand. Butter and whey prices for 2019 and 2020 were lowered on current price weakness which is expected to carry into 2020.
The 2019 Class III and Class IV price forecasts were raised as the higher cheese price more than offsets the lower whey price. The 2019 Class III average is now projected at around $17.00 per hundredweight, up a nickel from last month’s projection and compares to $14.61 in 2018 and $16.17 in 2017. The 2020 average is put at $17.50, up 30 cents from last month’s estimate.
The 2019 Class IV price was raised as the higher NDM price more than offsets a weaker butter price, but for 2020, the lower butter price outweighs the higher NDM price and the Class IV price was reduced.
Look for the 2019 Class IV to average $16.30, up a dime from a month ago and compares to the 2018 average at $14.23 and $15.16 in 2017. The 2020 Class IV average is expected at $15.95, down 15 cents from last month’s projection.