Dairy Market: Class III benchmark reaches $20.45

The Agriculture Department announced the November Federal order Class III benchmark milk price at $20.45 per hundredweight, up $1.73 from October, $6.01 above November 2018, and the highest Class III price since October 2014.

That will be the peak for 2019. Monday’s Class III futures settlements portended a December price at $19.51, January 2020 at $18.64; February, $17.85; and March at $17.41. The January price was the peak for 2020.

The bottom was at $17.21 in April and May.

The 11-month Class III average is $16.74, up from $14.69 at this time a year ago and $16.24 in 2017.

The November Class IV price is $16.60, up 21 cents from October and $1.54 above a year ago. Its average stands at $16.26, up from $14.15 a year ago and $15.31 in 2017.

The first week of December saw a mixed CME dairy market. The Cheddar blocks closed Friday at $1.97 per pound, up three-quarter-cents on the week and 62 cents above a year ago. The barrels finished at $2.2275, down 2 cents, $1.0050 above a year ago, and with an inverted spread of 25.75 cents. Nine cars of each exchanged hands last week at the CME.

The blocks were unchanged Monday but 2 offers dropped the price 2.25 cents Tuesday, to $1.9475, as traders anticipated USDA’s latest milk production and milk price projections in the morning’s World Agricultural Supply and Demand Estimates report.

Barrels crash

The loud crash you heard were the barrels falling 14.75 cents Monday and 13.25 cents Tuesday, plummeting to match the blocks at $1.9475, lowest CME barrel price since early October. The wild swings in the price spread were finally reduced to zero, a price that typically ranges 3-5 cents below the blocks.

FC Stone stated in Monday’s Early Morning Update that “cheese buyers in Chicago and around the country tapered their demand last week for fresh loads of cheese.” They summarized the markets, stating: “If there is a theme that developed over the past few months in dairy, it’s that sometimes markets will absolutely test your sensibilities. You will struggle to understand what’s happening because it doesn’t seem plausible. We’re in that mode right now with Class III, cheese and likely nonfat dry milk. And the market issues we’ve faced likely won’t end because it’s mid-December.”

Cheese orders were steady to busier in the Central region last week, says Dairy Market News. More milk is becoming available. Early in the week, spot milk trading was quiet but prices were at Class to a slight discount. However, “the $5 under-Class holiday milk prices have yet to be reported,” DMN said. Regional producers say inventories are “in a good place,” though “markets continue to confuse contacts. After a turn-around on the holiday week, barrel prices were continuing upward while blocks were a little more hesitant and remain under $2. All said, however, market prices are stronger than most participants would have expected for 2019,” DMN said.

There is plenty of milk available to western cheese plants and production is active. Retail and food service requests are steady and at seasonal levels while pizza sales are solid.

However, current market prices have “put a wet blanket over shoppers’ urge to buy cheese,” cautioned DMN, “and many end users continue to shop hand-to-mouth, not eager to put extra cheese into their warehouses.”

Butter continued its meltdown, falling to $1.9150 Friday, down 8.25 cents, lowest since November 2016, and 29.25 cents below a year ago.

Monday’s butter gained 1.5 cents, the first positive move since Nov. 18, and added a penny Tuesday, inching back to $1.94 per pound.

Sales reports continue to be strong for Central butter makers, says DMN, with positive numbers. “Inventories are plentiful so strong seasonal sales are required to maintain a semblance of market balance,” warned DMN. Some analysts suggest bearishness will continue as cream was widely available during the holiday week. It tightened a little the following week but loads are still easy to locate.

The western butter market was stable to declining compared to the previous week.

Thanksgiving sales were solid and retailers are now placing large orders to restock shelves for the end of year holidays. Butter production is active and cream is available.

Grade A nonfat dry milk saw a little weakness mid-week last week but rallied to close Friday 3 cents higher on the week at $1.2675 per pound, highest CME price since Oct. 23, 2014, and 38.25 cents above a year ago.

The powder was unchanged Monday but inched a half-cent lower Tuesday, to $1.2625.

CME dry whey closed Friday at 36.75 cents per pound, up 1.5 cents on the week but 7 cents below a year ago, with no trades reported for the week.

Monday’s whey backed down a half-cent and stayed there Tuesday at 36.25 cents per pound, with 5 bids going unfilled.

Projections unchanged

The Agriculture Department left unchanged its milk production forecasts for 2019 and 2020 in Tuesday’s World Agricultural Supply and Demand Estimates (WASDE).

2019 milk production remains estimated at 218.6 billion pounds while 2019 marketings was raised 100 million pounds from last month’s report. If realized, 2019 production will be up 1 billion pounds or 0.5% from 2018.

2020 production and marketings remain estimated at 222.4 and 221.4 billion pounds respectively. If realized, 2020 production would be up 3.8 billion pounds or 1.7% from 2019.

The 2019 Class III milk price forecasts were lowered on expected weaker cheese prices. The 2019 average is now projected at $16.95 per hundredweight, down a nickel from last month’s estimate, and compares to the 2018 average of $14.61 and $16.17 in 2017. The 2020 average was raised 15 cents to $17.65 per cwt.

The Class IV price estimate was unchanged from last month as a lower expected butter price is offset by a higher nonfat dry milk price. Look for the Class IV to average $16.30 in 2019, up from the 2018 average of $14.23 and $15.16 in 2017. The 2020 Class IV average was raised to $16.95.

Milk usage

Total October cheese output climbed to 1.13 billion pounds, up 4.6% from September but 2.1% below October 2018. Year-to-date cheese output stands at 10.9 billion pounds, up just 0.8% from a year ago.

Wisconsin produced 285.4 million pounds of the October total, up 1.1% from September but 7.5% below a year ago. California output jumped to 215.6 million pounds, up 5.7% from September and unchanged from a year ago. Idaho contributed 86.8 million pounds, up 3.7% from September but 5.0% below a year ago.

Italian cheese totaled 482.2 million pounds, up 2.4% from September but 0.3% below a year ago, and brought year to date output to 4.7 billion pounds, up 2.4%.

American type cheese totaled 442.6 million pounds, up 6.8% from September but 3.2% below a year ago. YTD American is at 4.3 billion pounds, down 1.0%.

Cheddar, the cheese traded at the CME, totaled 309.6 million pounds, up 26.4 million pounds or 9.3% from the revised September figure (up 5.2 million pounds) but was 13.6 million pounds or 4.2% below October 2018. YTD Cheddar is now at 3.1 billion pounds, down 2.6%.

Butter output totaled 157.0 million pounds, up 13.8% from September and was up 8.1 million pounds or 5.4% from a year ago. YTD butter is at 1.6 billion pounds, up 0.1% from 2018.

Dry whey totaled 89.9 million pounds, down 0.8% from September but 7.0% above a year ago, with YTD at 818.3 million pounds, down 4.0%. Stocks totaled 78.1 million pounds, down 5.6% from September but 5.1% above a year ago.

Nonfat dry milk production totaled 135.1 million pounds, up 14.8 million pounds or 12.3% from September and 13.5 million or 11.1% above a year ago.

YTD powder output is at 1.5 billion pounds, up 2.9% from 2018. Stocks fell to 218.8 million pounds, down 32.1 million or 12.8% from September and 33.8 million pounds or 13.4% below the 2018 level.

Skim milk powder output fell to 44.2 million pounds, down 8.6 million or 16.3% from September and 4.4 million pounds or 9.1% below a year ago. YTD skim hit 421.7 million pounds, down 11.0% from a year ago.