Dairy Market: GDT auction average jumps 3.6%

Skim milk powder led the way, with cheese right behind, and drove this week’s Global Dairy Trade auction’s (GDT) weighted average up 3.6%, ending four consecutive sessions of decline.

Skim milk powder was up 8.4%, following a 1.8% gain on Sept. 1. GDT Cheddar was up 7.2%, after slipping 0.4%, and whole milk powder was up 3.2%, after losing 2.0%. Anhydrous milkfat was up 2.0%, after slipping 0.5% last time.

The declines were led by lactose, down 2.7%, after inching up 0.8% in the last event, and butter was down 1.4%, after a 1.2% slide last time.

StoneX Group equated the GDT 80% butterfat butter price to $1.4525 per pound U.S., down 2.3 cents from the last event. CME butter closed Tuesday at $1.5050. GDT Cheddar cheese equated to $1.6667 per pound, up 11.2 cents, and compares to Tuesday’s CME block Cheddar at a very pricy $2.2150.

GDT skim milk powder averaged $1.3104 per pound, up from $1.2080, and whole milk powder averaged $1.3540, up from $1.3080. CME Grade A nonfat dry milk closed Tuesday at $1.06 per pound.

Mixed prices at home

Dairy prices were mixed in the Labor Day holiday shortened week. The CME Cheddar blocks marched to $2.1575 per pound on Wednesday, then slipped back, but rallied to a Friday close of $2.1650, up 4 cents on the week and 4 cents below a year ago when they jumped almost 21 cents.

The barrels got to $1.7150 last Tuesday but reversed the next day and finished Friday at $1.5950, down 10.5 cents on the week and 32.50 cents below a year ago; 13 cars of block exchanged hands last week at the CME and 19 of barrel.

The blocks gained a nickel Monday and stayed there Tuesday at $2.2150, with no activity in blocks or barrels. This is the highest block price since July 31, as traders weighed the morning’s Global Dairy Trade auction and anticipated Thursday afternoon’s August Milk Production report.

The barrels inched up a half-cent Monday and were unchanged Tuesday, holding at $1.60, a record spread of 61.50 cents, topping 59.75 cents on July 13, 2020.

FC Stone says a new cheese plant in St. John’s, Mich., that will come online in late October may help balance or normalize these types of spreads.

Midwestern cheesemakers remain busy, reports the Dairy Market News, and have been quite busy for most of the summer and things do not look to change coming into the fall. Most contacts report cheese loads are “moving out the door,” as market tones have benefited from the announcement of continued governmental lunch box programs.

The large gap between CME block and barrel prices remains an issue, warned DMN, “but weekly average prices have resoundingly answered back following the precipitous drops in July and August.”

Western cheese output is also active. Contacts feel that government purchases have spurred cash pit prices and prompted manufacturers to amp up cheese production. Some processors say prices have been favorable for export sales, while others have put cheese into storage due to the difference between cash and futures prices.

DMN adds that “Normally, football season pizza sales might be a topic of discussion for this time of year, but with some league competitions postponed, no fans in the stands, and with smaller gatherings encouraged, it may be a more subdued season.” Frozen and delivery pizza sales have remained strong however, and cheese supplies are generally available for both block and barrel.

Butter inched up to $1.50 per pound on Tuesday but closed Friday at $1.48, 1.25 cents lower on the week and 74.25 cents below a year ago, on 42 CME sales.

Monday’s butter gained a penny and added a penny and a half Tuesday, hitting $1.5050, with a whopping 46 carloads exchanging hands in the morning.

HighGround Dairy says the previous record was 59 trades on Nov. 3, 2004, when butter only traded three times per week.

Cream remained accessible for Midwestern churns following the holiday weekend though some plant managers were hesitant to take on more cream, says DMN. Bulk butter supplies are plentiful. Cream handlers say demand in general is lackluster. Production remains busy as Class IV producers prepare for fall demand. Foodservice orders have climbed to a more comfortable point. They are notably lower than in previous years but have shown more life in recent weeks. Some butter producers suggest retail orders remain higher than previous years' numbers but butter market tones remain “somewhat delicate of late,” says DMN.

Western butter markets were flooded with cream at the beginning of the Labor Day Week but processors were prepared, according to DMN. Butter production is active and inventories have grown a bit. Domestic sales remain stable. The lower U.S. prices could stimulate more international sales but current export demand is unchanged.

Grade A nonfat dry milk had a good week, climbing to $1.0425 on Wednesday, though it closed Friday at $1.04, a penny higher on the week but 1.5 cents below a year ago, with 28 carloads exchanging hands on the week at the CME.

The powder was unchanged Monday but ticked up 2 cents Tuesday, to $1.06, highest since March 11, 2020.

CME dry whey closed Friday at 35.50 cents per pound, up 2.25 cents on the week but 4.25 cents below a year ago, on 6 sales for the week.

Monday’s trading took the whey down 0.75 cents and it stayed put Tuesday at 34.75 cents per pound.

Volatility remains

Dairy demand remains “extremely volatile,” according to Matt Gould, analyst and editor of the Dairy and Food Market Analyst newsletter. Speaking in the Sept. 14 "Dairy Radio Now" broadcast, Gould said that demand collapsed in April and we were dumping milk. The latest data is “mixed,” he said, as restaurants reopened and people flocked to retail stores, but that has slowed.

June commercial cheese disappearance was up 6.3% from June 2019, but that fell to 3.2% in July. Butter demand was up 15% in June but dipped in July, down 5.1%.

Gould said, “We’re still seeing big gyrations in demand and trends are moving kind of quickly.” Deeper analysis shows we still have strong growth at retail, he said, but foodservice is particularly weak due to the restaurant shutdowns. “Add in government purchase programs, and there have been several, and that’s how you end up with a total cheese demand number that’s well above a year ago.”

Per capita dairy product consumption in 2019 was up 7 pounds or 1% from 2018, according to USDA. Gould said that’s important because dairy consumption is rising. The media points to declining fluid milk sales, he said, but that is not declining dairy sales. While we are consuming less fluid milk, but we are eating more cheese and butter, and those are bright growth spots for the dairy industry.

Gould also talked about processor supply management programs that were implemented months ago on milk and said they account for more than 15% of the U.S. milk supply. The milk overwhelmed processors, he said, and while the programs were relaxed in the second quarter they’re being looked at again in the third quarter due to concern over incoming milk volumes.

More milk, lower prices

Higher milk prices are and will fuel more milk output. The Agriculture Department again raised its 2020 and 2021 milk production forecast from last month’s estimate, in the latest World Agriculture Supply and Demand Estimates report (WASDE) issued Friday. The department cited higher expected growth in milk per cow on both forecasts.

2020 production and marketings were estimated at 222.0 billion and 221.0 billion pounds, respectively, up 200 million pounds on production from their July estimate and up 300 million pounds on marketings. If realized, 2020 production would be up 3.6 billion pounds or 1.6% from 2019.

2021 production and marketings were estimated at 225.4 billion and 224.4 billion pounds, respectively, up 100 million pounds on both. If realized, 2021 production would be up 3.4 billion pounds or 1.5% from 2020.

The Class III milk price forecast was reduced on lower cheese and whey price forecasts. Look for the 2020 Class III average to hit $17.25 per hundredweight, down 15 cents from last month’s forecast and compares to a $16.96 average in 2019 and $14.61 in 2018. The 2021 average is projected at $16.00, down a dime from what was anticipated a month ago.

The Class IV price forecast was reduced on the lower butter price. The Class IV is expected to average $13.40 per cwt., down 15 cents from last month’s estimate, and compares to a $16.30 average in 2019 and $14.23 in 2018. The 2021 Class IV average was projected at $13.60, down a nickel from what was expected a month ago.