Dairy Market: Will cheese price hit $3?
CME Cheddar block cheese started the third week of June Dairy Month losing 2 cents and stayed there until Friday, when it rocketed up 15 cents on 3 unfilled bids to a record high of $2.65 per pound, up 13 cents on the week and 82.50 cents above a year ago.
But wait, there’s more.
The blocks shimmied up another 5.25 cents on Monday, setting another record high, then pole vaulted 10.75 cents Tuesday, as traders weighed Monday’s May Cold Storage report, and set another block record of $2.81 per pound.
Do I hear $3?
The barrels finished Friday at $2.2850 per pound, down 4.75 cents on the week but 54.75 cents above a year ago. Trading activity saw only 7 cars of block sold last week at the CME and 6 of barrel.
The barrels gained 3.75 cents Monday and jumped 4.75 cents Tuesday, hitting $2.37, the highest CME price since June 9, 2020, but that’s a whopping 44 cents below the blocks, exceeding the previous record spread of 43.25 cents on Sept. 23, 2019.
Most Midwestern cheesemakers continue to report six- and seven-day workweeks and mid-week spot milk prices were at least 50 cents over Class, according to Dairy Market News. Pizza cheese producers report gains in customer activity as more pizza shops report stronger sales numbers.
Some western contacts say they are running more milk through cheese vats than ever before. Retail demand has remained strong. Foodservice accounts are still below seasonal purchase levels, but buyers are trying hard to refill the pipeline. That, plus the surge of government purchases, keeps production at full capacity, with some at over 125%. The down side is that U.S. cheese prices have risen to a point where they are not as competitive as the EU, so exports are slowing.
Cash butter fell to $1.80 per pound last Wednesday but closed Friday at $1.85, 2 cents lower on the week and 54 cents below a year ago on 25 sales.
Monday’s butter lost 1.75 cents and it dropped 2 cents Tuesday to $1.8125.
Central butter makers tell DMN that cream remains out of their fiscal reach. Bulk butter offers are quiet and butter availability is a concern, in general. A growing number of butter marketers are concerned about inventories coming into the fall.
Retail butter sales are solid in the West. Export interests have declined as U.S. butter does not have a competitive advantage. Butter sales in foodservice are steady to still sluggish depending on the area. Some restaurant owners have no interest in reopening, says DMN, despite the easing of restrictions.
Grade A nonfat dry milk climbed to a Friday close of $1.0325 per pound, up 2.75 cents on the week but 1.25 cents below a year ago; 33 cars sold on the week.
Traders left the powder unchanged Monday but inched it down 0.25 cent Tuesday, to $1.03 per pound.
Dry whey closed Friday at 32.75 cents per pound, 1.5 cents higher on the week but 1.5 cents below a year ago, as the increased cheese production results in increased whey output; 25 cars exchanged hands last week at the CME.
Monday’s whey was down 1.25 cents, and it lost 0.75 cents Tuesday, dropping to 30.75 cents per pound.
May milk down 1.1%
U.S. milk production took a hit in May, likely driven by falling milk prices due to the pandemic and milk reduction programs mandated by handlers.
Preliminary data in the latest Milk Production report showed May output at 18.84 billion pounds, down 1.1% from May 2019 and the first shortfall since June 2019.
Output in the top 24 producing states was 18.0 billion pounds, down 1.0% from 2019.
Revisions lowered the original April 50-state total by 47 million pounds, now put at 18.65 billion, up 1.2% from April 2019, instead of the reported 1.4%.
May cow numbers totaled 9.37 million head in the 50 states, down 11,000 from April but 37,000 above a year ago. Output per cow averaged 2,011 pounds, down 31 pounds from a year ago, or 1.5%.
California output was down 52 million pounds, or 1.5%, from a year ago on 4,000 fewer cows and a 25-pound drop per cow.
Wisconsin was down 82 million pounds, or 3.1%, on 12,000 fewer cows and a 45-pound drop per cow.
Idaho, one of seven states in the top 24 showing an increase in output, was up 4.8%, thanks to 27,000 more cows and 10 pounds more per cow.
Michigan was off 0.4%, on a 25-pound drop per cow but had 3,000 more cows than a year ago. Minnesota was down 1.9% on a 15-pound loss per cow and 5,000 fewer cows.
New Mexico had the biggest decrease, down 7.2%, on a 185-pound per cow plunge, a result of reduction measures there, but cow numbers were up 4,000 head.
New York was down 3.7% on a 75-pound loss per cow and 1,000 fewer cows.
Oregon was unchanged with 2,000 more cows offsetting a 30-pound drop per cow.
Pennsylvania was down 3.0% on 10,000 fewer cows and a 20-pound loss per cow.
Texas was up just 1.9%, despite milking 25,000 more cows but output per cow was down 50 pounds.
Washington state was off 0.5%, on a 20-pound drop per cow but cow numbers were up 1,000 head.
The Agriculture Department’s latest Cold Storage report pulled back the dairy market curtain a bit. You’ll recall that cheese and butter stocks jumped in April as a result of the COVID pandemic but demand surged in May as consumers chewed through product and pulled it out of inventory.
May 31 butter stocks stood at 380.2 million pounds, up 7.6 million pounds or 2.0% from April and 66.4 million pounds or 21.2% above those a year ago but HighGround Dairy (HGD) points out “it was the slowest May butter net in-movement since 2012 as available cream tightened sharply later in the month and likely cut production just as retail sales remained elevated well above prior-year levels.”
HGD adds the caveat that butter is by no means scarce and is at the highest level since September 1993, but “shifting fundamental data may be creating a bullish picture for the second half of the year than HighGround originally anticipated. With milk and cream availability still tight into June with no relief on the horizon, butter production could be lower versus prior year levels into the summer just as the seasonal stock drawdown begins. While foodservice demand is still weak, retail demand is sharply higher,” according to HGD.
Switching to cheese, American type dipped to 820.2 million pounds, down 14.1 million pounds or 1.7 % from April but 33.6 million or 4.3% above a year ago.
The “other” cheese inventory slipped to 609.8 million pounds, down 8.9 million pounds or 1.4% from April but was 35.4 million or 6.2% above a year ago.
The total cheese inventory fell to 1.45 billion pounds, down 24.0 million pounds or 1.6% from April but was still 69.0 million pounds or 5% above April 2019.
HGD says, “This was the steepest May total stocks decline on record and more than double the prior year decline, which was also against the normal May trend. Total cheese in storage remains well above prior year levels for the second consecutive month, but the May drawdown explains the rapid price increase in the month that pushed cheese prices to new record highs.”
Fresh cheese is still tight, keeping prices high, HGD warns, and “once the short squeeze ceases, it is possible that cheese prices could collapse quickly due to heavy stocks.”
Class I jumps
The Agriculture Department announced the July Federal order Class I base milk price at $16.56 per hundredweight, up $5.14 from June but 62 cents below July 2019. It equates to $1.42 per gallon, up from the COVID-inspired 98 cents a gallon a month ago.
The 2020 Class I average stands at $15.94, down from $16.12 a year ago and compares to $14.60 in 2018.