It was another big week for barrels in Chicago. They added a dime to reach $2.055 per pound. Barrel prices have decreased just once in the past 20 trading sessions. They have advanced 46 cents in the past month, a formidable 29 percent gain. Blocks climbed too, but with a little less gusto. They rallied 3.75 cents to $2.6475.
Consumers continue to reach for kitchen staples that are familiar and convenient, and Cheddar fits the bill. And when they tire of cooking they’re apt to order a pizza. Domino’s reported an almost 18 percent year-over-year increase in same-store sales in the third quarter. Papa John’s saw sales surge 27 percent. Government purchases and exports are also keeping cheese moving. U.S. cheese and curd exports in August totaled 68.4 million pounds, an increase of 16.6 percent from a year ago.
U.S. cheese output slowed in August to 1.09 billion pounds, a decrease of 2.1 percent from August 2019. Surprisingly mozzarella output decreased 4.4 percent year over year, a curious decline given pizza’s popularity. That left more milk for other cheese varieties; Cheddar output increased from the prior year by 0.5 percent. It’s likely that some cheesemakers pushed Cheddar into aging programs in August, when spot values were much less than they are currently. That has contributed to the current shortage of fresh cheese, but a decline in government purchases may soon free some product.
Chicago Mercantile Exchange spot dry whey gained another half-cent the previous week to reach 39.5 cents, an almost five-month best. Whey-powder production decreased 5.4 percent from year-ago levels in August to 80.3 million pounds. Exports have been respectable throughout 2020, but in August they were downright impressive. They increased 56 percent from the prior year to the best volume since May 2018. Nonetheless whey stocks climbed in August, signaling weak domestic demand.
Dryers processed less milk in August compared to earlier in the year. The accumulation of summer heat stress and the beginning of back-to-school demand slowed the flow of milk to balancing plants. But milk-powder output was unusually strong given the season. Nonfat-dry-milk production totaled 144.2 million pounds, the best August volume since 1982. Combined production of nonfat-dry-milk and skim-milk powder was 4.8 percent greater than in August 2019. Nonetheless stocks are not burdensome. Manufacturer inventories of nonfat-dry milk declined more than 40 million pounds from July to August, and were just 0.4 percent greater than the prior year.
Competitive pricing and firm international demand are helping to move milk powder abroad at a rapid clip. U.S. exports of nonfat-dry milk climbed 34.7 percent year over year to 151.7 million pounds, the best August volume on record. Shipments to Mexico continue to lag but the United States has boosted sales to Southeast Asia. If the United States can maintain that new market share and capitalize on pent-up demand from buyers south of the border, U.S. milk-powder values are likely to continue to climb. CME spot nonfat-dry milk added a quarter-cent this past week and closed Oct. 9 at $1.125. Skim-milk-powder prices took a small step back at the Global Dairy Trade auction Oct. 6 but both Global Dairy Trade skim-milk powder and European markets remain notably better than U.S. nonfat-dry-milk values.
With the rest of the dairy complex gaining ground, the bears were relegated to the butter market. They seem quite at home there. CME spot butter decreased almost 21 cents in less than three weeks. It slumped to $1.395 as Oct. 8, its first foray to less than $1.40 since early May. It rebounded Oct. 9 to finish at $1.4125, still 9.75 cents less than the previous Friday. This past week December through March butter futures scored life-of-contract worst prices.
Butter output slowed seasonally in August to 152.3 million pounds. Although that’s much less than daily average output for much of the year, it’s extremely large for late summer – marking the largest August butter output since 1942. Given the ailing food-service sector and concerns about diminished holiday festivities, we simply don’t need to be making this much butter. And foreign butter continues to add to the stockpile. Although U.S. butter imports slowed in August, the U.S. remains a net butter importer despite months of bargain-basement pricing.
Weak butter values weighed on Class IV futures. November through February futures lost more than 60 cents apiece this past week and continue to lag dairy-producer cost of production by a sizeable margin. October Class III jumped 73 cents this past week to $20.91 per hundredweight, a life-of-contract best price. November Class III added 37 cents this past week, while most deferred contracts added a nickel or so. Thus the chasm between Class III and IV prices widened, creating a huge disparity between producers whose entire milk check is based on Class III and those whose revenue is watered down by the producer price differential and inadequate Class IV values.
The feed markets increased once again, buoyed by another week of strong exports and the growing threat of the La Niña in South America where planting season is off to a very dry start. The USDA did nothing to check the advance in its recent Crop Production and World Agricultural Supply and Demand Estimates report. The agency held steady its assessment of the national average soybean yield at 51.9 bushels per acre. It nominally trimmed the corn yield from 178.5 bushels per acre in September to 178.4 bushels per acre currently. But it chipped away at acreage estimates, reducing its assessment of corn harvested for grain by nearly 1 million acres and decreasing harvested soybean area by 731,000 acres compared to the September report. The reduced acreage reduced the harvest forecast for both crops, creating a little more feed for the bulls.
There’s no reason for corn buyers to panic. The USDA expects that when the season ends next September there will be 2.17 billion bushels of corn in inventory, roughly on par with the historically great stock levels of the previous four seasons. But soybeans are likely to feel tight. End-of-season soybeans are projected to decrease to 290 million bushels, a five-year small number. December corn settled Oct. 9 at $3.95 per bushel, an increase of 15.25 cents from the previous Friday and an increase of 75 cents from the August numbers. November soybeans added almost 45 cents to reach $10.655. December soybean meal increased almost $12 to $363.70 per ton.