Call the fire department! The barrel market is ablaze. The fire has been raging on La Salle Street in Chicago for more than a month. Buyers are in a panic wondering when the inferno will run out of fuel. Sellers have evacuated. They will do nothing to douse the flames and didn’t offer loads at any price. For the first time since August 2016 no barrels changed hands this past week.
The Cheddar market was already red-hot, but barrels pushed the mercury even hotter this past week. They climbed 7.5 cents to $2.325 per pound, a new five-year best. Blocks cooled from mid-week prices but still added 3.25 cents this past week. They closed at $2.155. October was the biggest month for barrels in more than 15 years; they vaulted from $1.69 to $2.2875, a nearly 60-cent increase. Although those better prices have surely encouraged production and trimmed demand, tighter milk supplies are slowing cheesemaker response to those inflated prices.
Cheese is generally available on the coasts, but the U.S. Department of Agriculture’s Dairy Market News reports in the Central region, “Cheese production is still slightly slower than this time in recent years.” But producers are shifting their product mixes and making more Cheddar. Barrel makers tell Dairy Market News that nothing has changed. The tone is still bullish. Some processed-cheese manufacturers are oversold, which is likely why they’re bidding so desperately in the spot market.
When cheese markets burn this hot in the fall, they often flame out in November as holiday orders fade. It’s going to be difficult to sustain barrels at more than $2.30 for long. But buyers have been wary of purchasing cheese beyond their immediate needs; they may be quick to bid on a setback. And now that end users have been spooked by $2.30 cheese, there’s room for prices to decrease to levels that look like a bargain and still provide profits for dairy producers. Both blocks and barrels could give back more than half the October gains and remain at more than the $2 mark. Meanwhile the rally has been baked into October and November cheese-pricing formulas. It’s provided the opportunity for dairy producers to sell December through April futures at new life-of-contract best prices. Even the embers of the autumn rally are likely to offer plenty of warmth and good cheer.
The spot whey market remains in the doldrums. It decreased to a 2019 worst of 26.75 cents Oct. 31 but then recovered to 28.25 cents, steady with Oct. 25. Whey output has slipped in the Central region along with cheese production, but there’s plenty of product in the rest of the nation. The lack of Chinese transactions looms large in the whey market. Due to African swine fever, Chinese whey imports decreased 12 percent from a year ago in September. They decreased 22.3 percent for the year to date. Due to tariffs U.S. whey shipments to China suffered even steeper declines. They decreased 28.6 percent from a year ago in September and decreased 49.3 percent for the year to date. In September the United States accounted for just 28.1 percent of Chinese whey-powder imports, matching its smallest share in 12 years.
Class IV products climbed. Spot butter rallied 2 cents to a still-uninspiring $2.08. Cream remains plentiful, but churning is starting to slow as production of holiday dips and spreads increasing. Global butter continues to trade at a steep discount to U.S. product.
Spot nonfat-dry milk gained 3 cents this past week to reach a new 2019 best at $1.1825. Better spot milk prices are restraining drying activity in the Midwest, but there’s plenty of milk for driers in the West. Still demand is more than keeping pace with output, and supplies seem to be tightening. Mexico continues to buy U.S. milk powder in large volumes. China’s appetite for skim-milk powder remains prodigious. Chinese imports of skim-milk powder in September increased 30 percent from a year ago, and increased 30 percent for the year to date. China has never before imported skim-milk powder at those volumes. Chinese whole-milk-powder imports increased 18.8 percent from a year ago and exceeded January through September 2018 by 23 percent.
Better butter and milk-powder pricing lifted Class IV futures considerably. Nearby contracts gained about 25 cents while deferred futures gained a dime or so. Fueled by the fiery cheese market, Class III futures soared to new best prices. The November contract added 63 cents to close at $20.19 per hundredweight, the first reading at more than $20 since 2014. December Class III jumped $1.14 this past week to $19.70. The 2020 contracts logged double-digit gains; January was at more than $18. At those values dairy producers should be solidly in the black.
The USDA announced the October Class III price at $18.72 per hundredweight, an increase of 41 cents from September and of $3.19 from a year ago. That’s the best announced Class III price since November 2014. At $16.39, October Class IV increased 4 cents from September and increased $1.38 from a year ago.
The grain markets finished a little better this past week. December corn settled at $3.8925 per bushel, an increase of 2.5 cents from the previous Friday. November soybeans closed at $9.2425, an increase of 4 cents. Farmers remain frustrated. The harvest has been painfully slow, with snow flurries and frigid temperatures. Many fields remain too wet to harvest. As of a week ago Sunday, just 41 percent of the corn crop had been harvested compared to 61 percent in a typical year. Harvest progress is woefully behind in North Dakota by 6 percent, and in several key dairy states including Wisconsin by 13 percent, South Dakota by 14 percent, Michigan by 21 percent and Minnesota by 22 percent. Feed quality is likely to be an issue, which could weigh on milk yields in the months to come.
Corn and soybean planting is underway in South America but conditions are less than ideal. Farmers are hoping for more rains in much of Brazil and Argentina. The forecast features less-than-normal rainfall for much of the region this week, but the following week looks better. In contrast fields have been drenched in Rio Grade do Sul, in southern Brazil and nearby Paraguay, and in northeastern Argentina.