The dairy markets absorbed some disappointing data this past week – and kept right on climbing. November 2019 and first-half-2020 Class III futures traded at new life-of-contract bests. The November contract settled at $20.36 per hundredweight, an increase of 11 cents from the previous week. The December through March contracts increased substantially while deferred contracts were generally steady or a penny less. Most Class IV contracts rallied at least a dime since the previous Friday. But the November contract remained disappointing at $16.65.
Better prices and mild weather have boosted milk output. The U.S. Department of Agriculture reported Nov. 19 that October milk production was 18.1 billion pounds, an increase of 1.3 percent from a year ago. That matches the year-over-year increase reported in September but was noticeably more than the mix of small gains and losses in the rest of 2019. Milk output was more than year-ago levels in the seven-largest dairy states.
- Wisconsin increased 1 percent.
- California increased 2.8 percent.
- Idaho increased 2.3 percent.
- New York increased 1.8 percent.
- Texas increased 9.3 percent.
- Michigan increased 3 percent.
- Minnesota increased 1.8 percent.
The gains were driven by impressive improvements in milk production per cow. Milk yields increased in all but five states.
Dairy producers in Washington, Idaho, Colorado and Arizona could not replicate the milk per cow achieved in October 2018 under almost-ideal conditions.
The yield was steady in South Dakota.
All the other major dairy states reported much more milk production per cow than this past year, and the national average milk yield jumped 1.7 percent. The weather in November has been less accommodating, particularly in the Midwest and Northeast where cows shivered in an early cold snap. It’s unlikely that milk yields will climb by such a wide margin this month.
The dairy herd is no longer contracting. That was the more-bearish part of the report; it indicates increased potential milk production in the months to come. The USDA increased its estimate of the September milk-cow herd, now showing a 5,000-head increase in the size of the U.S. dairy herd from August to September. Dairy producers added another 5,000 cows this past month, bringing the national total to 9.327 million head. That’s 40,000 fewer than in October 2018 but the year-over-year shortfall is narrowing. Despite still-inflated slaughter volumes, the USDA estimates dairy producers added 10,000 cows in just two months. They must be adding heifers at a rapid clip.
On the other side of the world the trend is much different. Milk collections in New Zealand totaled 3.2 million metric tons in October, 2.6 percent less than the record volumes of a year ago. The year-over-year deficit in New Zealand offset more than 80 percent of the U.S. increase.
Despite increased U.S. milk production in October, inventories of cheese and butter in cold-storage warehouses declined noticeably, signaling robust demand. The cheese stockpile decreased 31.6 million pounds this past month to 1.374 billion pounds. The larger-than-typical drawdown decreased cheese inventories 2.4 percent from a year ago. Inventories of American-style cheese are now 8.5 percent less than the prior year. The “Cold Storage” report was released after the closing bell this past Friday; it was likely to support the market when it opened again this week.
Tighter stocks – particularly for Cheddar barrels – propelled the cheese markets to multi-year bests this fall. After a steep selloff this past week, spot Cheddar prices made a more-orderly retreat this past week. Values remain historically inflated. The trade was relieved to see buyers increase their market bids this past Thursday, which allowed futures to rally. But spot Cheddar finished less than it was the previous Friday. Blocks decreased 4.75 cents to $1.8425 per pound. Barrels closed at $2.185, a decrease of 1.25 cents.
Chicago Mercantile Exchange spot butter decreased 4.25 cents this past week to $2.025, a three-year worst. Foreign butter remains inexpensive and there seems to be plenty of butter to meet holiday demand. There were 237.7 million pounds of butter in warehouses as of Oct. 31, 2.8 percent more than the year before. But the report reveals better demand than previously thought. The USDA decreased its estimate of Sept. 30 butter inventories noticeably, easing concerns about butter consumption earlier this fall. Furthermore the September-to-October drawdown was the largest since the early 1990s, suggesting American appetite for healthy natural dairy fats remains strong.
The protein products increased this past week. Skim-milk powder enjoyed another strong performance at the Global Dairy Trade auction. Skim-milk powder increased 3.3 percent to the equivalent of nonfat-dry milk at $1.46 per pound, the best Global Dairy Trade value since August 2014. At the CME spot market nonfat-dry milk rallied to a five-year best of $1.235 on Tuesday and finished at $1.22, up 0.25 cents for the week. The whey market was once again a standout. CME spot whey increased 2.75 cents to 34.75 cents, the best value since September. During the past two weeks spot whey has vaulted 7 cents, an increase of 26 percent. That’s adding substantial value to the Class III section of dairy-producer milk checks.
With more cows lumbering through U.S. milk parlors than there were this summer, the market is understandably concerned that the United States will make more dairy products, especially milk powder. In milk-surplus regions like the mountain states, that’s almost certainly the case. But after many months of milk-production deficits around the globe, the world can absorb the increase. Dairy-product inventories have tightened. It will take more than a few months of increased milk output to overcome the painful pruning the industry has undertaken during the past two years. Meanwhile demand continues to grow.
It was a quiet week in the grain pits. March corn settled at $3.785 per bushel, a decrease of 1.5 cents this past week. January beans closed at $8.97, a decrease of more than 20 cents. Favorable weather in South America and concerns about the prospects of even the simplest phase of the U.S.-China trade deal weighed on the soy complex. Soybean meal futures decreased to their worst levels since September, offering dairy producers another opportunity to purchase protein feeds at historically affordable values.