Editor’s note: As Agri-View went to press this week there appeared to be talk happening between China and the United States. The markets improved Aug. 13 in response to the news.
The dairy-market bulls stood their ground this past week in the face of enormous outside pressure.
The stock market suffered its worst losses of the year Aug. 5; the Dow closed more than 700 points in the red. The Chinese had opened a new front in the trade war, deliberately devaluing their currency to encourage exports. The U.S. Treasury quickly returned fire, labeling China a currency manipulator. The U.S. prepared a new list of Chinese goods to tariff, and China reportedly told importers to cancel orders for U.S. agricultural goods.
Both sides entrenched, preparing for a long damaging stalemate. Farm exports are the nation’s most obvious casualty. A protracted trade war could drag the global economy toward recession, further hampering demand – including for farm products.
With the equity and commodities markets in freefall Aug. 5, Chicago Mercantile Exchange dairy futures opened at lesser prices but Class III contracts improved. They followed that impressive performance with an even better close Aug. 6, shrugging off a flood of red ink at the Global Dairy Trade auction. The Global Dairy Trade Index decreased 2.6 percent, enduring its fifth decline in the past six events. Butterfat values slumped; both butter and anhydrous milkfat lost more than 5 percent. Cheddar decreased 2 percent from the previous auction. Whole-milk-powder prices slipped 1.7 percent. Skim-milk-powder prices decreased 1.6 percent to the equivalent of nonfat-dry milk at $1.20 per pound, still a steep premium to CME spot nonfat-dry-milk powder.
In Europe cheese values held, but butter prices continue to slip. Benchmark butter prices in Germany and the Netherlands stand at their worst value since August 2016.
The weakness in overseas pricing is out of harmony with global milk-production trends. In the first five months of this year combined milk output in Europe, the United States, Oceania, and Argentina was 1.7 billion pounds less than in January through June 2018 – a decline of 0.6 percent. In the months since Southern Hemisphere milk output has waned seasonally. Cows in the Northern Hemisphere have sweltered amidst a series of heat waves. July was the hottest month in recorded history. Temperatures were particularly extreme in Western Europe, where few dairies are equipped with adequate cooling. Milk yields have surely suffered.
As the Daily Dairy Report highlights, “Sustained downturns in global milk production are rare. And this one, coupled with shrinking stockpiles and brisk international trade, should translate into higher dairy-product prices around the world.”
But for now at least the major dairy-exporter markets are playing disparate tunes. Europe’s anemic butter prices strike a particularly discordant note. Decreased butterfat values in Europe have boosted U.S. butterfat imports, preventing a further decline in churning volumes. Eventually restrained production and robust exports should reverse the downtrend in continental butterfat values. If that occurs maybe the international dairy markets will all sing with one bullish voice.
The U.S. dairy markets remain firmly supported as milk tightens. At the CME spot market nonfat-dry milk increased 0.75 cents to $1.0275. Butter slipped a half-cent to $2.315. Spot Cheddar blocks reached a fresh multi-year best at $1.8675, an increase of 4.75 cents from the previous Friday.
Barrels added 2.75 cents to reach $1.72. Dry whey was 1.5 cents better. Compared to the previous Friday, August Class III futures increased 30 cents. Most Class III futures were a nickel or so better. Class IV futures were mixed, with small losses in nearby contracts and small gains down the board.
Feed markets climbed this past week. September corn settled at $4.1025 per bushel, an increase of more than a dime from the previous Friday. Soybeans closed at $8.7375, an increase of almost 20 cents. The strength is surprising in the face of a renewed assault on U.S. agricultural-trade prospects. Crop conditions improved modestly. Cooler-than-average temperatures are a mixed blessing. The lack of extreme heat during pollination will allow the grain to reach its full potential. But the late-planted crop is abnormally immature and cooler days aren’t helping. Harvest will be delayed. And an early frost would cap corn yields at far less than historic trends.
The U.S. Department of Agriculture published Aug. 12 its much-anticipated Acreage and Crop Production reports. The agency resurveyed farmers to assess the size of this year’s record-breaking prevented-planting acreage. The week will be volatile.