The dairy markets sprinted out of the gate March 2, but they couldn’t sustain such an energetic pace. They managed to cross the finish line this past Friday in a slightly better position than the previous Friday but they looked quite fatigued. Class III futures were little changed from the previous week, with nearby contracts in the low-$16s. Class IV futures improved. Most first-half contracts added about a nickel, while second-half futures increased 20 cents. But at prices ranging from $15.40 to $16.73 per hundredweight, Class IV values are uninspiring to put it kindly.

The dairy markets – and markets of all stripes – are fixated on the spread of the novel coronavirus or COVID-19. They are looking at its potential impact on the economy and consumer behavior. This past week for the first time since the financial crisis, the Federal Reserve called an emergency meeting and cut interest points by 50 basis points. If the disease continues to unsettle the markets, they may make further cuts in the hopes of stimulating economic activity. The dollar weakened considerably in response, making U.S. exports more competitive.

U.S. dairy-product exports made a strong showing in January with $546.2 million in sales. That’s only the second time ever that January sales were more than $500 million. Milk-powder exports were particularly strong. At 153 million pounds, they increased 40.8 percent from January 2019.

U.S. cheese exports increased slightly from this past year, while butterfat exports continued to lag. Whey-product exports grew noticeably from the depressed levels of this past year when the trade war was in full swing. Chinese orders for U.S. whey products improved as the U.S. regained market share there. But the severely diminished pig herd and COVID-19 suggest that further upside may be limited.

U.S. exporters likely kept dairy products moving abroad for much of February. But Southeast Asian orders evaporated when the virus began to wreak havoc during the Lunar New Year. It seems now that life is beginning to return to normal in much of China, outside Hubei province, but trade logistics are still a snarl. China is working through a backlog at its ports; ships and containers are often not where international traders need them to be.

Meanwhile COVID-19 is spreading quickly around the world, including in the United States. Countless corporations are canceling conferences and discouraging employee travel. Many people are opting to chat on a screen rather than face-to-face, reducing personal and business travel – and all the consumption that goes with it. There are a lot of would-be steak dinners that won’t hit the company’s credit card this month, along with numerous baskets of bread with butter, creamy soups, sauces and dressings, and cheesy appetizers.

In many places grocery-checkout lines are long and the shelves are starting to look bare, so it’s possible that gains in retail sales are offsetting slower restaurant traffic. But overall dairy demand is likely losing ground. There was plenty of milk for driers, vats and churns in January. While cheese and butter output increased only modestly from 2019, the 0.4 percent and 0.6 percent respective gains were enough to establish new production records for the month of January. Thanks to strong Mozzarella output, Cheddar production continues to lag prior-year levels, which may help the spot cheese market to find its footing.

Nonfat-dry-milk output was just 0.3 percent more than in January 2019, but skim-milk-powder production increased 29.5 percent. Manufacturers were clearly making product for export but foreign demand has since disappeared. Despite strong milk-powder exports in January, manufacturers stockpiled nonfat-dry milk. Stocks reached 279 million pounds, an increase of 32 million pounds from Dec. 31. That’s the largest December-to-January increase since 1999. Stocks are still at less than year-ago levels but the deficit is shrinking.

Dairy-product prices mostly decreased March 3 at the Global Dairy Trade auction, but the decline was not as steep as feared. The average price for skim-milk powder at the auction decreased 3.2 percent to the equivalent of $1.33 per pound, after adjusting for protein. At the Chicago Mercantile Exchange spot market, nonfat-dry milk bounced back from the previous Friday’s five-month worst price. It climbed a nickel to $1.115. Whey powder also rallied. It added 0.75 cents to close at 34.75 cents.

Now that March has arrived and brokers can no longer dump “old crop” butter in Chicago, pressure has abated. CME spot butter bounced back to $1.855, an increase of 13 cents from the previous Friday.

The cheese markets were mixed. Spot Cheddar blocks increased 2.75 cents to $1.75. Barrels decreased 11.25 cents to $1.4775. For the first time since June, barrels are cheaper than they were a year ago.

There are a lot of good things to be said about dairy-market fundamentals. The most positive is that global milk output is growing very slowly. But demand seems to be moving backward for the moment. Until that changes, conditions are likely to be rather gloomy on LaSalle Street in Chicago as well as on the farm.

Grain Markets

Just like dairy, corn prices gained ground this past week despite a lot of red ink Thursday and Friday. May corn settled at $3.76 per bushel, an increase of 7.75 cents from the previous Friday. Soybean futures retreated 1.5 cents to $8.9125. U.S. exports simply can’t compete with Brazilian soybeans. The Brazilian real stands at an all-time low against the U.S. dollar, and Brazilian farmers are enjoying their best soybean prices in a decade. As they bring in their bumper crop they are selling immediately. Brazilian soybean exports are expected to be record-large this month. The Argentine crop also seems to be in good shape, although it’s been a bit dry. The forecast promises that rains will return in a few days. But Argentina’s exports may not impress because the government raised taxes on both soybeans and soy products.

Sarina Sharp is with the Milk Producers Council. Visit www.milkproducerscouncil.org for more information.