The Chicago Mercantile Exchange spot dairy markets slipped this past week. Spot butter decreased 1.5 cents to $2.3975 per pound. Nonfat dry milk decreased 1.75 cents to $1.0075, a nearly three-month-worst. Class IV futures were little changed from the previous Friday.
Cheddar blocks decreased a half-cent to $1.78. Barrels were 3.5 cents less at $1.7050. Spot whey powder was, uncharacteristically, the strongest market. It increased 1.75 cents to 34 cents.
The Class III futures shrugged off the weaker spot cheese prices to gain considerable ground. Most contracts finished 20 to 30 cents more, and 2020 futures posted life-of-contract best. All products rallied at the Global Dairy Trade auction this past Tuesday, with the exception of rennet casein. The Global Dairy Trade Index broke its two-month losing streak to increase 2.7 percent.
The milk powders were especially strong. Whole-milk powder increased 3.6 percent. Skim-milk powder gained 3.8 percent to reach the equivalent of nonfat-dry milk at $1.21 per pound, after adjusting for protein. The average winning butter price finished 1.7 percent more than the previous auction. Cheddar added 3.3 percent.
But in Europe dairy-product prices continue to slip. Milk output is also decreasing in Europe, which may arrest the decline in prices. Year-over-year growth in milk production slowed to a crawl in May after modest gains in March and April.
Preliminary data from the European Commission suggest that milk collections were just 0.1 percent greater than the prior year. Year-over-year deficits widened in Germany, France and the Netherlands. Output in Poland, the source of much of Europe’s recent growth, exceeded May 2018 by just 0.3 percent – the smallest margin since October 2016. Collections in Ireland continue to impress.
Miniscule growth in European milk output in May likely gave way to a shortfall in June, as a record-breaking heat wave swamped the continent. The weather remains sultry in some key dairy areas, but the most extreme temperatures have abated. Still tempers are running hot, and farmers and cows are clearly stressed. In France dairy producers have protested inadequate milk prices by blocking roads with manure and burning tires. They now have more cause to protest. France has declared 21 of its 96 districts in crisis-level drought. In parts of the 21 driest districts, irrigation and other agricultural water use is banned. That will surely raise the cost and limit the availability of feed for dairy producers. Milk output is likely to suffer in Europe’s second-largest dairy nation in the near term.
In Germany gains in milk output will need to come from improved milk yields, which may be fleeting this summer. Germany’s Statistical Office reports there were 2.04 million milk cows in May in Germany, 2.4 percent fewer than in May 2018.
Heat is also taking a noticeable toll on milk yields and components in much of the United States. The U.S. Department of Agriculture’s Dairy Market News reports that many processors in the East and in the upper Midwest are running at less than capacity. In contrast mild weather has boosted milk yields and prolonged the flush in the Pacific Northwest. Surplus milk is moving at steep discounts and contacts speculate there may be some milk that is being discarded.
Springer prices and slaughter volumes signal that dairy producers are still convalescing. They are rebuilding their finances and restoring their relationships with their lenders. They lack the energy and resources to add significantly to their herds. But when their vigor returns, many will surely look to expand. However the industry’s collective ambitions may be limited by a lack of young stock. The USDA estimates there were 4.2 million heifers for milk-cow replacement at midyear in 2015 through 2018, the most since 1989. That glut of heifers allowed dairy producers to expand the milk-cow herd to well north of 9.4 million head from April 2017 to June 2018.
But this year the USDA estimates July 1 heifer inventories at 4.1 million head, a decrease of 100,000 head or 2.8 percent from the previous four years. Heifers have been cheap for years, incentivizing dairy producers to eschew sexed semen, introduce more beef genetics and place excess heifers in feedlots. Those collective decisions will take years to reverse and will limit expansion, helping to extend the dairy-market recovery. Dairy producers are not attempting to boost heifer supplies and slow their use of beef crossbreeds. If anything, beef crossbreeding is accelerating.
It was a hot mostly-dry week in the Corn Belt, but it was neither as hot nor as dry as feared. So the markets retreated. President Donald Trump’s comments that the United States and China “have a long way to go” before reaching a trade agreement likely also weighed on the grain markets. But the trade market remains concerned about acreage and crop yields, making selloffs difficult to sustain. This past Friday the grain markets regained much of the ground they lost earlier in the week. September corn closed at $4.3075 per bushel, a decrease of 23.5 cents from the previous Friday. August soybeans settled at $9.015, a decrease of 11.75 cents.