Chicago Mercantile Exchange spot Cheddar blocks just keep marching down the field. Barrels are feinting this way and that, losing yards and then gaining them back with a flourish. Both markets rushed to better prices this past week, but blocks were the standout. They settled at $1.9975 per pound, just shy of the $2 mark and 6.75 cents more than the previous Friday. Such gains are especially impressive at those already lofty values.
Industry insiders had previously told the U.S. Department of Agriculture’s Dairy Market News that prices of more than $1.80 “would hinder buying,” as they have in the past. But for now at least blocks cannot be stopped. They stand at the best price since November 2014. Barrels inched better by 0.5 cents this past week to $1.7425.
CME spot whey powder also gained a half-cent to reach 39.5 cents. Football season has arrived, schools are back in session and cheese demand is excellent. Output is not keeping pace.
Processors made 1.1 billion pounds of cheese in July, an increase of just 0.5 percent from July 2018. Tighter milk supplies in the Midwest and a shift toward Italian-cheese production in California and Idaho reduced national Cheddar output to just 307.4 million pounds, a decrease of 5.5 percent year-over-year. That has helped to fuel the spot market but traders remain concerned that fresh cheese will become more plentiful this fall. September Class III futures jumped 33 cents this past week to almost $18 per hundredweight but most other contracts settled in the red.
While Cheddar blocks score fresh multi-year best prices, spot butter reached a milestone of a different sort. It slumped 1.75 cents this past week to $2.1725, a one-year worst. Butterfat products also fared poorly at this past week’s Global Dairy Trade auction. Whole-milk-powder prices decreased 0.8 percent from the previous event, anhydrous milkfat decreased 1.5 percent and butter held steady at the equivalent of $1.78 per pound – adjusted to 80 percent butterfat, the U.S. standard. Cheap imported fat boosted U.S. butter output in July to 142.7 million pounds, 6 percent more than in July 2018. With plentiful stocks, rising production and abundant imports, the butter market is on its heels.
The milk-powder market is on firmer footing. Spot nonfat-dry milk increased 0.75 cents this past week to $1.0475, its best price since June. At the Global Dairy Trade auction, skim-milk powder increased 0.7 percent to the equivalent of nonfat-dry milk at $1.21 per pound. Milk-powder makers dried a lot of nonfat-dry milk – and comparatively little skim-milk powder – in July but they kept it moving. Combined production of nonfat-dry-milk and skim-milk powder totaled 205.6 million pounds, an increase of 4 percent from July 2018. But manufacturer stocks of nonfat-dry-milk powder increased just 2.3 million pounds from June to July. At 291.2 million pounds inventories were 8.3 percent less than the prior year.
U.S. nonfat-dry-milk-powder and skim-milk-powder exports in July decreased to 8.9 percent short of year-ago volumes despite more shipments to Mexico.
Weak demand from Asia reduced shipments of all varieties of dairy products in July. The United States sent 10.9 percent less cream, 38.9 percent less butter and milkfat, and 28.2 percent less dry whey abroad than it did in July 2018. U.S. cheese and curd exports were better than the prior year by 0.3 percent. But the modest gain was the result of decreased shipments to Mexico in July 2018 when increased tariffs began to take effect, rather than an indication of strengthening foreign demand for U.S. cheese. Shipments to South Korea decreased 39.2 percent from a year ago, while exports to Japan decreased 16.4 percent. South Korea and Japan are America’s second- and third-largest cheese foreign markets. Comparatively better U.S. dairy-product values, a strong currency and punitive tariffs have created major headwinds for dairy exports. An economic slowdown in southeast Asia is an unwelcome development in an already tempestuous export environment.
Fortunately for U.S. dairy producers, slow growth in milk output and firm domestic demand is compensating for diminished export prospects in the cheese and milk-powder markets. U.S. milk output seems likely to hold at about year-ago levels, which would continue to undergird milk prices.
Slaughter volumes remain inflated, suggesting that the dairy herd is still shrinking. Springer values have increased. While that signals some producers are looking to keep their barns full, it has also ushered in a new wave of dairy dispersals. Some dairy producers have weathered the downturn but have soured on the industry. Now that their facilities and livestock will command more than fire-sale prices, they are looking to sell. A big boom in U.S. milk production is unlikely in the near term.
The feed markets decreased. December corn futures settled this past Friday at a life-of-contract worst of $3.555 per bushel, a decrease of 14.25 cents from the previous Friday. Finishing at $8.5775, November soybeans decreased by 11.25 cents. Crop analysts are slowly increasing their assessment of the national corn and soybean yields. There are no sub-freezing temperatures in the forecast, easing concerns that a killing frost will damage the stunted crops. Still it’s been an unusual growing season so the market will not feel confident in harvest prospects until the combines are rolling. Stockpiles are expected to remain ample despite some areas with very-poor crops because export volumes have disappointed, leaving more feed for U.S. end users.
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