There was a lot of red Valentine’s Day on LaSalle Street in Chicago. The powders were particularly weak as fears of coronavirus sickened the markets most sensitive to Chinese consumption. Chicago Mercantile Exchange spot dry whey spent much of the week strengthening but succumbed this past Friday. It closed 2 cents lower than the previous Friday, at 37 cents per pound. Spot nonfat-dry milk decreased 8 cents to $1.17, its worst price since October. Butter decreased another 3.25 cents to $1.80. The cheese markets converged. Spot Cheddar blocks plummeted 11 cents to a new 2020 worst price of $1.82. Barrels climbed 10.75 cents to $1.585.
Both Class III and Class IV futures suffered steep losses. February and March Class III contracts settled within a penny of $17 per hundredweight – and first-half Class IV contracts finished at well less than that mark. Further down the board the promise of $18 Class IV milk has vanished. February through December Class III futures settled at an average of $17.39, while Class IV averaged $16.91.
Dairy producers can live with those prices but they are certainly uninspiring, especially after several years of hardship. Cull rates, auction dockets and springer values continue to reflect pain on the farm. In the first five weeks of this year, dairy-slaughter volumes are 1.4 percent better than the 2018 pace and 1.8 percent better than the same period in 2019. If dairy producers are culling at that rate, either the national herd is shrinking or there are a lot of new heifers in the barn. The price of excellent-quality springers is hovering at about $1,200 per head. That’s about $200 better than at this point the previous year, but it doesn’t signal much appetite for expansion.
Nonetheless there is plenty of milk around. It’s cold in the Midwest at the moment, but the cows are well-housed. Conditions are benign in comparison to the violent storms that rocked the region a year ago.
The U.S. Department of Agriculture’s “Dairy Market News” reports, “milk and cream are widely available regardless of feed quality and regardless of the mass exodus of dairy farmers in the Upper Midwest.”
Those factors have obviously reduced output relative to what might have been, but milk is by no means short. In the rest of the country milk yields are increasing as the spring flush nears. Processors in Idaho have more than they can handle; dairy producers will need to absorb some steep discounts due to the excess.
Cheap spot milk is surely boosting barrel output. Dairy Market News explains the still-vast block-barrel spread. “Heavy milk flows are resulting in manufacturers running as much milk through the vats as they can,” it states. “Offers for barrels and (640-pound blocks) are common. However processors relay that retail demand has been solid enough so that stocks of some block-cheese brands are highly committed for the next few months. Prices for blocks are supported by this demand, while prices are weaker for barrel cheese.”
Cream remains cheap and butter churns are running hard. Butter makers are boosting supplies in anticipation of Easter and Passover demand, but they’re doing so with caution rather than enthusiasm until sales are confirmed. Butter values have decreased far enough to make imports less attractive, which could slow spring inventory build at the margins.
But the strong dollar undermines the limited support that might offer. The dollar climbed to a nearly three-year best against the euro. While German and Dutch butter prices held steady this past week, they decreased almost 2 cents per pound after converting from euros to dollars.
The currency impact surely weighed on the milk-powder market as well. Nonfat-dry-milk futures struggled all week. But the heaviest losses came Feb. 13 and 24, after the Chinese government dramatically boosted its coronavirus-infection counts. The much-increased totals reflect a change in the method to officially recognize an infection, not a sudden increase in the ranks of the sick. But the headlines added to justifiable fears that efforts to contain the epidemic will reduce Chinese demand for goods of all sorts. With much of the workforce staying home until the panic abates, China’s ports are clogged with ships waiting to unload. Domestic freight has been throttled by a lack of drivers as well as a web of quarantines and checkpoints. That’s surely slowing the flow of goods to consumers and reducing demand.
But while tens of thousands of people in China are sick, billions are healthy and everyone needs to eat. China is acutely short of protein after African swine fever devastated its swine herd. But judging by the massive volume of imports this past year, they likely have plenty of milk powder. As issues throughout the supply chain make fresh perishable food more difficult to attain, it’s reasonable to expect milk powder will satisfy a larger share of consumer appetites.
For the same reasons a greater share of China’s domestic milk supply is likely to be dried, displacing some demand for imported milk powder. Chinese milk-powder imports are likely to slow due to the virus, but it’s possible much of the demand will be on hold rather than lost altogether. But markets abhor uncertainty. Traders are selling now and will assess the damage later.
The corn markets retreated this past week. The dollar is strong while the peso and the real are exceptionally weak. Importers are sure to favor crops from South America, and by all reports there will be a big harvest in the Southern Hemisphere. U.S. corn exports are disappointingly slow. The USDA once again decreased its projection for corn shipments this season. The agency increased its soybean-export estimate, acknowledging that the U.S.-China trade pact is likely to boost sales. March corn settled at $3.7775 per bushel, a decrease of 5.75 cents from the previous Friday. March soybeans increased 11.75 cents to $8.9375.