The cheese markets continue to lurch back and forth, probing about for a fair value. After much volatility the boundaries are becoming clearer. While Chicago Mercantile Exchange spot Cheddar blocks were able to climb to more than $2.20 per pound a few weeks ago, they were clearly uneasy at that great height. Buyers are likely to back away once again if blocks climb north of $2.10 or barrels are more than $1.90. But as blocks slipped toward $1.90 and barrels approached $1.60 this past week, offers disappeared.
This past Friday both markets bounced back with aplomb, suggesting that the previous day’s worst – with blocks at $1.9025 and barrels at $1.6125 – may be as far south as they are willing to venture for now. Cheddar blocks closed this past Friday at $1.955, a decrease of 9.5 cents from the previous Friday, but an increase of 5.25 cents from the Sept. 26 nadir. Barrels staged an even-more-impressive comeback; they finished at $1.655, steady with the previous Friday. The spread between blocks and barrels narrowed but at 30 cents it remains historically wide, adding another layer of uncertainty to the already complex cheese markets.
Cheese is in demand. But increasing prices have boosted production and likely eased the shortage of fresh Cheddar that propelled the spot markets to their recent pinnacle. U.S. Department of Agriculture estimates there were 768 million pounds of American cheese, including Cheddar, in cold-storage warehouses as of Aug. 31. That’s 3.6 million pounds less than at the end of July. American cheese stocks are 2.4 percent smaller than they were the year before. But the drawdown was much smaller than in a typical August.
Stockpiles of other cheese varieties increased. The month-to-month increase in total cheese stocks was small at 705,000 pounds. But it was an increase nonetheless when cheese supplies typically shrink in August. Cheese inventories totaled 1.36 billion pounds, an increase of 0.2 percent from August 2018. Robust demand for cheese in the spring and summer has kept inventories in check this year. Cheese stocks decreased to less than year-ago levels in June and July. Despite the atypical increase in August, cheese inventories have grown just 18.3 million pounds so far in 2019. That’s the smallest year-to-date stock build since 2011.
Butter inventories have finally peaked. In most years butter stocks grow through May or June, and then begin to wane. But this year the butter stockpile burgeoned even in July. Inventories declined at the typical pace in August, decreasing 24.5 million pounds to 305.1 million pounds. There is 4.9 percent more butter in cold storage than there was a year ago. Butter inventories are ample to answer demand in the holiday baking season, cream is plentiful, and foreign butter and butterfat products are inexpensive. Butter values have declined sharply in recent months. CME spot butter fell almost 10 percent from mid-July to mid-September. But that is far enough for now. Spot butter bounced back this week. It settled at $2.1475, an increase of 3.25 cents from the previous Friday.
After weeks of quiet strength the whey market is once again under pressure. CME spot whey finished at a disappointing 34.75 cents this past Friday, a decrease of a nickel for the week. Industry contacts tell USDA’s Dairy Market News, “While contracted sales are enough to keep inventories comfortable, some say whey stocks are building. The market pressures caused by the African swine fever and trade issues … loom over the market like a dark cloud.” China’s Ministry of Agriculture touts a slowdown in the rate of new cases of African swine fever, which has devastated the world’s largest hog herd. Amidst inflated pork prices some producers are surely looking to boost production. They are investing in piglet health, which would likely boost whey purchases per head. Indeed Chinese whey imports were just shy of 100 million pounds in August, the best volume since January and just 3.6 percent less than in August 2018. But there are still reasons to be concerned about global demand for feed whey. The Chinese pig herd is considerably smaller than it was a year ago, and the disease is spreading quickly through South Korea, Vietnam and the rest of Southeast Asia.
China continues to import huge volumes of skim-milk powder. This past month China imported 68.3 million pounds of skim-milk powder, the best-ever volume for August and 38.4 percent more than the year before. China’s year-to-date skim-milk-powder imports are also at a record. They are an astounding 27 percent more than the massive volumes shipped in January through August 2014, and 30 percent more than this past year.
China’s voracious appetite for imported milk powder has trimmed global stockpiles. Dairy Market News warns that in Europe, “Export demand is strong and persistent …Unless (skim-milk-powder) manufacturers are able to increase output, it seems unlikely that all potential buyers seeking late-2019 delivery can be accommodated.” In the United States inflated cheese prices and tighter milk markets are further reducing milk-powder stocks as cheesemakers fill vats with skim-milk solids. Buyers who balked when nonfat-dry milk reached $1.05 are coming back, checkbook in hand despite even-more inflated prices. CME spot nonfat-dry milk just keeps increasing. It closed this past Friday at $1.11, an increase of 2.5 cents from the previous Friday and the best value since March 2015.
Dragged down by the cheese market, Class III futures settled in the red. October was hardest hit, decreasing 51 cents to $18.15 per hundredweight. Most deferred contracts lost between 10 and 20 cents. Although a retreat is disappointing for dairy producers, Class III prices are still much better than they’ve been in years. September through November are better than $18. Class IV futures were mixed. Nearby contracts were generally a nickel better than the previous Friday, while 2020 contracts were steady to a nickel less.
It was a relatively quiet week in the grain markets; prices went nowhere at all. December corn settled at $3.715 per bushel, an increase of less than a penny from the previous Friday. November soybeans closed at $8.83, an increase of 0.25 cents. Harvest is underway in the southern states, but in the Corn Belt most combines are still parked in the shed. Cool temperatures and a wet forecast suggest that this year’s harvest may be an exercise in patience. Until the trade can get a better handle on yields, the markets will likely continue to consolidate.