The dairy markets had a strong start this past week, which allowed most contracts to gain ground despite a selloff Oct. 4. November and December Class III futures settled a dime less than the previous week, but the other contracts finished better. October Class III reached $18.31 per hundredweight, an increase of 16 cents. Class IV futures closed better across the board.
Tighter milk markets and robust demand are helping to support dairy-product prices. The fundamentals of the milk-powder market seem particularly healthy; the bulls are roaming free. Skim-milk-powder prices increased 2.7 percent at the Global Dairy Trade auction Oct. 1, to the equivalent of nonfat-dry milk at $1.29 per pound. Chicago Mercantile Exchange spot nonfat-dry milk increased 3.5 cents to $1.145. At the Global Dairy Trade auction both skim-milk powder and spot nonfat-dry milk stand at their best values since March 2015. The U.S. Department of Agriculture’s Dairy Market News also reports increasing prices across the country.
Nonfat-dry-milk and skim-milk-powder output in August totaled 183.6 million pounds, an increase of 3.9 percent from a year ago. The year-over-year increase was a bit surprising, but in light of decreasing stocks and increasing prices, it simply confirms that demand is strong. U.S. milk-powder exports were less than the past year’s record-breaking volumes once again in August, but they remain historically good. Foreign buyers are competing for powder with U.S. cheesemakers, who are using skim-milk solids to fortify their vats while milk is tight and cheese is pricey. Milk-powder stocks are decreasing around the world; prices are increasing accordingly.
Good domestic prices restrained U.S. cheese exports and boosted imports in August. Tariffs on European cheese imports will take effect later this month, which could reduce U.S. cheese imports going forward. Eight of our best-10 suppliers of imported cheese are in the European Union-28 and will be subject to the new tariffs. The tariffs could also slow the flow of butter from Ireland to U.S. retailers.
U.S. cheese output reached 1.1 billion pounds in August, an increase of 2.2 percent from a year ago. Production of American-style cheese reached the best level in nearly a century of USDA recordkeeping, an increase of 5.1 percent from a year ago. With a mild summer and a larger milk-cow herd, Idaho boosted American cheese output 20.9 percent from a year ago in August. Expanded processing capacity in Iowa compelled the Hawkeye State to expand American cheese production by 17.6 percent. Cheese futures retreated Oct. 4 on the heels of the “Dairy Products” report. But fresh cheese remains tight. CME spot Cheddar blocks increased 3.75 cents this past week to $1.9925. Barrels surged 13.5 cents to $1.79. The strength in barrels is at odds with reports that barrels remain abundant.
Spot butter rallied 3.75 cents this past week to $2.185. But futures retreated. Cream is cheap and so is imported butterfat, which is boosting U.S. output and inventories. Butter production totaled 136.4 million pounds in August, an increase of 2.1 percent from a year ago. The United States brought in 11 million pounds of butter in August – the most volume in more than two decades – and sent just 3.4 million pounds to foreign buyers.
Whey prices continue to slump. Spot whey decreased 2 cents this past week to 32.75 cents. Trading volume was immense, with 80 loads changing hands in Chicago. Driven by increased cheese production, dry-whey output surged 7.5 percent from a year ago to 83.3 million pounds in August. Whey stocks increased 5 million pounds from July to August, but they remained at 1.5 percent less than August 2018 levels.
U.S. dry-whey exports decreased 33.1 percent year-over-year in August to 30.1 million pounds. Year-to-date whey-powder exports decreased to a 15-year worst. China recently exempted U.S. whey permeate from retaliatory tariffs, which could help stabilize U.S. whey-product exports. But the swine herd has shrunk dramatically throughout Southeast Asia due to the spread of African swine fever. Global whey demand could remain anemic until the disease runs its course in the region and hog growers look to rebuild their herds. When they do they’ll likely be inclined to feed more whey per piglet than they did in the past. But there will be considerably fewer piglets to consume imported whey.
The USDA announced the September Class III price at $18.31 per hundredweight, an increase of 71 cents from August and an increase of $2.22 from September 2018. That marks the best Class III price since November 2014. Class IV milk decreased 39 cents in September. But at $16.35 it was $1.54 better than in September 2018. With Class III milk at more than $18 and forecasted to stay there in October and November, dairy producers are on firmer financial footing.
But there’s no sign they will add enough cows to flood the markets with milk to throttle this hard-won pay-price. Judging by slaughter volumes, the U.S. dairy herd is still shrinking. In the week ending Sept. 21, dairy-cow slaughter was 64,524 head. That’s an increase of 6.3 percent from the same week a year ago. It was the most extensive dairy-cow kill ever for this time of year. Year-to-date slaughter is still 3.4 percent more than the already-inflated 2018 pace. The dairy herd is much smaller and is likely to stay that way for a while longer it seems.
The USDA shocked the grain markets this week. In the quarterly “Grain Stocks” report, the agency sheared its estimates of Sept. 1 corn and soybean stocks to unexpectedly depressed levels. The lesser stocks figures imply stronger demand than USDA has reported in its monthly balance sheets. They help to explain why the stubbornly inflated corn basis has not coaxed farmers to sell more of the previous year’s crop. The bins were not as full in reality as they were on paper.
The Grain Stocks report propelled the feed markets Sept. 30 to sharply increased prices. The weather forecast helped to sustain the gains. It’s been cold and wet in the Corn Belt, which is not conducive for this year’s laggard crop to finish well. December corn closed this past Friday at $3.8475 per bushel, an increase of 13.25 cents from the previous Friday. November soybeans settled at $9.1625, an increase of more than 30 cents.
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