Cash dairy prices seemed confused the first week of autumn. Block Cheddar shot up to $2.6475 per pound last Monday, the highest CME price since July 21, but then reversed direction Tuesday, and fell to $2.54 on Wednesday. It regained 1.50 cents Friday, to close at $2.5550, down 7.25 cents on the week, after pole vaulting 46.25 cents the previous week, but was 60 cents above a year ago.
The Cheddar barrels closed Friday at $1.66, up 2.50 cents on the week and a half-cent above a year ago.
The spread widened to an unbelievable record high $1.0125 last Monday but it stood at 89.50 cents on Friday. There were 5 cars of block that traded hands last week at the CME and only 1 of barrel.
The blocks crept up 0.75 cents Monday and 0.25 cents Tuesday, hitting $2.5650. The barrels were up 1.5 cents Monday and added 5.50 cents Tuesday, hitting $1.73, highest since Aug. 4, but 83.5 cents below the blocks.
With the exception of plants undergoing scheduled maintenance, cheese was running at full schedule in the Midwest, according to Dairy Market News. Pizza cheesemakers say retail orders, at least from particular customers, were increasing week by week as COVID-19 restrictions have done little to impede retail and, in some cases, restaurant pizza sales. Milk is plentiful, although mid-week spot milk prices were closer to Class than the previous week.
Barrel supplies have been a little more available in recent weeks, says DMN, “However, the few loads here and there do not equate to what many contacts are perplexed by; a $1 chasm between CME block and barrel prices. Historically, a large price gap does not reflect positively on near term bullishness and the $1, or thereabouts, gap is not expected to maintain for long.”
Western cheese plants are running at full capacity and, while a few contacts suggest manufacturers may not be fortifying as heavily, others say they could sell more cheese if they had it. Inventories of American blocks are tight and loose for barrel cheese. Mozzarella stocks are moving well but contacts say cheese demand has been hard to predict.
“In general, retail demand is strong, and food service demand is weak,” says DMN. “However, contacts report each market segment will have waves of increased activity as end users try to find the right inventory balance. In addition, government purchases, cleaning out some stocks of cheese, have added some supply challenges. Market participants have a wide range of comfort in working with the government contracts. While most in the industry like to see the increased demand, the eventual end of the purchases creates some need for caution. Cheese futures prices are below cash market prices, and end users and manufacturers do not want to be holding large supplies of cheese if program purchases come to an abrupt conclusion.”
StoneX echoed that caution in its Sept. 25 "Early Morning Update" stating that “unprecedented demand driven by government purchases has been burning through the market shoving cheese prices up in buyers' faces; but as we draw nearer to the end of the food box program the market has started to question future demand.”
Cash butter, after gaining almost 12 cents the previous week, climbed to $1.62 per pound last Tuesday, highest since July 28, but the afternoon’s August Cold Storage report didn’t have good news and traders took the butter down 10 cents the next day. It closed the week at $1.5025, 9.50 cents lower and 64.50 cents below a year ago. Sales totaled 14 loads for the week.
The butter was unchanged Monday but ticked up 0.75 cents Tuesday, to $1.51.
StoneX says, “Cheese and butter markets are not driven by supply these days. It’s all about demand. Butter doesn’t necessarily have the demand story block cheese has seen, but there is good underpinning support for this market as buyers have loaded up around $1.50 over the past month.”
DMN reports that retail butter demand in the Midwest has increased week over week ahead of the busy fall season and foodservice has continued its slog higher, but still lacks compared to previous years. Cream is available and butter output remains steady.
Western butter output remains active as processors prepare to cover demands for the baking season and year-end festivities. Cream availability increased but some contacts report being able to sell it instead of churning it.
Butter stocks are heavy but industry players are not too concerned, says DMN, as a few processors say that their stocks have been dropping in recent days. Butter demand is stable for retail and foodservice, “however, the COVID-19 pandemic, social unrest and wildfires in some parts of the West are all creating more market uncertainties, as well as affecting consumers' buying habits.”
Grade A nonfat dry milk did the best of all; closing Friday at $1.10 per pound, up 3 cents on the week and the seventh consecutive week of gain, but was still a penny below a year ago. 15 cars traded hands last week.
StoneX credited developing global demand for the strength in powder.
Monday’s trading took the powder up a penny and tacked on another 2 cents Tuesday, hitting $1.13, the highest CME price since March 4.
CME dry whey climbed to 38.50 cents per pound last Wednesday, the highest since May 15, but it finished Friday at 37.75 cents per pound, up 2.25 cents on the week and 3 cents above a year ago, with 7 sales reported for the week.
Monday’s whey regained the 0.75 cents it lost Friday and stayed there Tuesday, at 38.50 cents per pound.
No shortages
Dairy product stocks remain above year-ago levels. The Agriculture Department’s latest Cold Storage report showed August 31 butter stocks at 371.7 million pounds, up 253,000 pounds from July but were a hefty 67.4 million pounds or 22.1% above August 2019, 14th consecutive month they were above a year ago.
American type cheese totaled 790.1 million pounds, up 4.5 million pounds or 0.6% from July, and 22.7 million pounds or 3.0% above a year ago.
The “other” cheese inventory fell to 567.8 million pounds, down 17.8 million pounds or 3.0% from July, and 2.4 million pounds or 0.4% below a year ago.
The total cheese inventory stood at 1.378 billion pounds, down 13.3 million pounds or 1.0% from July, but 13.5 million pounds or 1.0% above August 2019, the fifth consecutive month total cheese stocks topped prior year levels.
StoneX says the main headline in the report was butter. “Seasonally we expect to begin drawing down stocks of butter in August. This year, however, butter stocks were basically flat from July and up a whopping 22% from a year ago. We expected butter to come in a hair lower than last month, so we take this report as a big surprise.”
The Daily Dairy report stated that “since the April 30 peak, cheese inventories have decreased an impressive 100 million pounds.”
Culling lower
Dairy cow culling fell in August. The USDA’s latest Livestock Slaughter report shows an estimated 225,300 head were sent to slaughter under federal inspection, down 8,400 head or 3.6% from July, and 41,300 or 15.5% below August 2019. A total of 2.05 million head have been culled in the first eight months of 2020, down 109,800 head or 5.1% from 2019.
In the week ending Sept. 12, 54,700 dairy cows were sent to slaughter, down 500 from the week before and 9,100 head or 14.3% below a year ago.
60-year high
The USDA’s Economic Research Service latest data showed a 60-year record high for U.S. per capita consumption of dairy products on a milk-fat milk-equivalent basis.
Unfortunately, fluid milk consumption is not contributing much to the increase, but we talked about it in the Sept. 28 "Dairy Radio Now" broadcast with Hoards Dairyman Managing Editor Corey Geiger.
Hoard’s "DairyLivestream" addressed the topic, Geiger said, and when asked if the dairy checkoff was still profiting farmers, he replied, “Yes, but we’re riding a cheese horse,” according to the University of Wisconsin economist Mark Stevenson.
Stevenson said U.S. cheese consumption is at 38 pounds per person, up 17% since 2010 alone. He added that there is still a lot of upside potential when you consider per capital consumption in countries like France, Germany, and Greece; some are as high as 50 pounds per capita.
Geiger admitted that in the 1960s, when Lynden Johnson was president, the champion in per capita dairy consumption was fluid milk. That has fallen over the years, he said, but butter has made a big rebound. “Without the checkoff, the rebound for butter and the cheese growth wouldn’t have taken place.”
When asked if the industry should give up on fluid milk in its promotion effort, Geiger replied, “I don’t think we can, especially when it comes to children.” It’s an important way to deliver calcium and vitamin D, he explained, and because of that we need to keep pushing forward in getting the dietary guidelines to reflect the latest findings exonerating dairy fat.
