Cheddar block cheese climbed to $1.9625 per pound last Monday, the highest CME price since Nov. 12, but closed Friday at $1.83, 8.75 cents lower on the week and 13.25 cents below a year ago.
The barrels finished at $1.5725, down 8 cents on the week, a penny above a year ago, and 25.75 cents below the blocks; 13 cars of each were sold last week at the CME.
The markets were closed Monday for the Martin Luther King Day holiday. The blocks headed lower Tuesday, dropping 3 cents to $1.80.
The barrels rolled 1.25 cents lower on a trade, to $1.56, putting the Tuesday spread at 24 cents.
The USDA announced last week that it will purchase $40 million in Cheddar and processed cheese and another $40 million in butter for distribution to food nutrition assistance programs under the authority of Section 32.
StoneX Dairy points out that “on a relative basis, $40 million of butter purchases will have a bigger impact on the butter market than $40 million of Cheddar purchases will have on the cheese market, but this announcement is a departure from how we interpreted the earlier announced Section 32 purchases focused on fluid milk and butter. The legislation authorizes the funding of these activities with money collected from customs receipts, according to StoneX.
Meanwhile, Midwestern cheesemakers tell Dairy Market News that sales are ticking up for some producers, but East Coast customers are still slow as COVID restrictions continue to curb foodservice and restaurant business. Producers who weeks ago had some extra loads now relay that they are booked through first quarter. Cheese output has picked up since the holidays as milk is plentiful.
Western cheesemakers are also contending with plenty of milk and trying to determine the best course of action. The food box announcement propelled cheese prices upwards and prompted a few manufacturers to increase production but contacts say there is a hesitancy to push too far. Cheese is readily available and some have set some aside in anticipation of filling government allocations.
Market demand outside program purchases is sluggish, says DMN. Retail sales are softer following the holidays and foodservice sales remain weak. Pizza sales and short order foodservice sales are clearing decent volumes of cheese but cannot overcome the decrease in other sectors so manufacturers are cautious to extend cheese production and expose themselves to price volatility.
Butter continued its meltdown last week, bottoming at $1.2875 per pound on Wednesday, lowest since May 7, 2020, then climbed back to a Friday close of $1.29, down 9 cents on the week, the third week in a row of decline, and 59 cents below a year ago. There were 23 sales last week at the CME.
Buoyed by Tuesday’s Global Dairy Trade auction, CME butter soared 11.5 cents to $1.4050 per pound on a trade.
StoneX pointed out in their Jan. 11 Early Morning Update, “We’ve got seven weeks to bring old crop butter to the exchange after which only butter made Dec. 1, 2020 or later may be brought. We have plenty of milk and cream in the country, but much of the butter brought to the exchange recently was produced before Dec. 1, 2020. If there is to be a pop on the butter market, the old crop/new crop dynamic may play a more pronounced role this year.”
Butter producers continue to see plentiful cream supplies, says DMN. With foodservice demand remaining somewhat quiet, the extra cream is going to bulk production. Butter stocks are growing and some contend that market tones may show little to no improvement until the March 1 "new butter" deadline.
Western butter plants are also seeing an increase in production. Inventories are heavier than needed and cream supplies are readily available. Retail sales are soft but manufacturers point to global demand as an outlet for reducing inventory. Foodservice channels in the West continue to feel the heavy impact of COVID. Drive-up restaurant activity is growing and inquiries for bulk butter are “budding,” says DMN, as buyers hope to fill their needs through the third quarter.
Grade A nonfat dry milk finished Friday at $1.20 per pound, up a penny on the week but 9 cents below a year ago, with 43 cars sold on the week.
The powder gained 1.50 cents Tuesday, hitting $1.2150, highest since Feb. 12, 2020.
Spot whey was unchanged for three successive sessions last week, then added a penny on Wednesday and 2 cents Friday to close at 53 cents per pound, 16.25 cents above a year ago, with only 4 sales reported for the week.
Tuesday’s whey inched a half-cent higher on unfilled bids, hitting 53.50 cents per pound, the highest since Oct. 19, 2018.
Global trade strong
The global dairy economy appears strong, if the second Global Dairy Trade auction of 2021 is any indication. Tuesday’s overall weighted average was up for the fifth consecutive event, jumping 4.8%, biggest gain since Aug. 7, 2020, and followed the 3.9% jump on Jan. 5.
Gains were led by anhydrous milkfat, up 17.2%, following a 5.5% rise last time. Skim milk powder was up 7.0%, after a 4.1% boost, lactose was up 6.6%, and butter was up 4.6%, after jumping 7.2% last time. Whole milk powder was up 2.2%, following a 3.1% rise.
GDT Cheddar was the only product in negative territory, down 0.3%, after a 5.0% gain last time.
StoneX Group equated the GDT 80% butterfat butter price to $2.0952 per pound U.S., up 9.2 cents from the last event, which saw a 13.5 cent gain. CME butter closed Tuesday at a bargain basement $1.4050.
GDT Cheddar cheese equated to $1.8518 per pound and compares to Tuesday’s CME block Cheddar at $1.80. GDT skim milk powder averaged $1.4709 per pound, up from $1.3805, a 9 cent jump, and whole milk powder averaged $1.5333, up from $1.4996. CME Grade A nonfat dry milk closed Friday at $1.2150 per pound.
Fluid sales down 4.4%
November fluid milk sales took a dive. The USDA’s latest data shows 3.8 billion pounds of packaged fluid products were sold, down 4.4% from Nov. 2019, largest drop since August.
Conventional product sales totaled 3.6 billion pounds, down 5.0% from a year ago. Organic products, at 235 million pounds, were up 6.1%, and represented 6.1% of total sales for the month.
Whole milk sales totaled 1.25 billion pounds, down 4.4% from a year ago. Sales for the 11 month period totaled 14.2 billion pounds, up 2.8% from 2019, and made up 32.7% of total milk sales for November and 33.6% thus far for the year.
Skim milk sales, at 224 million pounds, were down 17.8% from a year ago and down 14.9% year to date.
Total packaged fluid milk sales, January through November, amounted to 42.2 billion pounds, down 0.3% from 2019. Conventional product sales so far, totaled 39.6 billion pounds, down 0.9%.
Organic products, at 2.6 billion pounds, were up 10.6% and represented 6.2% of total fluid milk sales so far for the year.
The figures represent consumption in Federal milk marketing order areas, which account for approximately 92% of total fluid milk sales in the U.S.
Price formulas
You’ll recall I recently raised the issue of changing the formulas by which we price milk in this country, citing the continuing frustration of many dairy farmers short-changed by large producer price differentials and de-pooling by processors.
The Jan. 8 Dairy and Food Market Analyst (DFMA) reported that changing the Class I milk pricing formula is “gaining traction” and stated that “a new pricing formula for Class I skim milk went into effect in May 2019 and has contributed to the frequent de-pooling of milk in federal milk marketing orders. Dr. John Newton, chief economist at Farm Bureau, says the leading ideas are currently to change the formula back to the previous calculation, or raise the Class I skim milk price by another 94 cents, or make the formula equal to Class III plus $1.25.”
Speaking in the Jan. 18 "Dairy Radio Now" broadcast, DFMA editor Matt Gould said the National Milk Producers Federation, Farm Bureau and the International Dairy Foods Association are currently discussing the issue.
Switching to the USDA’s WASDE, Gould said corn and soybean prices shot higher following the report. As to the predicted increase in milk output, Gould said we’re already seeing that and it’s overwhelming processing capacity to the point that milk is already being dumped in California and Wisconsin, prior to the flush.
Corn and soybean prices are at the highest levels in about five years, according to Gould, and have increased dairy feed costs and cost of production. He warned that, when he estimates what 2021 feed costs and margins look like, compared to 2020, it looks like farm level feed costs will be about $2 per hundredweight more this year than last year because of the higher corn and soybean prices.
Government support “kind of saved the day in 2020 and farms had a decent financial year,” he concluded, but “2021 is going to be an uphill battle at the farm level as you fight those higher feed costs.”
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