The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Market bulls received more fodder in the May16 Global Dairy Trade (GDT) auction. The weighted average for all products offered shot up for the fifth consecutive event, up 3.2 percent, following gains of 3.6 percent on May 2, 3.1 percent jump April 18, 1.6 percent April 4, and 1.7 percent on March 14.
Rennet casein was the only negative, down 3.7 percent, after it jumped 10.4 percent on May 2.
Butter was the unquestioned leader, up an attention grabbing 11.2 percent, following a 1.1 percent increase last time. Anhydrous milkfat was up 8.2 percent, after a 4.7 percent advance. Buttermilk powder was up 7 percent, after leading the gains last time with a 21.8 percent charge. Lactose was up 2 percent, whole milk powder was up 1.3 percent, after a 5.2 percent boost, and skim milk powder was up 1 percent, after it inched .9 percent lower last time. The smallest gain was in Cheddar, up .6 percent, after it advanced 4.6 percent last time.
FC Stone equated the average 80 percent butterfat GDT butter price to $2.4247 per pound U.S. CME butter closed last Friday at $2.3750 per pound. GDT Cheddar cheese equated to $1.6902 per pound U.S. and compares to last Friday's CME block Cheddar at $1.67. GDT skim milk powder was 90.64 cents per pound and whole milk powder averaged $1.5025 per pound U.S. CME Grade A nonfat dry milk price closed last Friday at 91.50 cents per pound.
Most mid-May dairy prices at the Chicago Mercantile Exchange also climbed higher as traders absorbed the GDT, awaited last Friday afternoon's April Milk Production report and Monday's April Cold Storage report.
Buoyed in part by the GDT, CME butter shot up to $2.43 per pound last Tuesday, highest price since Dec. 9, 2015, only to ease back last Wednesday, regain some ground last Thursday, and then slip last Friday. It finished at $2.3750, up 11¼ cents on the week after jumping 15½ cents the previous week, and is 30½ cents above a year ago. A hefty 26 cars exchanged hands on the week.
Butter production is active in the Central region, reports Dairy Market News. Some manufacturers plan to build late summer/fall inventories and readily available cream continues to flow to churns. Some Central butter makers report receiving discounted cream from the Southwest. Retail butter demand varies. Some are seeing better-than-expected sales, while others report a seasonal slowdown. "Global tightness on milk fat has some buyers purchasing butter ahead of an increasing export demand," says DMN.
Western butter output is generally steady. However, larger pulls of cream from ice cream manufacturers are allowing butter makers to ease back. Contacts report there is plenty of cream available. DMN says "U.S. market butter prices have been prodded higher by tight supplies and subsequent higher prices abroad. However, U.S. butter inventories remain long. The recent price increases have prompted a rush of domestic buying activity. Other end users are taking regular shipments and are willing to take a wait and see approach to prices."
The 40-pound Cheddar blocks hit $1.67 per pound last Tuesday, then slipped back, recovered, and closed the third Friday of May at $1.67, up 3½ cents on the week, 35½ cents above a year ago, and the highest price since Feb. 6. The barrels finished at $1.47, down 6 cents on the week, 11½ cents above a year ago, but a way-too-high 20 cents below the blocks. Ten cars of block traded hands on the week at the CME and 39 of barrel.
FC Stone says they continue to hear of better demand and, in particular, food service demand for cheese. "This, combined with short-term tightness of 30 day or fresher block cheese, is why we have a big block-barrel spread."
Oversupply of Milk
Like a broken record, DMN reports there is no shortage of milk for cheesemakers in the Midwest. Some continue to take spot milk, at prices $3 to $6 under class. Cheese output continues to keep in line with milk supplies. Block supplies vary, barrels are long, and producers are pushing to clear some aged product. Process cheese producers report slight increases in sales, whereas traditional and pizza cheese demand has increased noticeably. "There is concern regarding the price gap, as block price gains have outpaced the barrels," DMN warned, and "some suggest a stable market depends on a narrow block-to-barrel variance."
Western cheese production remains at or near full capacity. Some cheese plants are running into production issues. Others have scheduled downtime to complete needed repairs or maintenance but, either way, cheese makers are facing challenges in processing the plentiful milk. Cheese supplies are long, especially for barrels. Inventories for blocks are a little better balanced but contacts report some offers at heavily discounted prices. The grilling season has begun and domestic retail demand is steady. However, some market participants feel the recent price increases could choke off available export opportunities.
Cash Grade A nonfat dry milk ended the week at 91½ cents per pound, 5¼ cents higher than the previous week, 10 cents above a year ago, and the highest spot price since Feb. 10. Thirty-four cars were sold on the week.
FC Stone's Dave Kurzawski wrote in his May 15 Early Morning Update that "adverse weather conditions in Europe so far this flush is adding a bullish tone to the market. A month ago it seemed like there would be another big round of intervention buying in Europe, which still cannot be discounted. Last week, the EU bought almost 2,000 metric tons with Dutch and British product in the mix." He also pointed out that the U.S. dollar is trading at its lowest point since the November election, which increases U.S. competitiveness in NFDM. He said, "There were reports of a lot of export business for NFDM into Mexico last week, as well as production concerns coming out of the Southwest, with a plant potentially being down. This should strengthen the NFDM market for the time being, but with the recent rally in butter and schools letting out for summer in a couple weeks, this market looks to soften come June," he warned.
The May 16 Livestock, Dairy and Poultry Outlook reported that feed prices for 2016-17 are still expected to be relatively low, with price forecasts for corn and
soybean meal of $3.25 to $3.55 per bushel and $320 per short ton, respectively.
Feed prices for 2017-18 are expected to remain relatively low, with price forecasts for corn and soybean meal at $3 to $3.80 per bushel and $295 to $335 per short ton, respectively.
Improving Margins
Dairy margins continued to strengthen over the first half of May; rising milk prices provided most of the improvement against feed costs that held mostly steady, according to Chicago-based Commodity & Ingredient Hedging LLC.
Their latest Margin Watch says, "Margins remain historically strong, at or above the 80th percentile of the previous 10 years through Q1 of 2018. Milk prices have been supported by strength in both cheese and particularly butter."
Corn and soybean meal did not register much movement from USDA's highly anticipated May World Agricultural Supply and Demand Estimates report, according to the MW. "New crop corn and soybean balance sheets were largely within market expectations, and attention has been focused primarily on weather developments in the U.S. Midwest. Despite heavy spring rainfall with below-normal temperatures, the latest planting progress report shows both corn and soybean seeding on pace with long-term averages."
"This should mitigate concerns over the potential for farmers to elect prevented-planting provisions in insurance contracts or make significant acreage shifts from corn to soybeans," according to the MW.
March fluid milk consumption gained some ground. DMN reported packaged fluid sales totaled 4.2 billion pounds, up .5 percent from March 2016. Conventional product sales totaled 3.99 billion pounds, up .1 percent from a year ago. Organic products, at 231 million pounds, were up 8 percent and represented about 5.5 percent of total sales for the month.
Whole milk sales totaled 1.26 billion pounds, up 4.9 percent from a year ago and made up 29.7 percent of total fluid sales in the month. March skim milk sales were down 10.8 percent from a year ago.
Total packaged fluid sales for first three months of 2017 totaled 12.3 billion pounds, down 2.1 percent from 2016. Year-to-date sales of conventional products, at 11.6 billion pounds, were down 2.4 percent; organic products, at 662 million pounds, were up 2.7 percent. Organic represented about 5.4 percent of total fluid milk sales so far in 2017.
Speaking of fluid milk, the June federal order Class I base milk price is $15.31 per hundredweight, up 11 cents from May, $2.17 above June 2016, and equates to $1.32 per gallon. The six-month average stands at $16.27, up from $14.01 at this time a year ago and compares to $16.31 in 2015.