Cheese Prices Improve but Loses Ground Due to Strong U.S. Dollar
Published: Friday, February 22, 2019
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Cash cheese prices continued to strengthen in the Valentine's Day week as traders anticipated the Feb. 19 Global Dairy Trade auction and the shortened President's Day holiday Week. The week will include Milk Production reports for December and January and December Cold Storage data.
The Cheddar blocks climbed to $1.5925 per pound last Wednesday, highest CME price since mid-October 2018, but closed last Friday at $1.58, up 5¼ cents on the week and 4 cents above a year ago. The barrels finished at $1.4350, up 6¼ cents on the week, highest since Sept. 13, 2018, but 4½ cents below a year ago when they jumped 12 cents, and are at an unsustainable 14½ cents below the blocks. Sales for the week included six cars of block and 20 of barrel.
The West received its own version of Arctic weather last week, with cold and snow causing more than the usual challenges. Over 1,800 dairy cows died in the Yakima Valley of eastern Washington, according to the Yakima Valley Dairy Farmers Assn., where low temperatures and high winds took a huge toll.
Meanwhile, the Feb. 12 Daily Dairy Report points out, "The increase in U.S. cheese prices has been augmented by the dollar, which continues to gain ground against the Euro, New Zealand dollar and Mexican peso. The strong dollar makes U.S. cheese more expensive when the price is converted to importers' currency. Tariffs put U.S. cheese at a further disadvantage in Mexico and China," according to the DDR.
Those continuing tariffs drew sharp criticism by the Wisconsin-based American Dairy Coalition, which charged, "Mexico imports nearly a quarter of the U.S. dairy industry's exports annually. It's a critical $1.4 billion marketplace. And it's one that President Trump continues to risk damaging permanently and unnecessarily. Locked in a trade war since May, Mexican leaders are setting aside American business connections that took decades to build as our neighbors to the south find new sources of cheese, butter and other products.
"This should have changed in November when Trump declared success with his newly rechristened U.S.-Canada-Mexico Trade Agreement replacing NAFTA. In retrospect, it was a disingenuous statement: The administration has not lifted steel and aluminum tariffs on Mexican and Canadian products, and in response those countries are refusing to sign the pact or lift retaliatory tariffs, impacting dairy products and other items," the ADC stated.
Winter weather remains the topic of discussion among Midwest cheese makers, according to Dairy Market News. Cheese production remains slower as plant managers work on inventories and weather-related production stoppages have slowed or stopped production in some cases. Contacts suggest cold weather and snow in the Upper Midwest were affecting both milk and cheese deliveries.
Western cheese makers stated that new business deals are harder to come by and demand for American style blocks and barrels is slow. "Buyer interest seemingly ebbs and flows as the market price for cheese rises and falls. Cheese is moving steadily through regular contracts, but contacts say there does not seem to be anything right now that will give a boost to sales."
As to the strength in cheese prices, some contacts suggest that fourth quarter consumption was better than expected and the industry is seeing a bit of a refill from the winter holidays and Super Bowl. Others say marketers are getting prepared for upcoming export tenders, while others believe more cheese is moving into aging programs. They agree that inventories are long and "demand does not seem to be at levels hoped for."
Some say the absence of market production and stock number reports due to the government shutdown made it difficult to get a picture of supply and demand. Manufacturers say cheese output is running mostly seven days per week, but winter storms slowed cheese output in some regions due to challenges transporting milk and the need to refill the pipeline following the storms.
Interestingly, California cheese output is likely starting to slow, according to the Daily Dairy Report's Sarina Sharp. Writing in the Feb. 8 Milk Producers Council newsletter, Sharp said, "Cheese processors in the nation's largest dairy state are now paying more for milk using the Federal Milk Marketing Order (FMMO) formula than they would have under the previous rules."
"Many manufacturers are running full schedules at their cheese facilities, but some contacts suggest a few processors are starting to ease back on cheese production and diverting milk intakes toward Class IV uses. That's excellent news for California dairy producers, in particular, and for dairy product prices in general," according to Sharp.
Butter Inventories Increasing
Cash butter saw its Feb. 15 price at $2.25 per pound, down 4½ cents on the week but still 15 cents above a year ago. Twenty-four cars exchanged hands on the week.
Central contacts suggest that butter sales have been stunted recently, while others maintain sales are seasonally slower, but meeting expectations. Cream is readily available for churning and butter producers are taking advantage of it and "booking loads well ahead of time, indicating what they suggest may be a sign of near to mid-term oversupplies."
Western processors are proactively running churns to clear ample supplies of cream. Cream is plentiful throughout the West and some distressed loads are moving out of the region at discounted prices. Bulk butter is being intensively stored for use later in the year. Retail and club store butter sales are generally good, according to DMN, and while producers would prefer to make more sales now, they are content with current inventory levels and are managing their supplies efficiently while others are churning at a higher rate than last year.
Grade A nonfat dry milk saw the week's closing at 98¾ cents per pound, down three-quarter cents but 28¼ cents above a year ago. Thirty cars exchanged hands on the week, 23 last Thursday alone, highest single day total since April 25, 2018.
The dry whey closed last Friday at 35¼ cents per pound, down 1¼ cents, with 42 cars finding new homes on the week, a single-day record 15 last Wednesday.
Plummeted dry whey shipments to China have pulled whey prices lower. FC Stone reports that African swine fever has reduced soy meal demand in China, and some estimates say meal feeding is off 20 percent. African swine fever has also been detected in Japan.
FC Stone warns, "This issue will get worse before it gets better. How much damage will be done to China's 700 million-plus hog herd and how long will it take it to recover is still unknown. Some analysts think it could take six to seven years for China's hog herd to fully recover."
The Dairy and Food Market Analyst says dry whey shipments to China have fallen 20 million pounds, or 40 percent. Total exports of whey products have decreased 18 percent and exports of milk powder were down 13 percent.
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