Cheese Prices Continue Upward March; Record Drawdown in May
Published: Friday, July 5, 2019
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
U.S. cheese consumption is doing well as evidenced in current prices and the USDA's latest Cold Storage report. Total stocks on May 31 amounted to 1.386 billion pounds, down an attention-grabbing 12.8 million pounds, or 1 percent, from April and were only fractionally above those in May 2018.
The Daily Dairy Report says this is the first time since 2012 and only the fourth time in history that U.S. cheese inventories declined from April to May, a time typically used for inventory building. Furthermore, the DDR says this is the largest April to May drawdown on record.
Breaking it down, American stocks totaled 784.8 million pounds, up 2.2 million pounds, or .3 percent, from April but 19.3 million, or 2.4 percent, below a year ago.
Stocks in the other cheese category slipped to 576.5 million pounds, down 11.5 million pounds, or 2 percent, from April but were up 27.1 million, or 4.9 percent, from a year ago.
May butter stocks climbed to just under 314 million pounds, up 23.2 million pounds, or 8 percent, from April but were 24.5 million, or 7.2 percent, below those a year ago.
Dairy traders viewed the data as supportive, but there wasn't a lot for the market to feed on last week with respect to USDA reports. There was more in the way of economic news and, of course, the G-20 summit in Japan where President Trump was expected to have sideline talks with China's President Xi Jinping.
CME-traded block Cheddar closed June Dairy Month at $1.8575 per pound, highest price since Nov. 23, 2016, up 3¼ cents on the week, sixth week of gain, and 30¼ cents above a year ago. The Cheddar barrels shot up to $1.79, highest since Nov. 9, 2016, up 5¼ cents on the week, 40 cents above a year ago and a closer to normal 6¾ cents below the blocks. Twenty-four cars of block traded hands on the week, 71 on the month, up from 67 in May. Thirty-seven cars of barrel sold on the week, 159 on the month, up from 135 in May.
Cheese market tones in the Midwest continue to firm, reports Dairy Market News, though demand reports were mixed. Some suggest improved market prices have buyers a little more enticed to enter the fray but some specialty cheesemakers relay a slowdown, week over week. Milk availability is mixed. Upper Midwestern states are seeing some spot availability, but moving east, it begins to lighten. Spot milk prices ranged from class to $1.50 under. Cheese producers are maintaining a somewhat busy schedule, with some at a seven-day workweek, expected to last into July.
Interest for cheese is steady to increasing throughout the West, with a noticeable surge in demand from southern Asia and Mexico. Mexico cheese demand is back due to the tariff reductions. The uptick in South Asia purchases is quite surprising to contacts as they mentioned that EU prices are lower than those of the U.S. Current lower EU stocks may signify they can't satisfy all international demand and explains the jump in interest for U.S. cheese. Cheese output is steady, but a few manufacturers are considering a reduction due to "pricey milk."
Cash butter closed last Friday at $2.41 per pound, 2 cents above the previous week and 14¼ cents above a year ago. Fifty-one cars traded hands on the week at the market of last resort, 115 on the month, up from 79 cars in May.
Butter makers are bidding for cream, says DMN, but most say prices are moving "out of their fiscal reach." Some plant managers report butter production is generally slower this year. Others report steady production but say their inventories are more diverse than in previous years. Contacts have mixed expectations of butter markets in the second half. Some expect increasing imports to keep domestic markets steady while others expect bullish movements, as year-over-year inventories are lower and demand remains healthy.
Western cream supplies are tight and butter makers report that spot loads within their price range are hard to come by. Churns are as active as supplies of cream allow but a lot is getting pulled into Class II and ice cream manufacturing. Butter demand is steady and inventories have not grown as much as some expected.
Spot Grade A nonfat dry milk saw the week end at $1.05 per pound, up a half-cent and 30¼ cents above a year ago, with seven carloads finding new homes on the week and 25 on the month, down from 59 in May.
Dry whey closed last Friday at 33½ cents per pound, down three-quarter cents on the week and 7¼ cents below a year ago. Fourteen sales were reported on the week and 31 on the month, up from 25 in May.
Class III futures have seen some nice gains. The University of Wisconsin's Mark Stephenson and Bob Cropp, in their June Dairy Situation and Outlook podcast, talked of U.S. milk production slipping, and said that $18 milk is not out of the question. But they cautioned regarding the feed crop situation and hay availability. They also pointed out that, while U.S. milk output may be down some, milk components, butterfat and protein, have been high.
They credited farmer's selective breeding and said the resulting increased components gave better yields in the cheese vat. Weather and poor quality forages down the road, however, could turn that around.
Dairy and Food Market Analyst editor and analyst Matt Gould echoed the positive sentiment on milk prices, but he also sees higher feed prices ahead, due to the rains affecting crops and plantings in the Midwest.
Speaking in the July 1 Dairy Radio Now broadcast, Gould said, "It starts with supply," and cited the May Milk Production report being down .4 percent, specifically in the Midwest and the East. The slowdown, especially in the Midwest, has resulted in lower cheese and butter output and thus the higher prices.
He also credited "decent" domestic demand. "While not extraordinary," Gould said, "we have pretty solid growth in retail cheese sales" and butter sales were good, "so when you have a decent demand environment and constrained supply, you end up with elevated prices."
When asked about the rain's impact on crop plantings, yields and quality, Gould said his economic model shows average feed costs in the U.S. to be up about $1 per hundredweight, year-over-year, and while it will be a factor, he does not see it as being "catastrophic." "It's just one of many things at play," he concluded.
The May milk-feed-price ratio inched fractionally lower again, according to the Agriculture Department's latest Ag Prices report. The May ratio was 2.10, down from 2.11 in April but up from the 1.90 in May 2018.
The index is based on the current milk price in relationship to feed prices for a dairy ration consisting of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. In other words, one pound of milk today purchases 2.10 pounds of dairy feed containing that blend.
The U.S. all-milk price averaged $18 per hundredweight, up 30 cents from April and $1.80 above May 2018.
The national average corn price averaged $3.63 per bushel, up 11 cents from April but 5 cents per bushel below May 2018. Soybeans averaged $8.02 per bushel, down 26 cents from April and $1.82 per bushel below a year ago. Alfalfa hay averaged $204 per ton, up $5 from April and $15 per ton above a year ago.
Looking at the cow side of the ledger, the May cull price for beef and dairy combined averaged $65.60 per hundredweight, up $4.30 from April, 60 cents below May 2018, and $6 below the 2011 base average of $71.60 per hundredweight.
The May milk-over-feed margin increased 18 cents, climbing to $9 per hundredweight under the USDA's Dairy Margin Coverage (DMC) program, highest this year so far. Payments are possible on a milk margin of $9.50 or less, depending on the level of coverage chosen by the dairy producer.
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