Total Cheese Disappearance Up 2 Percent, Setting New Record
Published: Friday, September 27, 2019
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Dairy farmers culled more cows in August than in July, but the number was below a year ago. The Agriculture Department's latest Livestock Slaughter report shows an estimated 266,600 head were slaughtered under federal inspection, up 9,800 head from July but 13,100, or 4.7 percent, below a year ago. The eight-month cull count climbed to 2.16 million head, up 72,800, or 3.5 percent, from a year ago.
U.S. dairy product commercial disappearance in July had some good news and some of the other, according HighGround Dairy's (HGD) Lucas Fuess in the Sept. 23 "Dairy Radio Now" broadcast.
Total cheese disappearance continued above prior year levels for the sixth consecutive month and put year to date disappearance up 2.1 percent, setting a new record. And, for the first time on record, more than 1 billion pounds of cheese has been absorbed domestically in each month so far this year, says HGD. Fuess adds that even cheese exports looked "adequate," despite the trade struggles.
Butter disappearance however remains disappointing, down 7.8 percent, which followed June's 7.3 percent decline. That represented a loss of 23.1 million pounds in the two months versus a year ago, according to HGD. Fuess believes butter will seasonally tick higher, but plenteous supplies will keep the price in check.
Domestic disappearance has driven total nonfat dry milk and skim milk powder demand higher in both June and July, says HGD, "overcoming steadily lower exports seen in each month so far this year."
Dry whey disappearance was up for just the second time this year, following May's climb. HGD adds that, while exports dropped to their lowest monthly volume of the year to date, domestic demand moved higher versus the prior year for the third consecutive month and for the fourth time this year. China's African Swine Fever has greatly influenced whey demand, says Fuess. A quick footnote: China waived its retaliatory tariff on U.S. permeate for feed on Sept. 17.
The global dairy market looked a little more positive last week. Last Tuesday's Global Dairy Trade auction (GDT) saw its weighted average of products offered end three consecutive declines. The average jumped 2 percent, following a .4 percent slip on Sept. 3, .2 percent on Aug. 20 and 2.6 percent on Aug. 6. Sellers brought 82.3 million pounds of product to the market, down from 87.5 million in the last event.
The gains were led by lactose, up 5.6 percent, after a .9 percent slippage on Sept. 3. Skim milk powder was next, up 3.4 percent, after it inched up .7 percent last time. Butter was up 2.7 percent, after holding steady last time. Whole milk powder was up 1.9 percent, after slipping .8 percent. Anhydrous milkfat was up .6 percent, following a 1.5 percent drop, and GDT Cheddar was up .4 percent, after a .8 percent loss last time.
Rennet casein was the only product in negative territory, down .1 percent, after gaining 4.6 percent last time.
FC Stone equated the GDT 80 percent butterfat butter price to $1.8271 per pound U.S., up 4.4 cents from Sept. 3. CME butter closed last Friday at $2.1150. GDT Cheddar cheese equated to $1.7446 per pound, up almost a penny and compares to last Friday's CME block Cheddar at $2.05. GDT skim milk powder averaged $1.1791 per pound and compares to $1.1338 last time. Whole milk powder averaged $1.4210, up from $1.3952. CME Grade A nonfat dry milk closed last Friday at $1.0825 per pound.
Most mid-September dairy product prices plummeted, as traders awaited the August Cold Storage report. The 40-pound Cheddar blocks shot up to $2.2375 per pound last Monday, highest CME price since Oct. 22, 2014, but then plunged to $2.0450, and closed last Friday at $2.05, down 15½ cents on the week, after pole vaulting 20¾ cents the previous week, but is 41½ cents above a year ago.
The 500-pound barrels hit $1.94 last Monday but fell to $1.6550 last Friday, down 26½ cents on the week, 29½ cents above a year ago, and a record 39½ cents below the blocks. Seventeen cars of block were sold on the week and 21 of barrel.
FC Stone's Dave Kurzawski said, "The CME spot market is in the throes of finding a sense of equilibrium." "Bull market corrections are jarring and violent. They represent a rapid swing in both prices and sentiment. They can be terribly confusing. But they rarely, if ever, change the underlying supply/demand fundamentals." He adds that the spot market "appears to have gotten ahead of the real-world conditions last week, spiking too high and forcing buyers to find product elsewhere or cancel orders. And prices fall. But this correction doesn't change the broader underlying supply/demand fundamentals at play. Weak milk and cheese production, good domestic cheese demand and light inventories remain supportive for cheese prices over the next month, at least."
Cheesemakers reported a little more variety regarding demand, according to Dairy Market News, but sales are steady. Some barrel producers suggest orders have slowed a bit. Spot milk markets were quiet though milk was on the tighter side in the region and ranged $1 over to $1.50 over class. More milk was moving into the Southeast region where farm milk output is light.
Mozzarella demand is improving due to increased pizza sales. Barrel stocks are accessible because sales are not as strong as blocks. The gap between them has been on the minds of traders, wondering how that will be corrected. The strong value of the dollar is not helping export sales and DMN warned that "low feed costs are likely to result in more milk production and subsequently more cheese output, which could impact the cheese market tone."
Cash butter also had a rough week, falling to $2.1025 per pound last Thursday, lowest price since Feb. 16, 2018, but regained a penny and a quarter last Friday to close at $2.1150, 10¾ cents lower on the week and 12 cents below a year ago. Only seven sales were reported for the week, down from 55 the previous week.
Cream is accessible, according to butter producers but they are keeping churning somewhat light to manage end-of-fiscal-year stocks. Contacts suggest cream cheese production is light, therefore cream has been easily attainable. Butter producers say demand has ebbed so trading is quiet throughout the region.
U.S. milk fat prices remain at a premium to prices elsewhere in the world. Some processors feel that while demand has been able to support prices domestically, a few customers may seek imports. U.S. stocks are readily available and growing, according to some. Ice cream production has dropped off and butter makers want to control inventories but plentiful cream keeps moving to the churn.
Grade A nonfat dry milk marched to $1.0825 per pound by Friday, up 2¾ cents on the week and the highest since Oct. 5, 2015, and 21 cents above a year ago. Only two cars were sold on the week.
Dry whey held all week at 39¾ cents per pound, 11¾ cents below a year ago, with two cars finding new homes on the week.
The Agriculture Department announced the October federal order Class I base milk price at $17.84 per hundredweight, down a penny from September but $1.51 above October 2018, and the highest October Class I since 2014. The price equates to $1.53 per gallon, up from $1.40 a year ago. The 2019 Class I average stands at $16.64, up from $14.76 a year ago and $16.41 in 2017.
Dairy margins improved significantly since August due primarily to surging milk prices as feed costs have held steady, according to the latest Margin Watch from Chicago-based Commodity & Ingredient Hedging LLC.
The MW stated that a shortage of Cheddar blocks in the cash market caused prices to spike. "Cheddar barrel availability has not been nearly as tight given the industry's demand for whey which has caused the block/barrel spread to widen to historical highs." Class III futures had approached $20 per hundredweight in the October contract, the MW stated. However, "while deferred contracts are not trading nearly as high, dairy margins through the first half of 2020 are close to the 90th percentile of historical profitability within the last decade."
The MW warned, "There is concern that milk production will ramp up through next spring's flush given the stronger indicated margins, and that is part of the reason for the significant discount in forward contracts relative to spot values."
In other news, the USDA extended the deadline to Sept. 27 for dairy producers to enroll in the Dairy Margin Coverage program for 2019. The deadline was Sept. 20.
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