Dairy Product Demand Is Strong
Published: Friday, January 24, 2020
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
U.S. dairy product commercial disappearance data shows total November cheese was down .4 percent from November 2018 and down 1.8 percent from October, though October was at a record high. Butter was down 8.6 percent from a year ago and only up .5 percent from October. Nonfat dry milk and skim milk disappearance was up a whopping 28.3 percent from a year ago and dry whey was off 4.6 percent.
FC Stone dairy broker Dave Kurzawski pointed out in the Jan. 20 Dairy Radio Now broadcast that, on a milk equivalent basis, we were down 2.4 percent. But he gave it some perspective, reporting that 2019 domestic disappearance of milk solids was up 2.8 percent year to date. On a 12-month rolling average of November 2018 to November 2019, it was up 3 percent, he said, and he called them "astronomical demand numbers," and "that's the story."
The November data was maybe a "glitch on the radar," perhaps driven by the rally in prices across the complex, with the exception of butter, he said. "Prices rallied in October so you probably had some people step away from it, but does that really say anything about what's going on in demand?" He admitted there's troubling data on fluid milk but concluded, "The rest of demand is really strong."
History was made the week of Jan. 13 in the dairy market as a new block cheese futures contract was launched. Kurzawski said the contract could help dairy producers, perhaps more so for a select group. However, the spirit behind the contract is to "give confidence to hedgers that the tools they use at the (Chicago Mercantile) Exchange will benefit them by managing risk and as that happens it will help grow markets overall and as markets grow overall dairy farmers will benefit."
Mid-January cash dairy prices remain mixed. The CME Cheddar blocks closed the third Friday of 2020 at $1.9625 per pound, up 9.25 cents on the week, highest since Dec. 9, and 56.25 cents above a year ago. The barrels fell to $1.4675 last Tuesday, lowest since March 13, widening the spread to a second all-time high of 40.25 cents. But they rallied, closing last Friday at $1.5625, 4 cents higher on the week, 36.25 cents above a year ago, and 40 cents below the blocks. Only two cars of block traded on the week at the CME and 40 of barrel.
Super Bowl cheese orders have kept demand healthy into January and will support orders in the near term, predicted HighGround Dairy in their "Monday Morning Huddle." But they warned that "milk production is plentiful across most areas of the country, pushing larger volumes into cheese plants who have resumed normal full week operating schedules post-holidays." "While cheese production is strong, decent demand has mostly kept pace to support an overall balanced market, preventing prices from declining further. Looking ahead, it is likely that demand will drop slightly lower on a normal, seasonal basis throughout first quarter, and there is potential for cheese markets to continue to move lower as milk output remains strong throughout the next several months."
FC Stone adds that the December Milk Production report is to be issued Jan. 23 but December component data is available and reported that it was basically flat against last year. "Feed quality issues may be impacting things in a more meaningful way," according to FC Stone.
Midwestern cheesemakers tell Dairy Market News that, "in spite of confused markets, week-to-week sales are mostly steady if not slightly improved. It is prime time for Mozzarella and Provolone sales, with football playoffs prompting retailers to push cheese/pizza advertisements." Spot milk prices remain "solely discounted," however discounts are slighter and moving a bit closer to class. Market tones are far from healthy, says DMN, citing the block to barrel price gap.
Butter dropped a nickel last Monday, jumped 7 cents last Tuesday to $1.94, but closed last Friday at $1.88, down 4 cents on the week and 36 cents below a year ago, on 11 sales.
Butter churning continues in the Midwest and cream supplies remain plentiful, says DMN. There was a slight downward shift in cream availability but by no means are butter producers concerned about shortages in the near term. They expect at least two more weeks, or more, of easily-accessible cream. Butter sales are slower but meeting seasonal expectations following the holiday rush.
Grade A nonfat dry milk was steady until last Wednesday when it gained a penny and closed last Friday at $1.29, up 1.75 cents on the week and the highest since Oct. 23, 2014 and 26 cents above a year ago. Twenty-four cars exchanged hands on the week.
CME dry whey saw a Friday close at 36.75 cents per pound, up 2 cents but still 13.75 cents below a year ago, with 34 cars sold on the week at the CME.
FC Stone wrote in the Jan. 15 Early Morning Update, "We're on the precipice of more trade news with China, but just follow the money." "The price of hogs is enticing large-scale hog farm development even before there is a vaccination. Remember how traders can 'shoot first, ask questions later.' Well, so can Chinese food production/government interests. And we believe that's exactly what they're doing. This is stirring some new and interesting feed business in the U.S. that may not be specifically whey but may, in fact, have some impact on buyer behavior. We'll need data to draw any significant conclusions, but unfortunately futures markets tend to move before the news."
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