Coronavirus Saps Market Demand
Published: Friday, March 6, 2020
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Coronavirus remained the topic of the week, in the media and the markets—every market—from the Dow Jones to dairy, and there is no end in sight, though one wonders how much of media reporting is reality and how much is hype.
Matt Gould, analyst and editor of the Dairy and Food Market Analyst newsletter, reported in the March 2 Dairy Radio Now broadcast that coronavirus has been the major headline for dairy since late January early February. At first, the industry didn't think it would be affected much because it doesn't export a lot of dairy products to China due to the trade war and retaliatory tariffs.
But that is not the case as China virtually shut down its ports of entry, and while that may be easing some, the ramifications have moved up the supply chain. For example, CME prices on nonfat dry milk fell from just shy of $1.30 per pound in late January to $1.08 on Feb. 27. "That translates into milk checks in a very negative fashion," Gould said.
"There isn't really a light at the end of the tunnel as to when this coronavirus turns around and China returns to normal trade," Gould warned. "China still isn't really back to work, as somewhere around two-thirds to three-quarters of China's population is still not going to work," he said.
The questions multiply as to how low dairy prices will go, how long will they stay there, and what kind of recovery will we see down the road. Gould also wonders how much demand has been destroyed by coronavirus. For example, consumers haven't been able to buy fluid milk in China because of travel restrictions, so China will be less likely to import products because they built inventories of their own milk powder. The ramifications will be around awhile, even if the virus is halted immediately, he concluded.
The last week of February was a bit short on USDA reports that the dairy markets regularly feed on. Cash block Cheddar finished February at $1.7225 per pound, down 4.5 cents on the week, the third consecutive week of decline, the lowest CME price since June 4, 2019, but is 11.25 cents above a year ago and 19.73 cents below where it stood on Feb. 3.
The barrels held at $1.59, unchanged on the week, 18 cents above a year ago, 13.5 cents above its Feb. 3 perch, but a still too high 13.25 cents below the blocks. Only three cars of block traded hands on the week, 31 on the month of February, down from 43 in January. There were four cars of barrel that found new homes on the week, 80 for the month, down from 94 in January.
Dairy Market News says Central region cheese markets are "shaky," even though the historically large price gap between the CME block and barrel price has slimmed down to under 20 cents following weeks of 30 cents and 40 cents plus. Cheese production in the region is steady to slower, despite spot milk prices being at seasonal lows. Some cheese makers are hesitant to add to production schedules while others are running seven-day workweeks. Barrel producers, particularly, suggest production is based on contracted purchasing.
Cheese sales range from slow to steady but DMN warned, "Even though cheese production is being limited by plant managers, the availability of milk is still leading to growing and available cheese inventories."
Western contacts say domestic cheese demand is strong and steady. Customers are picking up shipments on a regular basis without any issues, though export demand is a bit mixed. There is interest from buyers but the coronavirus is creating an uneasy feeling within global markets, according to DMN.
Cheese inventories are growing and American cheese stored in Pacific region warehouses grew 8 percent between Dec. 31 and Jan. 31. Cheese makers are receiving plentiful quantities of milk, and cheese plants, already at full capacity, do not want to further stress their systems, says DMN.
Spot butter saw its fourth week of meltdown, dipping to $1.6950 per pound last Thursday, lowest CME price since March, 2015, but rallied 3 cents last Friday to close at $1.7250, 3 cents lower on the week, 18 cents below its Feb. 3 price, and 56.25 cents below a year ago. Sixty-five loads traded places on the week and a whopping 231 loads for the month, up from 82 in January.
Return to Top of Page