Global Dairy Trade Auction Drops for First Time Since November
Published: Friday, March 26, 2021
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The Agriculture Department's monthly Livestock, Dairy and Poultry Outlook, issued March 15, mirrored milk price and production projections in the March 9 World Agricultural Supply and Demand Estimates report.
The outlook's forecast for the size of the 2021 dairy herd was raised to 9.445 million head, 10,000 higher than last month's forecast, based on the reported average number of milk cows in January and recent slaughter rates close to those of last year. Based on yield per cow in January and lower expected cull rates, the forecast yield per cow was lowered to 24,065 pounds per head, down 35 pounds from last month's estimate.
The outlook also reported data from the Department of Labor's Bureau of Labor Statistics, which collects retail price data and calculates consumer price indices, or CPIs to measure inflation in general and groups of consumer purchases.
The BLS shows that dairy had the two lowest price increases, 2.3 percent for ice cream and 3.6 percent for Cheddar cheese, and the highest price increase, 9.3 percent for a gallon of whole milk. Whole-chicken prices increased 4.5 percent and pork by 4.8 percent. Eggs and beef saw price increases of 7.9 and 8.1 percent, respectively, according to the USDA.
Last week's Global Dairy Trade auction reversed gears as Event 280's weighted average fell 3.8 percent, following the March 2 leap of 15 percent. The dip ended eight consecutive sessions of gain and was the first slippage since Nov. 3, 2020.
Traders brought 59.2 million pounds of product to market, up from 56.3 million in the last event, as some added volume of powder pulled on the market. The average winning price was $4,089, down from $4,231 on March 2.
The dive was led by whole milk powder, down 6.2 percent, after it led the gains last time with a 21 percent jump. Butter was down 2.8 percent, after posting a 13.7 percent rise, but anhydrous milkfat was up 3.7 percent, following a 7.4 percent advance last time.
Gains were led by lactose, up 8.6 percent, which followed a 4.9 percent rise. Skim milk powder was up .7 percent, after a 3.5 percent gain. There was no volume traded on cheese.
StoneX Group says the GDT 80 percent butterfat butter price equates to $2.5043 per pound U.S., down 7.4 cents from the last event, after jumping 30.8 cents last time, and compares to CME butter which closed last Friday at a bargain $1.6650. GDT skim milk powder averaged $1.5197 per pound, up from $1.4976, and whole milk powder averaged $1.8521 per pound, down from $1.9795. CME Grade A nonfat dry milk closed last Friday at $1.1525 per pound.
Shortage of Containers
Speaking of global trade, Western United Dairies' weekly newsletter reports that export containers remain in extreme short supply at California's ports, according to a report from Noble Wolf, Blimling and Associates.
"Although many products are being directly impacted with a tight domestic export market, major challenges have affected dairy products and their downstream supply chains. There aren't enough containers in the right place at the right time. Today, too many containers are sitting on idled ships just waiting to be unloaded at U.S. ports. And, once docked, the unloading process is taking longer than usual because of reduced workforces due to COVID flare ups at the ports."
HighGround Dairy's Lucas Fuess talked about it in the March 22 "Dairy Radio Now" broadcast, saying that, while whole milk powder prices tumbled at the GDT, they're still at a sky high levels due to very strong Chinese demand. Skim milk powder prices, or nonfat dry milk as we call it in the U.S., are much higher in Europe and New Zealand because they are able to get product to China, he said. He speculated that U.S. nonfat dry milk would be more aligned with prices in Europe and New Zealand "if we could find shipping containers to ship it."
Fuess also addressed rising U.S. milk output, warning of "burdensome volumes, especially across the Upper Midwest." That will push more milk into cheese, powder and butter, he said. However, the stimulus bill should boost the economy and perhaps dairy demand, so back half of the year milk prices may be brighter.
CME dairy prices were weaker with the exception of dry whey, which set a new record high. The Cheddar blocks closed last Friday at $1.79 per pound, unchanged on the week but 4.75 cents below a year ago. They have advanced 25.25 cents in four weeks.
The barrels rolled downhill to a close of $1.4525, down a dime on the week, still 2.25 cents above a year ago, but a whopping 33.75 cents below the blocks. There were six sales of block and 13 of barrel on the week at the CME.
Cheese demand reports are mixed, according to Dairy Market News, but Midwestern cheesemakers are reporting busier tones, with some having trouble keeping up with demand. Cheese inventories vary but some are balanced to tight. Export interests, renewed school lunch programs, and spring holidays have all helped to keep market tones somewhat bullish, says DMN.
Retail cheese demand in the West has been slowing slightly, while demand for cheese at food service has been picking up. Buyers are finding that there is plenty of cheese available. Mozzarella is moving well, says DMN, and with the March Madness and other televised spring sports tournaments, some contacts expect demand to pick up as viewers purchase both restaurant carryout and grocery pizzas. Cheese is being produced in high volumes in the West, with plenty of milk available. International interest has lessened meanwhile as prices increase. Port issues have improved but still not back to normal, says DMN.
Cash butter saw its Friday finish at $1.6650 per pound, down a nickel on the week and 9 cents below a year ago, with only five sales reported for the week.
Central cream is tightening, according to butter producers, but churning is ongoing. Cream is nearing the peak of affordability for churners, says DMN, but butter availability remains bountiful with some bulk loads nearing one year in age. Butter market tones have retained solidity, thanks to consecutive weeks of positive food service demand which is described as "reminiscent of pre-COVID buying," according to DMN, plus interest continues from export customers.
Spring flush is early in the West, says DMN, and cream is plentiful. Ice cream makers are pulling more heavily on cream but butter makers have ample cream supplies. And, there is a lot of butter in the cooler. Export interest is strong, food service demand is showing growth as restrictions relax, and retail accounts are building inventory to prepare for the upcoming spring holiday advertised sales.
Grade A nonfat dry milk closed last Friday at $1.1525 per pound, down 1.75 cents on the week but 16.50 cents above a year ago when the powder fell 6.50 cents. There were 11 sales for the week.
Spot dry whey continued its record-breaking trek in small daily gains and reached its Friday summit at 61.25 cents per pound, up 2 cents on the week and 28.25 cents above a year ago, with just two sales reported at the CME.
Dairy margins continued to improve in the first half of March as milk prices continued higher while feed costs held generally steady, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.
The MW reported that "strong export demand is providing support to the market along with ongoing domestic demand from the Farmers to Families Food Box Program. Export shipments have been particularly strong to the Philippines, Vietnam and China since the beginning of the year."
Speaking of feed costs, StoneX Dairy warned in its March 15 "Early Morning Update" that "dairy farmers can no longer expect to have $3.50 corn and $3 bean meal. This increase in feed price has brought dairy margins below the 25 percent historical price index, presenting a challenge for dairy farmers if there were to be any further shocks to the market."
The April Federal order Class I base milk price was announced by the USDA at $15.51 per hundredweight, up 31 cents from March, $1.13 below April 2020, and equates to about $1.33 per gallon, down from $1.43 a year ago.
Unfortunately, U.S. fluid sales have returned to "normal," meaning they fell again. The latest data shows 3.9 billion pounds of packaged fluid products were sold in January, down 4.9 percent from January 2020, and follows a 1.5 percent gain in December.
Conventional product sales totaled 3.6 billion pounds, down 5.7 percent from a year ago. Organic products, at 255 million pounds, were up 8.1 percent, and represented 6.6 percent of total sales for the month.
Whole milk sales totaled 1.3 billion pounds, down 2.7 percent from a year ago, and made up 33 percent of total fluid sales in January, while skim milk sales, at 225 million pounds, were down 15.3 percent from a year ago. The figures represent consumption in federal milk marketing order areas, which account for approximately 92 percent of total fluid milk sales in the U.S.
The March 15 Daily Dairy Report states, however, that "demand from bottlers is steady to strong in most parts of the country. Stay-at-home orders have driven strong fluid milk consumption over the past year, but as students return to classrooms to varying degrees, fluid milk demand from educational institutions is likely to grow. Class I utilization among the federal milk marketing orders in January was 33.9 percent, the highest it has been for that month since 2012."
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