Mixed Outlook: Dairy Prices Move Higher While Farm Margins Slide
Published: Friday, July 16, 2021
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Dairy product prices started July with cheese climbing and powder, whey and butter dropping. The holiday-shortened week saw the Cheddar blocks climb to $1.7250 per pound despite the downfall at the GDT, up 17 cents on the week and the highest since May 13, but were priced $1.19 below a year ago.
The barrels got to $1.58, 8 cents higher on the week, highest since June 16, but 76 cents below a year ago, and 14.50 cents below the blocks. Ten cars of block found new homes on the week at the CME and 30 of barrel.
StoneX stated in its July 8 Early Morning Update, "It is possible that exports done four to eight weeks ago and not yet accounted for in data was stronger than expected. But because of the shipping issues faced this year, it's possible that some of the cheese held in storage in second quarter was spoken for by international buyers but unable to get shipped in a timely manner. Only time will tell."
Midwest cheese producers tell Dairy Market News that milk availability is "sloppy." Discounts remain steep on spot milk, thus plants are running busy schedules. Cheese demand is "somewhat busy" and inventories are tighter. Some plants were running six or seven day schedules and still unable to fulfill extra orders. Cheddar, processed cheese and curd demand was strong and market tones are getting a lift as well. Labor shortages in upper Midwest plants, however, have become a concern and have begun to affect output, says DMN.
Cheese demand at retail and food service markets held steady in the West and purchasing for international markets was steady, with notably strong demand from Asian markets. Exports continued to face delays due to limited vessel space and port congestion. Milk continues to be readily available in the West, despite the high temperatures, while producers are running at or near capacity, according to DMN.
Butter held at $1.74 per pound for four consecutive sessions, but closed last Friday at $1.6750, down 6.5 cents on the week, lowest since March 22, and 1.5 cents below a year ago. There were 13 sales on the week at the CME.
Butter plant managers are beginning to report a tighter cream market is upon them. Cream is still available at similar multiples to the previous week but not at the same volume. Butter demand is at seasonal expectations. Retail is unchanged but somewhat slow. Food service is much better than a year ago but varies week to week. Market tones are "quiet," says DMN.
Cream was a bit tighter in the West, although demand is generally said to be a little lower as well, due to holiday plant closures on July 5. Some manufacturers were running more active schedules following unplanned changes the previous week. Some plants that were counting on a full week of churning the previous week had to pause production due to the heat, so they are trying to make up for that down time. Bulk inventories are stable to growing. Retail demand is steady, albeit seasonally lower. Food service orders are strong but are reported to have plateaued. Export demand is stable, but port congestion and related shipping delays persist. Warehouses are congested.
Grade A nonfat dry milk fell to $1.2250 per pound last Thursday, lowest since April 16, but closed last Friday at $1.25, .75 cents lower on the week but 23.5 cents above a year ago, with three sales reported on the week.
Dry whey fell to 48.75 cents per pound last Thursday, lowest CME price since Jan. 6, but closed last Friday at 50.75 cents per pound, 4.25 cents lower on the week but 22 cents above a year ago. There were four sales for the short week.
A year ago, the whey had dropped below 30 cents per pound but the July 8 Daily Dairy Report (DDR) points out, "bargain pricing and the world's growing appetite for protein quickly lifted whey out of the doldrums."
It set a record 70.25 cents per pound on April 20 but quickly retreated and held in the mid-60 cent range. The DDR suggests domestic demand will likely perk up with the lower prices but if it doesn't, "whey values could contribute much less to second-half Class III prices than they did in the first six months of the year."
Dairy margins deteriorated further the last half of June as continued weakness in milk prices combined with renewed strength in feed markets to pressure forward profitability, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.
"A combination of bearish Milk Production and Cold Storage reports weighed on milk prices," the Margin Watch explained. "USDA pegged May Milk output at a record high 19.85 billion pounds, up 4.6 percent from last year and 4.2 percent higher than 2019 given all the COVID-19 disruptions at this time a year ago. The May dairy cow herd at 9.505 million head was up 5,000 from April and 145,000 higher than last year and the largest year-over-year gain since 2008. The dairy herd is also the highest it has been since 1994, with April's herd size revised up by 26,000 cows as well."
"Cold Storage stocks are growing also as increased foodservice demand is not keeping pace with the sharper rise in milk production," according to the Margin Watch. "USDA reported cheese inventories at the end of May totaled 1.465 billion pounds, up 16.6 million pounds, or 1.1 percent, from April and butter inventories of 401.8 million pounds were up 15.6 million pounds, or 4.1 percent, from the prior month and the first time that butter stocks have eclipsed 400 million pounds in May since 1993."
"On the feed side of the margin equation, USDA released the updated acreage and Quarterly Stocks reports, both which were considered bullish for the corn and soybean meal markets," the Margin Watch warned. "Corn acreage, at 92.69 million, was up 1.55 million from the March Intentions at 91.14 million but below the average expectation of a 2.64 million acre increase. June 1 corn stocks, of 4.112 billion bushels, were 92 million below the average expectation although both within the range of estimates. The soybean figures likewise had a bullish skew relative to industry estimates."
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