Block-Barrel Price Gap Puts the Cheese Market on 'Shaky Ground'
Published: Friday, December 3, 2021
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Cash dairy prices at the Chicago Mercantile Exchange didn't see a lot of change in the shortened Thanksgiving holiday week. There wasn't a lot for traders to feed on in the three days of trading, other than Monday's Cold Storage report.
After gaining 27.25 cents in the previous two weeks, the 40-pound Cheddar blocks held steady at $1.8575 per pound, unchanged in the three days of trading and 17.75 cents above a year ago.
The 500-pound barrels closed last Wednesday at $1.5250, up a half-cent on the week, 10.25 cents above a year ago, but 33.25 cents below the blocks. Only one car of barrel was sold on the week.
Cheese plant managers reported variant milk availability in their respective areas, according to Dairy Market News. Some said they received no discounted milk offers ahead of the holiday, while others saw loads from class to $2 under early in the week. Managers had to process the extra milk, working with limited staff through the holiday weekend. Demand for some retail and food service cheesemakers has eased somewhat in recent weeks. Contacts were not overly concerned because it gives them time to catch up on back orders. Some opine that cheese market tones are on "shaky ground," citing the block-barrel price gap being atypically large. They also contend that producers are inclined to offer loads at lower prices due to the increasing costs of transport.
Demand for cheese at retail and food service remains strong in the West. Cheese prices are favorable to international purchasers who continue to look to the U.S. to meet current market demand. The ongoing truck driver shortage in the region was causing delays, while export loads were facing further delays due to on-going port congestion. Strong international demand and tight spot availability for blocks have, reportedly, worked to push block prices higher. Contrary to what the Cold Storage report showed nationally, Western cheese stocks are tight, as purchasers continue to gobble up loads to meet increased holiday demand. Cheese producers were utilizing available milk supplies to run busy schedules, though some were running below capacity due to short staffing.
Thankfully, ocean freight rates are declining, according to the Nov. 19 Dairy and Food Market Analyst, and at the lowest level since August due to slowing export volumes out of China.
Spot butter backed down from its $2 per pound plus level in the shortened week, closing last Wednesday at $1.99, down 5.75 cents on the short week but 63 cents above a year ago. There were three sales reported for the week.
Butter plant managers were securing cream at holiday-level prices early in the week as questions arose as to whether cream would be available. Contacts said some plants would be near capacity heading into the weekend, so churns may be busier than expected into the following week. Demand tones are "steadily hearty," says DMN, and contacts expect that to remain into mid-December, if not further.
Cream availability was mixed in the West, though contacts said enough is available to meet current needs. Demand for cream is strong throughout the region, though some loads were reportedly facing delays due to the continuing shortage of truck drivers. Retail butter demand is trending upwards as consumers prepare for the holidays. Food service demand is steady and contacts report strong purchasing for export. Spot butter availability is tight. Delayed deliveries of production supplies and labor shortages are causing some butter makers to run below capacity, according to DMN.
Grade A nonfat dry milk closed last Wednesday at $1.5625 per pound, up .75 cents on the week and 46.75 cents above a year ago, with seven sales reported.
Weaker powder output from all three key global exporting regions coupled with persistent demand from many parts of the world is what is supporting prices, according to HighGround Dairy's analysis.
CME dry whey held at 70 cents per pound for five consecutive sessions, 27 cents above Thanksgiving Week a year ago, with only one sale reported.
In trade news, China's October import volumes were mixed and mostly below a year ago, according to HighGround Dairy, although China forward purchased its needs earlier.
Whole milk powder imports totaled 71.9 million pounds, down 10.4 percent from a year ago, though year to date imports are up 38.9 percent. HGD attributes the smaller purchase to less availability from New Zealand.
Skim milk powder totaled 72 million pounds, up 28.4 percent from a year ago, with YTD up 33.7 percent. HGD says the largest increase was from Sweden, followed by France and the U.S.
Whey product imports amounted to 110.1 million pounds, down 9.7 percent from 2020, but YTD imports are up 25.1 percent.
HGD says the data is measured against a strong prior year with volumes still well above the prior five-year average for this time of year. The U.S. held the strongest market share at 47 percent.
Butter imports totaled 11.7 million pounds, up 18.7 percent from a year ago, with YTD up 21.7 percent. Cheese imports, at 17.5 million pounds, were down 5.3 percent, but YTD is up 38.3 percent.
Dairy cow culling fell from the previous month and was below a year ago in October, according to USDA's latest Livestock Slaughter report. The data shows an estimated 256,200 head were sent to slaughter under federal inspection in October, down 8,400 from September and 2,800, or 1.1 percent, below October 2020. Culling in the 10-month period totaled 2.59 million head, up 32,600, or 1.3 percent, from a year ago.
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