Butter Prices 'in the Clouds' as Strong Demand Keeps Plants Busy
Published: Friday, October 7, 2022
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Hurricane Ian, for all intense and purposes, was a Category 5 that grabbed the headlines last week as well as the lives of the residents of Florida, Georgia and the Carolinas. That was added to the frightening nuclear threats from Russia's Putin as he annexed parts of Ukraine in a war that has no end in sight.
Cash dairy markets were mixed and had little to feed on in the way of USDA reports that we regularly monitor, adding to the uncertainty everyone feels. After dropping a dime the week before, the 40-pound Cheddar blocks closed the week and the month at $1.9675 per pound, up .75 cents on the week, 23.25 cents higher than they were on Sept. 1, and 11.75 cents above a year ago.
The 500-pound Cheddar barrels climbed to $2.2450 per pound last Thursday, highest since June 9, but closed last Friday at $2.20, up 1.50 cents on the week, up 35 cents on the month, up 45.50 cents from a year ago, and 23.25 cents above the blocks.
Sales totaled three cars of block for the week and 21 for the month of September, up from 19 in August. Barrel sales totaled 10 for the week and 35 for the month, down from 64 in August.
Midwest cheese makers tell Dairy Market News that milk volumes have fallen the past few weeks, as farmers wait for corn silage inventories to increase. Reported spot milk prices ranged from class to $1 over. Cheese producers say the lighter milk has resulted in some plants shutting down for a day. Cheese interest remains healthy throughout the region and, for multiple weeks, contacts say cheese spots were unavailable. In particular, barrels are tight. CME barrel prices continue above the blocks and "exhibits the current firmness on process cheese markets," said DMN, "but overall cheese market tones are somewhat hearty moving into the holiday demand season."
Retail cheese demand in the West is steady to lower, as higher consumer prices have, reportedly, caused customers to pare back purchasing. Food service sales are unchanged and international demand remains strong, thanks to U.S. competitive prices. Traders say greater spot availability of blocks is contributing to the price inversion. Cheesemakers report that milk is available, allowing plants to run steady production, but labor shortages and delayed deliveries of production supplies continues to prevent some from operating full schedules.
Butter remains in the clouds, climbing to $3.1650 last Wednesday, but closed last Friday at $3.1450, 1.25 cents higher on the week, 5.25 cents above its Sept. 1 level, and $1.3975 above a year ago. Sales totaled 32 for the week, 23 last Tuesday alone, and 87 for the month, down from 144 in August.
Demand remains "hearty" for Midwestern butter producers, says DMN, and production lines are busy trying to fulfill orders even at near-record prices. Cream availability continues to vary from one report to the next. After a couple weeks of tightened cream supplies, last week had some plants clearing cream at multiples in the middle to upper $1.20s from regional suppliers. Still, fourth quarter holiday demand for cream from manufacturers of cream cheese and other fall and winter staples remains strong, according to DMN, so near term expectations are uncertain and butter market tones remain bullish.
Cream inventories are tight in the West, but contacts say they can generally find what they need to meet current needs. Demand for cream is strong, as butter makers are running busy schedules though some were down this week for scheduled maintenance. Contacts report strengthening demand for butter as purchasers prepare for increased holiday sales. Contacts suggest that tight inventories are contributing to the high market prices, as evidenced in the latest Cold Storage report showing Aug. 31 butter stocks down 10% from the end of July and down 22% from a year ago.
Grade A nonfat dry milk saw its last Friday finish at $1.57 per pound, down a penny on the week, 5 cents higher on the month, and 17.25 cents above a year ago. There were five cars sold on the week and 78 for the month, up from 70 in August.
CME dry whey closed the week and the month at 44 cents per pound, down a penny on the week, down 3 cents on the month and 14 cents below a year ago. Sales totaled two for the week and 19 for the month, up from 10 sales in August.
StoneX dairy broker Dave Kurzawski analyzed the markets in the Oct. 3 Dairy Radio Now broadcast, starting with the block and barrel price spread. He said the expectation was/is that the barrels would fall to a closer-to-normal alignment. However, "We're in the peak demand time seasonally so we could be seeing $2 per pound cheese for several more weeks," he said.
When asked about butter remaining so long above $3 per pound, Kurzawski stated that butter demand is good because "we turned a corner on demand about 10 years ago," referring to the perception that butter was not good for you.
Currently, there are production issues, he explained, as butter output is not keeping up with demand and inventories are well below year ago, but he pointed to a new and growing use of butter as part of an appetizer on culinary "butter boards" promoted on the often controversial social media, TikTok.
A butter board is covered in soft spread butter, many of them flavored, along with toasted bread, cheese, olives, fruits, nuts or whatever you like. People love the taste of butter, he said. "People want dairy fat and we underestimate this in the industry to our peril."
He warned that $3 butter will not be here forever. It will come down, as cream multiples are not keeping pace with this bump in price, but $2-plus butter will most likely be the norm ahead, he concluded.
Dairy prices need to stay elevated to support milk prices and keep dairy producers in business. The Sept. 23 Dairy and Food Market Analyst estimates fourth quarter production costs at about $3 per hundredweight more than one year ago, with the national average cost of production around $21.15 per hundredweight.
"Western production costs have soared alongside record high hay prices," according to the Analyst. "Today, our model pegs California cost of production at about $23.05 per hundredweight."
Meanwhile, whole milk powder inched higher in the Sept. 27 GDT Pulse where 2.2 million pounds was offered and sold, at an average $3,610 per metric ton, up $45 from the Sept. 13 Pulse, however was down 1.6% from Fonterra's Regular Contract 2 in the last GDT, according to StoneX's Nate Donnay, who blamed weak demand versus supply.
In other global news, July dairy exports for the European Union and UK were the worst for the month in five years due to continued steep losses in fluid milk and cream shipments moving to China, according to HGD. The EU-27 and UK exported 36,032 metric tons to China, says HGD, down 25,623MT, or 42%, from 2021.
Skim milk powder volumes were weak again, the lowest July since 2016, says HGD, led by a slowdown in demand from China, Nigeria, Ghana and Malaysia. The EU also reported lower cheese shipments to its top three destination countries, the U.S., Japan and Switzerland.
Dairy culling in the week ending Sept. 17, totaled 60,900 dairy cows, down 1,500 head, or 2.4%, below a year ago. However, slaughter levels are still slightly above the volume of replacement heifers entering the market, according to StoneX.
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