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Pre-Holiday Cheese Sales Should Be Stronger, Observers Say

by Lee Mielke

Published: Friday, November 24, 2023

The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."

Dairy product prices were mixed the week before Thanksgiving. CME Cheddar block cheese closed last Friday at $1.60 per pound, unchanged on the week but 63.25 cents below a year ago. The barrels climbed to $1.68 last Tuesday, highest since Oct. 27, but plunged 11 cents last Friday, closing at $1.56, 9 cents lower on the week, 36.75 cents below a year ago, and a more normal 4 cents below the blocks. There were 14 sales of block on the week at the CME and 9 of barrel.

Cheese prices are disappointing considering that we're approaching the biggest selling season of the year. StoneX stated on its Nov. 13 Early Morning Update, "In November, the seasonal tendency is for the block-barrel spread to widen so it's a bit odd that is inverting." The Nov. 10 Weekly Wire stated, "Too much milk isn't the issue here. Too little demand is driving the narrative."

Dairy Market News reported that spot milk availability remained similar to much of early fall this week; tight and or closer to balanced. Mid-week spot milk price highs were at $1-over Class III. A number of cheesemakers say milk offers have defied their expectations, as they have not begun to come in ahead of the holiday week. Nonfat dry milk usage in cheese processing has increased as a result. Cheese demand in the Midwest is either unchanged or improving. Cheddar and Italian pizza-style cheesemakers say orders have picked up in recent weeks.

Western demand from retail cheese purchasers is strong, says DMN. Some contacts note that grocers have been utilizing retail ads to entice customers ahead of Thanksgiving. The Dairy Market News Retail Report released Nov. 9, underscored that as the total number of ads for conventional and organic cheese increased from the prior week's survey by over 60%. Food service cheese sales in the region are softening somewhat as consumers are, reportedly, foregoing dining out due to high menu prices. Contacts say cheese produced domestically is priced at a premium to that produced internationally and thus contributing to light export demand, reports DMN.

After plunging almost 51 cents the previous week, CME butter regained a little ground and climbed to $2.69 per pound last Tuesday, but closed last Friday at $2.49, down 11 cents on the week, 32 cents below a year ago, and $1.0125 below its recent record high. Sales totaled 10 loads for the week.

Butter market tones started to brace after a precipitous drop the past few weeks, says DMN, but processors say demand has not been as negatively impacted as some would expect. Butter makers continue to report upticks in cream availability but some are still running micro-fixing schedules for retail demand. Churning rates are expected to increase near-term as cream tankers trade at lower multiples week to week. Mid-week spot multiples remained in the low 1.20s for high end, but the low end slipped to 1.15, according to DMN.

Cream spinoff is increasing in the West because of seasonally rising butterfat in farm milk and more loads are available. Butter makers in the West are utilizing available spot cream to increase production. Others are shifting their focus from retail to bulk butter. The number of retail ads for conventional and retail butter also increased in the DMN Retail Report.

Grade A nonfat dry milk climbed to $1.22 per pound Monday, highest since Oct. 23, as global prices have strengthened, but then gave it back last Wednesday and closed Friday at $1.1925, down .75 cents on the week and 23.50 cents below a year ago. There were 13 sales reported for the week.

Dry whey climbed to 42 cents per pound last Tuesday, highest since April 4, but it closed last Friday at 41 cents, 1.25 cents higher on the week but 3 cents below a year ago, with 10 loads finding new homes on the week.

StoneX November Dairy Outlook stated, "While there are pockets of good demand, recent scanner data is pointing toward a slowdown at retail for butter and cheese and shipments of nonfat dry milk to Mexico have slowed. The slower retail sales could be temporary blips from consumers who are a little long on product after some aggressive retail promotions over the summer, or they could be a signal that consumer spending is slowing/shifting. Mexico is also a tough read. Their imports were running well above trend and a slowdown makes some sense, but the pullback for August and September is bigger than expected."

Inflation reportedly cooled in October, with the Labor Department reporting an increase of 3.2% in the Consumer Price Index. But the Nov. 10 Weekly Wire reported, "Federal Reserve Bank of New York data showing massive increases in third quarter consumer credit card balances and rising delinquency rates don't spark confidence in an immediate turnaround."

Dairy margins were mixed over the first half of November as Class III Milk futures were steady while Class IV contracts firmed, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.

"Corn prices were steady while soybean meal continued to advance sharply on concerns of growing drought conditions in key soybean production regions of Brazil," the MW warned. "USDA reported total dairy export shipments of 460 million pounds during September, down 12% from last year with cumulative 2023 YTD shipments down 7.5% from a year ago. Cheese exports were the notable exception at a record 81.3 million pounds for the month of September, up 4.3% from last year led by strong sales to Mexico.

U.S. exports of nonfat dry milk at 117.4 million pounds were down 20.1% from a year ago and the lowest total for September since 2018. Butter exports of 4.4 million pounds fell 58.4% year-over-year while whey exports of 95 million pounds were down 26.7% from last year and the lowest September total since 2019. Poor hog margins in China and continued struggles with African Swine Fever have negatively impacted whey demand from Asia."

The MW also reported highlights from the latest Dairy Products report and concluded; "Our clients continue monitoring targets to extend margin coverage in deferred marketing periods, with flexible strategies that will allow for further margin improvement over time."

September total cheese disappearance was up from August and a year ago, according to HighGround Dairy economist Betty Berning in the Nov. 20 Dairy Radio Now broadcast, based on the latest Dairy Supply and Utilization report.

Cheese disappearance, at 1.2 billion pounds, was up .9% from September 2022, and Berning mainly credited "rebounding domestic consumption of American-style cheese, which was up 6.2%, following a dismal August. That plus impressive "Other-cheese" exports which marked the highest September volume on record with data back to 2011, did the job, she said.

Butter utilization totaled 170.7 million pounds, up 6.1%, thanks to domestic disappearance being up 10.6%. Exports were down a whopping 57%. Usage dropped from August to September, according to HGD, "going against the five-year average increase of 1.3%."

Nonfat dry milk utilization, at 182.5 million pounds, was up 1.4% from August's nearly five-year low, but down 20.7% from a year ago. HGD says "Month-on-month, domestic consumption moved in opposition to exports. However, stateside NFDM demand remained well below the prior year, while exports tanked to the smallest volume since August 2019."

Dry whey disappearance totaled 81.3 million pounds, up 6.8%, with domestic use up 78.4%, while exports, at 34.2 million, were down 31.2%. Exports to China and Southeast Asia were off, says HGD, keeping year-on-year and year-to-date volumes down. Berning credited increased demand for whey protein concentrate and whey protein isolates for the overall increase in whey product demand.

When asked why cheese prices aren't better than they are, Berning cited HighGround's November outlook and said, "There's been a few different dynamics playing out." She said they too are surprised prices are lingering around $1.60 but says new processing capacity has come online and exports, while better than August, were not great, and we've seen changes in product mix. Demand isn't that great, and the rally we typically see in the fall period just did not materialize. "We still have Christmas coming, Hanukkah and all the holidays, plus Super Bowl," she concluded, "So perhaps we'll see some lift and demand will pick up."

This week's GDT Pulse auction saw mixed sales on Fonterra skim milk and whole milk powder. 2,180 MT or 96.9% of the total 2,250 MT on offer was sold. HighGround Dairy's analysis shows 440 MT more of Instant WMP was sold and 74 MT less of Regular WMP was sold versus the last GDT Event. 100% of the 1,000 MT of SMP on offer was sold in this auction, according to HGD.

Culling continues to slow. The week ending Nov. 4 saw 55,800 dairy cows go to slaughter, up 300 from the previous week, but 4,200, or 7% below a year ago. Year to date 2,656,800, have been culled, up 75,800, or 2.9%, from a year ago.

The annual meeting of the National Milk Producers Federation, National Dairy Promotion and Research Board, and United Dairy Industry Assn. took place last week in Orlando. NMPF's incoming president and CEO, Gregg Doud, told attendees "The future of U.S. dairy farming is bright as global growth and American capacity for innovation and production combine to create a powerhouse. In terms of the world of protein, dairy is a huge part of the future."

Doud, who takes over NMPF's reins on Jan. 1, is a former chief agricultural trade negotiator for the Office of the U.S. Trade Representative. He said, "Opportunities are there for U.S. dairy's taking with robust outreach and appeals to consumers worldwide. My message to you today is very simple. Let's go. Let's get it in gear."

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