Dairy Products Trade in the Black
Published: Friday, February 15, 2019
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The Feb. 6 Global Dairy Trade auction (GDT) saw yet another boost in its weighted average of products offered, this time jumping 6.7 percent, following a 4.2 percent rise Jan. 15 and 2.8 percent on Jan. 2. It was the fifth consecutive session of gain and the highest since Nov. 1, 2016. Sellers brought 51.4 million pounds of product to the market, down from 61.5 million on Jan. 15 and the lowest amount since June 19.
All products offered except buttermilk powder were in the black, led by rennet casein, up 10.9 percent. Whole milk powder was up 8.4 percent, following a 10.3 percent boost in the last event. Anhydrous milkfat was up 5.8 percent, following a 3.2 percent gain, and butter was up 4.2 percent after seeing a 4.6 percent gain. Skim milk powder followed, up 3.9 percent after it led the gains last time with a 10.3 percent boost. GDT Cheddar was up 1.4 percent, following a 4.2 percent rise, and Lactose brought up the bottom, up 1.3 percent.
FC Stone equates the GDT 80 percent butterfat butter price to $1.9669 per pound U.S., up 8.1 cents from the last session. CME butter closed last Friday at $2.2950. GDT Cheddar cheese equated to $1.6170 per pound, up 2.8 cents from the last event and compares to last Friday's CME block Cheddar at $1.5275. GDT skim milk powder averaged $1.1494 per pound, up from $1.0907 last time. Whole milk powder averaged $1.3731, up from $1.2597. CME Grade A nonfat dry milk closed last Friday at 99½ cents per pound.
Cash dairy prices started February with some strength, then backed off but gave it another run. CME block Cheddar backed down to $1.4575 per pound last Tuesday but closed the second Friday of the month at $1.5275, up 2¾ cents on the week and 1¾ cents above a year ago. The barrels finished at $1.3725, up 7¼ cents on the week, 1¼ cents above a year ago, but a still too high 15½ cents below the blocks. Six cars of block were sold on the week and 27 of barrel.
"A number of Midwestern cheese makers suggest that demand is seasonally slow, says Dairy Market News. "Plant breakdowns and weather-related issues caused some extra milk to move into cheese production, below class price in most cases. Reported spot milk prices ranged from flat class to $2 under. Cheese inventories have become burdensome in slower moving varieties, but a number of contacts suggest their inventories are balanced. Overall cheese production mirrors milk availability, but in some cases production schedules have been pared down in order to manage inventories," said DMN.
Western cheese inventories, like most of the country, remain long, yet industry contacts say domestic retail and food service demand is relatively steady. While buyer interest has picked up due to lower prices, exports have yet to take off. Market participants hope the lower prices will generate buyer activity and draw down cheese stocks, though a few cheese makers say their inventories are in balance. Many manufacturers are running full schedules, but some are starting to ease back on production and diverting milk intakes toward Class IV uses.
Analyzing the markets, FC Stone's Dave Kurzawski asked, "Is it a milk production concern or a weather concern, or is demand that good? Maybe a bit of all three. Nevertheless, it will take some time to piece this together, but for now we'd say that U.S. market participants are going to have to marry up a ho-hum domestic trade for most dairy products with fairly impressive global dairy product price strength."
Butter fell to $2.2775 per pound last Tuesday but closed last Friday at $2.2950, up a half-cent on the week and 26¾ cents above a year ago, with 18 cars selling.
DMN says Central region butter churning is on par with cream availability. Plants continue to build stocks for later in the year, and cream supplies are readily available with more offers coming from the West. Demand is also on par with last year, meeting expectations, but the butter remains range-bound and steady.
Western churns continue to run busy schedules. Contracted cream supplies are still strong, whereas some reports suggest that spot offers have dropped slightly. Butter manufacturers are content with their stocks, as they have a lot to offer potential and existing buyers. Sales of butter are good in the retail sector but backed off somewhat in food service. Wet, snowy weather in some areas of the West have impacted sale activities. Export interest is stable and in line with expectations, but butter prices are surprisingly higher than usual.
Dry whey fell to 36 cents per pound last Monday, lowest price since May 16, 2018, but climbed back to 39 cents only to close at 36½ cents per pound, up a quarter-cent on the week, with a whopping 41 cars sold for the week at the CME.
Cash Grade A nonfat dry milk fell to 98 cents per pound last Tuesday, lowest since Jan. 7, but closed at 99½ cents per pound, three-quarter cents lower on the week but 26 cents above a year ago, with 13 carloads sold on the week.
Global powder prices are particularly relevant in 2018, according to Western United Dairymen's Annie AcMoody, and even more so than in recent years. Writing in her Feb. 1 newsletter, she points out that in October 2018 (the latest data available), 82 percent of U.S. powder was exported. The average since the beginning of 2018 is 70 percent. When such a big portion of a product is exported, international pricing matters for our competitiveness.
FC Stone points out in its Feb. 12 Early Morning Update that "Fundamentals do not look great for powder as New Zealand sits on record inventories, Mexico has slowed down while also canceling tenders, and the U.S. will be in flush in just a couple months."
The U.S. is not benefiting as much from the strengthened global dairy market. HighGround Dairy's Lucas Fuess reported in the Feb. 11 Dairy Radio Now broadcast that the U.S. has been "put on the sidelines" due to continuing trade concerns and November's trade data was a bit troubling for a variety of products.
Cheese exports were lower, he said, nonfat dry milk exports fell for the first time in more than a year, and whey dropped, based on reduced exports to China. He added that overall 2018 exports were very strong and up year-to-date, but China continues to make purchases from other countries, "forcing the U.S. to fight for dairy's share and this could be troubling for dairy exports in the months to come."
The Agriculture Department announced that it will purchase 5.5 million gallons of fluid milk as part of the trade mitigation package the Trump administration announced last fall as a result of the ongoing tariff war. This is the equivalent of 47 million pounds of milk, or 1.6 million pounds, of cheese per month over the April, May and June period, according to Fuess, who warned that, while this is encouraging, "It remains to be seen how the spring flush turns out with these continuing troublesome margins across the U.S. and how this will affect overall supplies this spring."
He adds that the November Dairy Products report's message is, "There's still plenty of milk in this country overall and plenty of product, if not in production, then in dry product stocks."
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