Block Cheddar Price Climbs to the Highest Point in Five Years
Published: Friday, September 20, 2019
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Block Cheddar cheese hit the highest price in almost five years and is the highest priced cheese in the world. It closed "Friday the 13th" at $2.2050 per pound, up an astounding 20¾ cents on the week, the highest since Oct. 22, 2014, and is 60 cents above a year ago, as traders anticipated the August Milk Production report on Sept. 18. It's still 24½ cents shy of the record high block price of $2.45 on Sept. 19, 2014.
The barrel price finished at $1.92, up 17¾ cents, highest since Nov. 12, 2014, 50 cents above a year ago, but is 28½ cents below the blocks. Nine cars of block were traded on the week at the CME and 14 of barrel. The October Class III futures contract settled Sept. 12 at $19.16 per hundredweight.
FC Stone dairy broker Dave Kurzawski explained in the Sept. 16 Dairy Radio Now broadcast that tightened milk supplies resulting from crimped margins on U.S. dairy farms the past few years meant lower cheese output. That, plus Class IV milk prices have topped Class III prices, which pulled some milk from the cheese vat, resulting in lower Cheddar output, the cheese traded at the CME. He also credited "very strong domestic cheese demand," for the high prices.
U.S. cheese and butter exports have been hindered by the strong prices but are not a total disaster. Kurzawski also reported that China announced last week that it would suspend its tariffs on U.S. whey on Sept. 17. China has been buying more U.S. lactose the last couple months, he said, as "they're going to try, come hell or high water, to rebuild their hog herd," which was devastated by African swine fever. Kurzawski said it will be a slow process, but "the U.S. is well positioned to help them."
Kurzawski also wrote in his Sept. 12 Early Morning Update, "Revolutions come from empty stomachs; the Chinese leadership is keenly aware of this. The protests in Hong Kong put an exclamation point on this. While the protests were political in nature, it could be a hint at what's coming if China actually had to ration food. Food price inflation in China has been very strong and appears to be accelerating due to African swine fever."
The cheese price was the topic of the week, according to Dairy Market News, but contacts are concerned what markets will do in the near future. Some expect a sharp falloff while others question where the ceiling is. Midwest cheese sales remain healthy, even with the price upticks and inventories are in balance.
Western cheese makers have plenty of milk and are running plants near full capacity. Strong seasonal pizza demand is particularly promoting production of mozzarella and the wide price spread is encouraging block production. Some contacts are trying to make sense of the lift in prices, especially for the blocks. They see demand as adequate to keep stocks from ballooning but export demand has been stifled by the higher prices compared to world prices. Contacts also suggest that supplies of block cheese that meet CME market requirements are limited, giving a push to prices. Demand has been strong for block cheese with some suppliers heavily committed over the next few months, reports DMN, but with "languid consumer demand for processed cheese, there is currently no shortage of barrels and 640s."
The big question is how well the market can regain a balance, says DMN. Block and barrel prices may moderate somewhat but the concern is that stronger milk prices and cheap feed may incentivize more milk production and, subsequently, more cheese. A few contacts suspect that without the potential for new market opportunities the U.S. may again have a lot of cheese that is hard to sell.
Spot butter, perhaps buoyed by the cheese, climbed to $2.2350 per pound last Wednesday but backed off to close at $2.2225, up a nickel on the week but 1¼ cents below a year ago. A hefty 55 cars traded hands on the week.
Butter producers differ on the effect of lower market prices in terms of demand. Some say orders are picking up while others say demand remains quiet. The cream picture has remained similar. It is available, plants are taking advantage of the accessibility, and producers are working on 2020 cream contracts.
Western retail orders for print butter are not as good as sellers would like, says DMN, but food service intakes remain "stout," helping to keep inventories under control. "Global butter sales are steady but with the strong value of the dollar and higher U.S. butter prices compared to the EU, export demand is unlikely to improve in the near future," warns DMN. Butter stocks are readily accessible and "as cream availability increases in the West and high freight costs limit the move of cream across regions, butter manufacturing is more active."
Grade A nonfat dry milk dipped to $1.0375 per pound last Tuesday but rallied to close last Friday at $1.0550, up three-quarter-cents on the week and 18 cents above a year ago, with five carloads exchanging hands on the week.
Dry whey gained a quarter-cent, closing at 39¾ cents per pound, on three sales.
The Agriculture Department raised its 2019 milk production estimate in the latest World Agricultural Supply and Demand Estimates report, based on stronger growth in milk per cow offsetting forecast lower cow numbers. The 2020 forecast was reduced from last month on slower expected growth in dairy cow numbers; however this is partly offset by slightly higher forecast milk per cow.
2019 production and marketings were estimated at 218 and 217 billion pounds, respectively, up 100 million pounds from last month's estimate. If realized, 2019 production would be up 400 million pounds, or .2 percent, from 2018.
2020 production and marketings were estimated at 221.2 and 220.2 billion pounds, respectively, down 200 million and 100 million pounds, respectively, from last month's estimates. If realized, 2020 production would be up 3.2 billion pounds, or 1.5 percent, from 2019.
The 2019 and 2020 fat basis import forecasts were lowered on recent trade data and expectations of slower butterfat imports. Fat basis export forecasts for 2019 and 2020 were reduced from last month on weaker expected global demand for U.S. butterfat products.
The 2019 skim-solids basis import forecast was raised from the previous month on higher-than-expected imports of milk protein concentrates and a number of other dairy products. This strength is expected to carry over into 2020 and the 2020 skim-solids basis import forecast was raised. The skim-solids basis export forecast for 2019 was reduced from last month on weakness in a number of dairy products, but the 2020 skim-solids basis export forecast was raised primarily on expected strong global demand for lactose.
Cheese, nonfat dry milk (NDM), and whey prices for 2019 and 2020 were raised from the previous month, but the price forecast for butter was reduced.
The 2019 and 2020 the Class III milk price forecasts were raised from last month on higher cheese and whey prices. Look for the 2019 Class III to average $16.45 per hundredweight, up 15 cents from last month's projection, and compares to $14.61 in 2018 and $16.17 in 2017. The 2020 average is projected at $17.05, up 50 cents from last month's estimate.
The 2019 and 2020 Class IV price forecasts were lowered as lower forecast butter prices more than offset higher NDM prices. The 2019 average is now pegged at $16.15 per hundredweight, down 15 cents from last month's estimate, and compares to $14.23 in 2018 and $15.16 in 2017. Expect the 2020 Class IV average at $16.15, down 30 cents from last month's projection.
July U.S. fluid milk sales staged a small uptick, first positive move since April 2018. USDA's latest data shows 3.6 billion pounds of packaged fluid sales in July, up .2 percent from July 2018.
Conventional product sales totaled 3.4 billion pounds, down .1 percent from a year ago. Organic products, at 217 million pounds, were up 4.6 percent and represented a tad under 6 percent of total sales for the month.
Whole milk sales totaled 1.3 billion pounds, up 3.6 percent from a year ago and made up 35 percent of total fluid sales in the month. Sales for the seven month period totaled 8.7 billion pounds, up 1.2 percent from a year ago. Skim milk sales, at 265 million pounds, were down 8.1 percent and made up 7.3 percent of total milk sales for the month.
Total packaged fluid milk sales, January through July totaled 26.6 billion pounds, down 1.8 percent from a year ago.
Conventional products year-to-date totaled 25.1 billion pounds, down 1.7 percent. Organic products, at 1.5 billion pounds, were down 3.3 percent and represented about 5.5 percent of total fluid milk sales for the period.
The U.S. Dairy Export Council's President and CEO Tom Vilsack has returned from a seven-day trip to China and Japan, saying he is "optimistic about the long-term health of U.S. dairy exports despite challenges caused by current trade disputes." "With hard work and patience, we will continue to grow both volume and value for the U.S. dairy industry," Vilsack wrote in a letter to members, sharing takeaways from his trip. "We are on the right track to compete to win."
After meeting with U.S. dairy suppliers and customers in China, Vilsack said, "The reality of why U.S. dairy exports to China have fallen 43 percent over one year was brought home. Exports have been hit by a one-two punch of retaliatory tariffs and the spread of African swine flu that has killed much of China's pig population, reducing the need for feed that utilized U.S. dairy ingredients."
"In that environment the best we can do is look for ways to maintain the relationship in the hope that the trade dispute gets settled sooner rather than later," he said, "recognizing we have no control over when or if that will happen."
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