Cheese Demand Holding Steady
Published: Friday, December 15, 2023
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Dairy Market News reports that milk availability for Midwest cheese processors shifted the last week of November and provided a brief rebound following Thanksgiving week pricing lows. While deals as low as $4-under class were reported the last week of November, there were some $1-over prices. Cheddar and Italian-style cheesemakers say demand is holding somewhat steady in relation to this time of year. "The nearing-culmination of football season typically bodes well for both Italian (pizza) cheese and some seasonal Cheddar varieties," reports DMN.
Western retail cheese demand remains steady while food service remains steady to lighter. Cheesemakers relay comfortable inventories the last month of 2023. Manufacturers indicate milk is readily available and demand for Class III milk is strong to steady. Production is mostly steady.
CME butter saw its Friday finish at $2.67 per pound, 1.50 cents higher but 14.25 cents below a year ago, with five loads finding new homes on the week.
Central butter makers say cream remains "somewhat available," but compared to the previous two weeks, loads are lightening. There's been an onslaught of cream volumes since the holiday week, but churning rates have been kept in check by plant managers, says DMN. They will likely pick up as the end-of-year holidays approach and cream loads are expected to increase.
Cream volumes and spot load availability have improved in the West as average butterfat levels in milk have increased. That contributed to stronger churning. Some reports indicate bulk butter availability is tight. Plants report strong to steady retail production and most manufacturers report comfortable inventory levels. Domestic butter demand is strong to steady. Export demand is moderate, with steady interest remaining from Canadian buyers, according to DMN.
Grade A nonfat dry milk saw a Friday finish at $1.1650 per pound, down 1.50 cents on the week and 20 cents below a year ago, on 16 sales.
Dry whey finished the week a half-cent lower, at 39.50 cents per pound, 4 cents below a year ago, with four loads exchanging hands on the week at the CME.
"Dairy margins deteriorated over the second half of November as Class III milk futures sold off sharply to more than offset the savings from lowered projected feed costs," according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.
The Market Watch detailed the October Milk Production and Cold Storage reports, which I have previously reported. It stated, "Higher milk production in Upper Midwest states relative to the western U.S. has increased cheese production, which is pressuring Class III milk futures relative to Class IV. Like the U.S., milk production has been declining year-over-year in the EU as high costs and increasing environmental regulations have negatively impacted the industry. In the feed markets, recent beneficial rainfall in Brazil has lessened concerns over soybean planting, which led to a large selloff in the meal market while corn recovered slightly at month end after recording fresh lows," the MW concluded.
StoneX broker Dave Kurzawski said 2023 hasn't been a normal year from a demand perspective in the Dec. 11 "Dairy Radio Now" broadcast. "Is the economy slowing, he asks. Inflation? Hard to say." The markets are relatively stable going into year end, but with milk prices close to or below breakeven for most farmers, he doesn't foresee a surge of milk that typically comes in spring. He sees "pockets of demand juxtaposed to flat or lower milk production for several more months and, as that happens, you will have pops in price."
He admitted October dairy exports were not good, but "that's old news." First quarter 2024 looks promising, he said, particularly for U.S. cheese. And, if China steps up its purchases again, the market will turn around quickly. He concluded by warning of the effects of "taking our foot off the gas in solving inflation, which could result in rapid bull markets in commodities in 2024."
The Agriculture Department again lowered its milk production forecasts for 2023 and 2024 in the latest World Agriculture Supply and Demand Estimates report issued last Friday. The 2023 forecast was reduced from last month due to slower expected growth in milk per cow and 2024 output was lowered due to lower milk cow numbers and reduced milk per cow. I'll have more details next week.
Dairy cow culling continues to drop. The week ending Nov. 25 saw 41,800 cows go to slaughter, down 4,900, or 10.5%, from a year ago. Year-to-date 2,807,900 head have been culled, up 59,600, or 2.2%, from a year ago.
Speaking of dairy exports, October sailings totaled 486.4 million pounds, down 7.2% from a year ago. However, HighGround Dairy points out that October 2022's shipments were the strongest on record for the month, and 2023's data now sits in second place, ahead of 2021. "The 7% loss marked improvement from the past two months," adds HGD, "which logged double-digit year-over-year losses."
Nonfat dry milk and skim milk powder exports, at 142.2 million pounds, fell for the second month in a row, down 11.2%. Volumes were the smallest total for the month since 2018, says HGD, which blamed lower shipments to Mexico, Indonesia and China.
Cheese shipments, at 78.7 million pounds, were down 4%, despite improved movement across the U.S.' borders to Mexico and Canada. HGD said, "China even pitched in, with exports increasing 145% YoY." Sales to South Korea continued to lag, with year-to-date exports called "abysmal."
Butter exports fell to the lowest monthly volume since November 2020, according to HGD, "an unsurprising outcome given the exponential rise in butter prices throughout the end of September into October." Smaller shipments were seen to Canada, Mexico, South Korea, Taiwan, Saudi Arabia and Bahrain.
Looks like the Global Dairy Trade auction will end 2023 on the upswing. While the price index fell short of futures price expectations, the second to last event of 2023 saw the weighted average rise 1.6%, first gain since Oct. 17, after holding steady Nov. 21 and slipping .7% on Nov. 7.
Traders brought 65.2 million pounds of product to the market, down from 75.2 million on Nov. 21, lowest since July 18. The average metric ton price inched to $3,323, from $3,268 on Nov. 21, and highest since July 4.
Most of the offerings strengthened, with Cheddar again showing the biggest movement, jumping 9.7%, after dropping 9.7% on Nov. 21. Lactose was up 5.3%, following a 6.4% rise. Buttermilk powder was up 2.8%. Whole milk powder was up 2.1%, after a 1.9% gain, and skim milk powder was up 1.2%, following a 3.8% loss. GDT butter inched up .7%, after slipping 1.1%, and anhydrous milkfat was unchanged after inching .9% higher last time.
StoneX says the GDT 80% butterfat butter price equates to $2.1843 per pound, up 4.6 cents from the Nov. 21 event and compares to CME butter which closed last Friday at a still pricey $2.67. GDT Cheddar, at $1.8079, was up 15.8 cents, after losing 18.4 cents, and compares to last Friday's CME block Cheddar at a cheap $1.58. GDT skim milk powder averaged $1.2115 per pound, up from $1.1894 (2.2 cents), and whole milk powder averaged $1.4080 per pound, from $1.3731 (3.5 cents). CME Grade A nonfat dry milk closed last Friday at $1.1650.
Analyst Justin Winston said, "North Asia purchases, which includes China, moved lower from the last event and last year. Southeast Asian demand did improve from last event, but continues to fall short of year-ago levels. Total volume available on the auction was nearly 1,000 MT higher than last year's levels, but volume actually sold was nearly the same. Minor regions like Europe, Africa and the Americas helped pick up some of North Asia's reduced volume."
In politics, the National Milk Producers Federation is urging its members to call on Congress to support whole milk availability in schools. NMPF said, "Milk is the No. 1 source of protein for kids 2-11, and the top source of calcium, potassium, phosphorus and vitamin D for children ages 2-18."
"Most kids and adolescents don't meet the daily dairy intake recommendations made in the Dietary Guidelines for Americans," adds NMPF, "and it's happening in part because they drink less milk, and throw more of it away when they don't have access to the types of milk they like to drink at home. Whole milk is the most popular variety in America, followed by 2%, yet neither are allowed under federal school meal programs. And a growing body of scientific evidence shows that whole milk and reduced-fat milk have numerous health benefits that kids need and is why Congress needs to pass the Whole Milk for Healthy Kids Act."
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