Cheese prices fall from record highs

By Lee Mielke

For the Capital Press

Columnist Lee Mielke wraps up the week's dairy news.

Cheese prices headed south the last week of March, ending five weeks of gains, but only after setting new record highs. The blocks peaked at a record $2.4325 per pound March 24 but closed Friday at $2.3850, down 4 1/4-cents on the week but an astounding 69 1/4-cents above a year ago.

The barrels topped out at $2.3775 on Monday but closed Friday at $2.29, down 2 cents on the week, 69 1/4-cents above a year ago, and 9 1/2-cents below the blocks. Five cars of block traded hands on the week, first trade of blocks since Feb. 20, and 11 cars of barrel. The lagging National Dairy Products Sales Report-surveyed U.S. average block price hit $2.2650, up 6.1 cents, while the barrels averaged $2.2806, up 4.6 cents.

Preliminary data in the Agriculture Department’s latest Cold Storage report shows butter stocks, as of Feb. 28, at 163.7 million pounds, up 26.9 million pounds or 20 percent from January but 74.6 million pounds or 31 percent below February 2013.

American type cheese, at 628.1 million pounds, was virtually unchanged from January but was down 32.9 million or 5 percent from a year ago. The total cheese inventory stood at 1.01 billion pounds, also unchanged from January but 58.8 million pounds or 6 percent below a year ago.

Buyers are in hand-to-mouth mode, according to Jerry Dryer, editor of the Dairy and Food Market Analyst. Dryer said there’s pushback as they contemplate the spring flush and the additional milk that will become available. The Class III price is quite a bit higher than the Class IV price, he said, so that has moved some milk from powder to cheese, from Mozzarella to Cheddar in the Upper Midwest.

“Cheese is coming to the market in response to the higher prices,” he said.

Dryer believes commercial disappearance may be higher than USDA’s latest data suggests, citing butter as an example. Dryer said USDA did not revise an inventory number in its calculation and, while Dryer prefers three-month rolling averages as opposed to monthly numbers, his data suggests January butter disappearance was up 16.7 percent, but more significantly, it was up 17.9 percent over the most recent three months.

American cheese wasn’t real strong in January, according to Dryer, and was only up about 0.8 percent in the last three months, but other-than-American cheese, like Mozzarella, Gouda, and some of the cheese being exported, was strong, up more than 3 percent, for the most recent three months as well as for January.

“Cheese has continued to move well,” Dryer said, “And disappearance was probably very good in February and even in March as these prices haven’t pushed through to retail quite as fast as they frequently do.”

While USDA data suggests nonfat dry milk disappearance was down in January, Dryer reiterated that one month doesn’t make a trend. His data has it up almost 4 percent during January and up 10 percent for the most recent three months. Furthermore, USDA data doesn’t include skim milk powder, as Dryer’s does, and “that’s the big mover in exports,” he said.

Dryer sees “relatively high prices” for the next month or so.

“We will come off those record highs on cheese and powder, although butter appears to be moving higher at this point,” he concluded. “But continued good strength although not as high as we’ve seen in recent weeks.”

The record cheese price levels were probably a little misleading, according to FC Stone dairy economist Bill Brooks. “Dairy farmers have never seen prices like this before,” he said. “We are in a tight market.”

Prices set records because of the world market, weather, feed prices and featured dairy products in store shelves from the last football season and now March Madness, according to Brooks, but “those are going to go away quickly.”

“That’s going to negatively impact our demand and hopefully, not make the downturn potentially worse than what we might anticipate,” Brooks said. He said he feels the markets were “a bit overcooked.”

Brooks said prices are 60-70 cents above a year ago and 10-30 cents above international prices, warning that “We’re going to lose that competitive factor that helped us ship a lot of product offshore. The market is always right,” he said, “We have to figure out the timing of when it is going to go in the other direction.”

Some producers have put in some risk management positions, like forward contracting with their milk buyer, and some are also locking in feed prices, he said, and both have started to work their way higher.

“We are starting to see dairy producers look at that,” he said. “They are being pretty judicious with those positions because they do see this market is continuing to go up.” He said it’s more difficult to hit the exact high of the market when trying to sell milk in futures, options, or a forward contract. So producers don’t want to miss it by too much and “leave money on the table.”

Weather, feed costs and feed quality are reasons to layer in protection on margins, according to Brooks. Producers are also looking at a new risk management tool from the new Farm Bill, and are “learning how to implement margin insurance that will protect them against the massive price fluctuations that we seem to have in agriculture.”

Cheese production continues to build across the country as increased amounts of milk become available for manufacturing, according to USDA’s Dairy Market News. The seasonally expected increases are still falling short of meeting demand. Manufacturers are increasingly turning to NDM and condensed skim to increase vat yields. Despite block prices reaching new record price levels, demand continued to be strong. Both domestic and export buyers are filling most contract orders but are finding it difficult to access additional spot loads of blocks. Barrels are in a better position but demand was being tempered by high prices.

Cash butter closed at $2.00 per pound, the first time since September 2011, up 8 cents on the week and 37 cents above a year ago. Five cars sold on the week. NDPSR butter averaged $1.8506, up 1.1 cents.

Butter prices are strengthening but the U.S. price advantage over most global markets was still fostering active export orders, according to DMN. The market tone is mostly firm as supplies are light to moderate and overall demand is improving. Many butter churn operators are running at steady rates with adequate cream available, while a few experienced tighter cream conditions resulting in reduced production levels. Butter makers’ focus varies among the regions between 80 percent and 82 percent based on plant location, manufacturing capabilities and orders left to fill. Some manufacturers are finishing export sales before transitioning to holiday commitments with a few already finished with Easter orders.

Cash Grade A nonfat dry milk closed Friday at $2.03, down 2 cents on the week. Two cars were sold. National Dairy Products Sales Report powder averaged $2.0892, down a penny, and dry whey averaged 65.46 cents, up 0.4 cent.

Commercial disappearance of milk in all dairy products fell below U.S. dairy farmer milk marketings by 296 million pounds. in January 2014, according to USDA’s latest Dairy Data report. Commercial disappearance of milk in all dairy products for January was estimated at 16.9 billion pounds, up 3.8 percent from January 2013, while January farmer milk marketings totaled 17.2 billion pounds, up 1 percent from 2013.

American cheese commercial disappearance was estimated at 371.2 million pounds, up 10 percent from January 2013. Other-than-American cheese, at 596.1 million pounds, was up 3.1 percent. Butter commercial disappearance totaled 157.8 million pounds, up 15.8 percent, and nonfat dry milk disappearance, at 124.3 million pounds, was down 2.6 percent.

Rabobank published a new research report on the global dairy industry, looking at supply and demand conditions and the consequent impact on pricing among various product lines and regional markets. Authored by Rabobank’s Global Food and Agribusiness Research and Advisory, the bank says that the global dairy market tightened considerably in mid-March, and looks set to remain tight throughout the next six months.

While demand remained weak in the EU and U.S., importers continued to search for increased quantities, led by a surge in Chinese buying. The strength of Chinese buying and the sharp deterioration in the New Zealand season created a huge premium for wholesale market prices over other product prices, and for international market prices over domestic U.S. wholesale prices.

As anticipated, the back end to the Southern Hemisphere season has been poor, exacerbated by the arrival of extreme weather in several regions, particularly in New Zealand. With the weak close to the Southern Hemisphere season expected to overlap with a weak Northern Hemisphere supply peak (in May), total milk production in export regions in the first half of 2013 will fall below prior year levels.

Rabobank believes that lower milk production will not be much of a problem in surplus regions, where demand remains weak. Instead, it will reduce supply availability for the international market, even after accounting for stock sales from the U.S. Moreover, while Chinese buying will inevitably slow somewhat in the coming months, buyers in other import regions will be looking for additional supply to top-up local market requirements.

Milk production growth will determine how good 2014 is, according to Dairy Management Inc.’s latest Dairy Market Report. “The dominant feature of the U.S. dairy landscape in the early months of 2014 is clearly the record prices for milk and some key dairy products that determine the milk price,” the report said. The basic driver of the extraordinary current price situation, which is global, not just domestic, is the normal working out of the forces of supply and demand.”

Demand for dairy products grew strongly in 2013, particularly in the dairy importing countries in east and Southeast Asia, led by China. At the same time, total milk production by the world’s major dairy-exporting countries, including the U.S., was hardly up at all, the report said.

International dairy product demand growth will likely be more moderate this year compared with last, the report warns, but the key to this year’s outlook will remain the rate at which milk production will increase in the world’s largest exporting countries. Read more at: http://www.nmpf.org/files/file/DMR-March-2014.pdf.

USDA reports 4.4 billion pounds of packaged fluid milk products is estimated to have been sold in the U.S. in January, down 0.8 percent from January 2013. Estimated sales of total conventional fluid milk products decreased 1.5 percent from January 2013 while estimated sales of total organic fluid milk products increased 14.4 percent from a year earlier. Organic sales represented about 4.3 percent of total sales for the month, according to USDA.

Cooperatives Working Together accepted 15 requests for export this week to sell 2.094 million pounds of Cheddar cheese, 1.185 million pounds of 82 percent butter and 308,647 pounds of whole milk powder to customers in Africa, Asia, Central America, the Middle East and North Africa. The product will be delivered March through August and raised CWT’s 2014 exports to 29.299 million pounds of cheese, 15.495 million pounds of butter and 2.881 million pounds of whole milk powder to 21 countries on five continents.



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