Traders must not have liked what they saw in the July cold storage report, so cash dairy prices suffered the consequences.
The cheddar blocks closed Friday at $1.65 per pound, down 10 1/2-cents on the week and 9 cents below a year ago when they dropped 12 1/2-cents to $1.74.
Monday trading started quietly but the roller coaster picked up speed and headed even further downhill. The blocks plunged 8 1/2-cents and then lost 3 3/4-cents Tuesday, descending to $1.5275, the lowest block price since July 3, 2017.
The barrels started last week moving atop the blocks, the first inversion since March 15, 2017, and hit $1.76, the highest barrel price since November 2016. But they rolled to a Friday close of $1.5575, down 19 1/4-cents on the week and 12 1/4-cents below a year ago when they plunged 18 1/2-cents to $1.68. Eleven cars of block and 37 of barrel sold last week at the CME, 23 on Tuesday alone.
Monday saw the barrels drop 7 cents, on 13 cars exchanging hands, then regain a penny and three-quarters Tuesday, climbing back to $1.50.
FC Stone’s Dave Kurzawski wrote in his Aug. 29 Early Morning Update; “The data released by the USDA (Milk Production & Cold Storage) doesn’t seem to justify such a violent move down, and even Class III futures agree, at least for the time being.”
Meanwhile, Dairy Market News reports that discounted milk for cheese production remains available in some Central areas. Spot milk prices ranged from $1 under to $1 over Class III. With schools opening, some of the previously available spot milk is being diverted to states outside the region.
“Curd producers are experiencing a record-setting season in demand,” says DMN. “Both curd and pizza cheese producers have started to limit orders, as production capabilities cannot keep up.”
“Traditional cheese manufacturers have slowed production, as demand is in a seasonal slowdown. Although the Cold Storage report pointed to generally higher cheese stocks, recent shifts in production/demand have some contacts relaying that long barrel inventories are not as troubling as they were earlier in the summer. Contacts are cautiously optimistic about the current market tones.”
Western cheese production is active. Although parts of the region are seeing seasonal declines in milk production, available milk supplies often fill cheese vats first. “Overall, cheese inventories have grown somewhat. However, solid domestic cheese demand and slightly improved export opportunities have allowed manufacturers to ship cheese and keep stocks in check.”
Spot butter fell to $2.57 per pound last Tuesday but it closed Friday at $2.6275, down 1 3/4-cents on the week but 57 cents above a year ago, when it lost 13 1/4-cents and dipped to $2.0575. Only five cars were sold last week at the CME.
The butter was caught in Monday’s downdraft on cheese and lost 3 1/2-cents. It gave up 3 3/4-cents Tuesday, melting down to $2.5550, lowest spot price since June 12, 2017, and just has to be the lowest priced butter in the world.
FC Stone’s Dave Kurzawski says, “There seems to be less of a concern going into the fall on a shortage of fat worldwide with New Zealand production expected to show modest growth, decreasing the need for U.S. product to be exported.”
He points out that, while New Zealand milk collections for July were up 7.4 percent, July only accounts for 1.1 percent of that nation’s total production, so the milk has yet to make its way into fat production but it’s the anticipation that it will or might pressure U.S. butter prices.”
DMN says overall demand for butter continues to compare to previous years’ figures. Butter churning is active as producers prepare for fourth-quarter demand. The cold storage report showed butter stocks were down from June and a year ago but contacts tell DMN that “last month’s cold storage report did not spur on the market as expected, so forecasts are mixed regarding the outcome of bullish movements from this month’s report.”
Western butter output is generally steady. “Cream is readily available, but current multiples curb processors’ enthusiasm for putting higher cost milkfat into storage,” says DMN. “A few manufacturers continue to slow their churns, opting to sell off cream as opposed to making butter. Strong domestic demand and reduced imports have helped draw down butter inventories. With an eye toward the fall holiday season, manufacturers have been able to keep inventories in good balance with current needs.”
Cash Grade A nonfat dry milk closed last week at 84 1/2-cents per pound, up 1 1/4-cents on the week but a half-cent below a year ago.
The powder was unchanged both Monday and Tuesday.
Federal Class I down
The September Federal order Class I base price was announced by the USDA at $16.71 per hundredweight, down a penny from August but 15 cents above September 2016, and equates to $1.44 per gallon.
That put the nine-month average at $16.41, up from $14.37 at this time a year ago and compares to $16.33 in 2015.
August federal order Class II, III and IV milk prices were to be announced Wednesday. The California Department of Food and Agriculture were to announce their comparable August Class 4a and 4b prices on Friday.