CME Cheddar block cheese closed the last Friday of 2018 at $1.43 per pound, up 4 cents on the Christmas holiday shortened week but 11 cents below a year ago,
The barrels finished at $1.29 per pound, down a half-cent on the week, 15 1/4-cents below a year ago, and 14 cents below the blocks. Five cars of block traded hands last week at the CME and 18 cars of barrel.
Monday’s trading left the blocks at $1.43, as the market closed for the New Year’s holiday and was to reopen Wednesday. Traders were also anticipating the first Global Dairy Trade auction of 2019 on Wednesday, Jan. 2. The barrels were unchanged Monday as well. No cheese was traded.
Cheese production was somewhat busy during the holiday week, reports Dairy Market News. Plant managers reported that holiday-priced milk was flowing in, from flat to $4 under class. Cheese demand has met expectations in general, within the Midwest. Some plants report current stocks are minimal while others are shifting production away from slower selling varieties.
Some Midwestern contacts are concerned about the number of dairy farms closing after feed rations dry up, particularly the more remote and or rural cheese operations with milk supplies coming from smaller, nearby dairy farms. Cheese markets have regained some of the momentum they lost during the fall but current market tones are “less-than-bullish as stocks outweigh demand nationally,” DMN warned.
Looking westward, there’s a slightly higher interest in buying cheese but domestic sales above contracted volumes are hard to materialize as buyers seem to have adequate supplies. Requests from the international market are “good.” Some contacts suggest that cheese inventories have not decreased as fast as in previous years and abundant milk supplies are leading to strong cheese output. With the holiday past more milk moved to the vats and more will continue to move to Class III plants for balancing at least up to the end of the holiday but handlers indicate they have enough capacity to handle the milk.
Cash butter closed Friday at $2.2175 per pound, up 1 1/4-cents on the week and a penny above a year ago, with just 1 carload finding a new home on the week.
The butter was also unchanged Monday, holding at $2.2175, but 3 cars traded hands.
Cream supplies destined for the churns were expectedly easier to locate during the holiday week and butter makers report that cream is nearing plant capacity. Some churners report being booked up early into 2019 and are hopeful that cream availability will remain similar into the first quarter of 2019. Sales reports have remained positive and they are currently producing to get ahead of spring holiday demand.
Butter markets remain solid going into 2019 and contacts expect a similar pattern which butter maintained throughout 2018, if only slightly lower on the average with increasing export competition.
Western butter makers say there is plenty of cream available but so far the volumes are not overwhelming. Churns are active, aside from several days off for the holidays, but orders kept a strong pace, according to DMN. “Butter stocks have been pulled down along seasonal expectations.”
Grade A nonfat dry milk ended Christmas Week a quarter-cent lower but 26 cents above a year ago. Only 3 cars were sold on the week.
Monday’s powder was steady.
Dry whey closed Friday at 48 cents per pound, down a penny, with no sales reported.
The whey remained at Friday’s close on Monday.
The first dairy casualty of the partial shutdown of the government was the Dec. 27 Ag Prices report, which would have included the latest Milk Feed Price Ratio. Federal order Class milk prices will be announced Thursday by the USDA as scheduled. The November Dairy Products report, scheduled for release Jan. 3 will likely be the next loss to the industry.
Is it that bad?
As I reported last week, the November Cold Storage report indicated positive news for the butter market as we saw the biggest drawdown ever for that month. FC Stone says the butter inventory was 16 million pounds below their expectation and “reaffirms the strength the butter market has witnessed throughout November.”
But FC Stone adds the caveat that “either commercial disappearance hit a record high or production slowed down to a crawl for stocks to be drawn down as much as the report showed. Without knowing if it was supply- or demand-driven, it is hard to classify this report as bullish or bearish. Seasonally speaking, demand should cool, and production should increase, so moving forward prices should experience sell side pressure. However, for now the market seems supportive.”
Total cheese inventories were marginally lower than anticipated, according to FC Stone. “Both American and Other cheese stocks were also under forecasts by 1 million to 2 million pounds; however, “these lagging monthly reports often convey little in the way of market moving data when the figures are in-line with expectations. We will say that this report can be construed as neutral to slightly bullish for cheese.”
There have been a lot of media reports of the heavy stocks of cheese in the U.S. and volumes are the highest they have been in 15 to 20 years, but is the situation as bad as it sounds?
The answer gets a bit complicated because it’s hard to compare the present to the past due to the “olden days” when Uncle Sam’s Price Support program was purchasing cheese and storing it.
Analyst Jerry Dryer also points out that the cheese market has grown and there is a lot more cheese in aging programs today, such as sharp Cheddar, plus other varieties that used to be imported but are now being produced here.
The Dec. 27 Daily Dairy Report says that while U.S. milk production so far is up 1 percent from 2017, cheese output through October exceeded 2017’s record-breaking volume by 2.5 percent.
The DDR adds that “even as milk production has topped year-ago volumes by ever-narrowing margins, the rate of growth in U.S. cheese output has not slowed. Compared to the same month in 2017, U.S. cheese production is up 3 percent in July, 3.1 percent in August, 2.9 percent in September, and 3 percent in October.”
Another factor the DDR points out is that “while convincingly higher Class IV prices would argue that milk should be directed to butter and powder rather than cheese and whey, most processors don’t have either the flexibility or the incentive to move milk that way.”
The bottom line is that the U.S. is producing more than it’s consuming and until exports resume milk prices are going to suffer.
Happy 2019 from the Mielke Market Weekly.