Benchmark down 75 cents
The Agriculture Department announced the July Federal order Class III benchmark milk price at $16.49 per hundredweight, down 72 cents from June and $8.05 below the inflated price a year ago when Uncle Sam’s Food Box program was buying lots of cheese.
Last year’s July Class III price was the second highest ever, at $24.54, 6 cents shy of the record set in September 2014. The seven month Class III average stands at $16.90, down from $17.30 at this time a year ago and compares to $15.58 in 2019.
The Friday, Aug. 6 Class III futures portended the August price at $16.01; September, $16.49; October, $17.04; November, $17.62; and December at $17.60.
The July Class IV price is $16 per cwt., down 35 cents from June but $2.24 above a year ago. Its seven month average is at $15.01, up from $13.78 a year ago, and compares to $16.11 in 2019.
The Aug. 3 Global Dairy Trade saw its weighted average fall for the eighth consecutive session, down 1.0% following a 2.9% drop July 20 and 3.6% on July 6. Traders brought 53.1 million pounds of product to market, up from 49.4 million. The average winning price was $3,784 U.S., down from $3,839.
Buttermilk powder was down 8.0%. Whole milk powder was down 3.8%, following a 3.8% decline, and lactose was down 3.1%, after an 8.9% drop.
Butter led the gains, up 3.8%, after it inched 0.8% lower last time. Anhydrous milkfat was up 1.3%, after it slipped 0.3%. Skim milk powder was up 1.5%, after dropping 5.2%, and Cheddar inched 0.7% higher after it gained 1.3% last time.
StoneX says the GDT 80% butterfat butter price equates to $2.0308 per pound U.S., up 7.5 cents, and compares to CME butter which closed Friday, Aug. 6 at $1.6475. GDT Cheddar, at $1.8437, was up 1.9 cents, and compares to Friday’s CME block Cheddar at $1.6350. GDT skim milk powder averaged $1.37 per pound, up from $1.3476. Whole milk powder averaged $1.6322 per pound, down from $1.6920. CME Grade A nonfat dry milk closed Friday at $1.2550 per pound.
You’ll recall that USDA’s preliminary data pegged June milk production at 18.96 billion pounds, up 2.9% from June 2020. The latest Dairy Products report shows where that milk ended up, though StoneX Dairy reminds us that the year over year changes are mostly driven by the anomalies of last year’s COVID pandemic.
Starting with cheese; June output totaled 1.12 billion pounds, down 2.9% from May and just 0.2% above June 2020. Year to date (YTD) total cheese output hit 6.8 billion pounds, up 3.3% from the same period in 2020.
Italian style cheese totaled 473.1 million pounds, down 1.7% from May and 2.6% below a year ago. YTD Italian was at 2.9 billion pounds, up 1.0%.
American type cheese, at 453.9 million pounds, was down 5.1% from May but 5.1% above a year ago. YTD American was at 2.8 billion pounds, up 6.1%.
Mozzarella output totaled 370.2 million pounds, down 4.9% from a year ago, with YTD mozzarella at 2.2 billion pounds, up 0.4% from 2020.
Cheddar totaled 327.9 million pounds, down 18.1 million pounds or 5.2% from May, but 24.9 million or 8.2% above a year ago. YTD Cheddar hit 1.99 billion pounds, up 5.6% from 2020.
U.S. churns produced 160.7 million pounds of butter, down 24.2 million pounds or 13.1% from May, but up 11.6 million pounds or 7.8% from a year ago. YTD butter output reached 1.12 billion pounds, down 2.1% from 2020.
Yogurt totaled 386.1 million pounds, down 3.2% from a year ago, with YTD at 2.4 billion pounds, up 3.9%.
Dry whey totaled 80.6 million pounds, up 2.9 million pounds or 3.7% from May, but 1.1 million or 1.3% below a year ago. YTD dry whey was at 472 million pounds, down 3.2%.
Dry whey stocks climbed to 80.6 million pounds, up 2.9 million or 3.7% from May, but were 1.1 million pounds or 1.3% below a year ago.
Nonfat dry milk output fell to 184.6 million pounds, down 20.8 million pounds or 10.1% from May but up 30.6 million or 19.9% from a year ago. Production YTD was at 1.1 billion pounds, up 11.4% from 2020.
Stocks crept up to 349.5 million pounds, up 1.3 million or 0.4% from May, as shipping challenges at U.S. ports continue, and were 68.4 million pounds or 24.3% above those a year ago.
Skim milk powder production totaled 32.6 million pounds, down 3.1 million pounds or 8.7% from May and 27.9 million pounds or 46.1% below a year ago. YTD skim milk powder, at 222.6 million pounds, was down 26.9% from 2020.
BULL OR BEAR
Speaking in the Aug. 9 Dairy Radio Now broadcast, StoneX dairy broker Dave Kurzawski said Dairy Product reports don’t tend to move markets, though he admitted June cheese output was 12 million pounds less than they expected while nonfat dry milk stocks were 20 million pounds heavier than they forecast.
He said the report was basically neutral for cheese and bearish on butter and powder but added; “As we walk into August, we’re getting into a different time of year demand wise. If you look at the GDT numbers, which have been weak for eight events in a row, if you look at the dollar value, $3,000 a metric ton is somewhat of a benchmark. If you’re below that, you’re in kind of a bear market,” he said, “and if you’re above that you’re in kind of a bull market,” adding that he views the summer as a “correction in prices both domestically and globally.”
He also said that USDA’s solicitations last week for fresh milk and string cheese for fourth quarter food assistance and school lunch programs exceeded his expectations and should provide some degree of support for the market.
The USDA will spend $20 million to purchase ﬂuid milk and announced Thursday, Aug. 5, that it would buy another 3.6 million pounds of cheese through Section 32 in Cheddar chunks and shreds, plus Swiss blocks and slices. StoneX said, “This is to say nothing of the potential 15 million pounds of cheese that could be purchased for fourth quarter through the Emergency Food Assistance Program.”
Meanwhile, June U.S. dairy exports remained strong. Nonfat dry milk was up 7.4% from June 2020, with most going to Mexico, according to HighGround Dairy, and to Indonesia. Shipments to China were the highest since August 2014.
HGD says the first half of 2021 translated into record exports to China, Egypt and South America, helping offset losses to Japan and Southeast Asia. China’s demand has been particularly strong for whey and other proteins and powders.
Cheese exports were down 12.9% but HGD says the losses are skewed by the pandemic-driven volumes observed last year.
CME prices started August scattered. The Cheddar blocks parked at $1.6350 per pound on July 27 and stayed there for eight successive sessions. Traders apparently took last week off, with no activity. The blocks are priced 7 cents below a year ago when they plunged 54.75 cents, largest week to week block price fall ever.
The barrels fell to $1.3075 per pound on Wednesday, Aug. 4, lowest since May 11, 2020, but closed Friday, Aug. 6, at $1.31, down 8 cents on the week and 20.75 cents below a year ago when they plunged to $1.5175 per pound, a record 71.75 cent crash.
The spread expanded to 32.75 cents on Tuesday, Aug. 3, huge but not close to the record $1.0125 difference on Sept. 21, 2020 when blocks were trading at $2.6475 and barrels at $1.6350. Only 19 cars of barrel were sold on the week.
Midwest cheesemakers tell Dairy Market News week to week sales remain strong as product moves quickly into food service and grocery channels.
Western retail and food service cheese markets remain steady and international demand remains strong but port congestion continues to cause delays.
Spot butter shot up 5.75 cents Monday, Aug. 2, then plunged 8 cents Tuesday, and closed Friday at $1.6475 per pound, a half-cent higher on the week and 11.75 cents above a year ago. There were 19 sales reported for the week.
Retail butter sales have picked up a bit following a mid-summer lull but butter market tones are anything but stable.
Western cream production is trailing off. Retail sales are strengthening and food service demand is steady.
Grade A nonfat dry milk closed Friday at $1.2550 per pound, down 1.25 cents on the week but 30 cents above a year ago, with 10 sales reported on the week.
Dry whey fell to 47.50 cents per pound Thursday, lowest since Jan. 4, but rallied to a Friday close at 54 cents per pound, up 3.75 cents on the week, highest since July 2, and 22 cents above a year ago. Seven sales were reported for the week.
MILK FEED RATIO
More evidence of the deteriorating finances on the dairy; a lower all milk price and higher corn price continued the slide in the U.S. milk feed ratio. The USDA’s latest Ag Prices report showed the June ratio at 1.60, down from 1.69 in May, and compares to 2.38 in June 2020.
The U.S. all milk price averaged $18.40 per cwt., down 80 cents from May but 20 cents above the June 2020 average.
The national average corn price climbed to $6.00 per bushel, up 9 cents from May, after jumping 60 cents from April, and $2.84 per bushel above May 2020.
Soybeans averaged $14.50 per bushel, down 30 cents from May and the first decrease since August 2020, after jumping 90 cents last month, but are still $6.16 per bushel above June 2020.
Alfalfa hay averaged $199 per ton, up $5 from May and $20 above a year ago.
Looking at the cow side of the ledger; the June cull price for beef and dairy combined averaged $73.90 per cwt., up $3.10 from May, $2.90 above June 2020, and $2.30 above the 2011 base average of $71.60 per cwt.
Milk cow replacements averaged $1,310 per head in July, unchanged from April and unchanged from July 2020. Cows averaged $1,350 per head in California, down $50 from April and unchanged from a year ago. Wisconsin’s average, at $1,480 per head, was down $10 from April but $130 per head above July 2020.
The Aug. 3 Daily Dairy Report points out that dairies are also dealing with rising transportation and labor costs. The DDR cited U.S. No. 2 retail diesel for the week of Aug. 2 at $3.37 per gallon, 94 cents higher than a year ago.
The June margin under the Dairy Margin Coverage program dropped 65 cents from May to $6.24 per cwt, which will generate a June payment of $3.26 for $9.50 per cwt. coverage, according to National Milk Producers Federation. The feed cost calculation for June was lower by 16 cents per cwt. of milk from May, mostly on lower soybean meal prices, while the all-milk price took a larger than expected drop.
NMPF says the futures-based price outlook indicates that the DMC margin will not rise much above $7 per cwt. through the summer and remain below $9.50 through the end of 2021. USDA reported that estimated DMC payments for the 2021 program exceed $543 million as of July 26.
Thank God for pizza or finances would be a lot worse. Pizza uses a tremendous amount of cheese and remember it takes about 10 pounds of milk to produce one pound of cheese.
One of the biggest names in the pizza business today is Domino’s, but Domino’s has seen growth nearly six times faster in international markets than in the U.S., according to the July 23 Dairy and Food Market Analyst.
“The company reported that it opened 203 restaurants in foreign markets but only 35 in the U.S. in second quarter 2021. Growth was concentrated in China, Japan, the United Kingdom, Germany, Mexico and Turkey,” according to the DFMA, “with impressive sales growth as well. The company said its total second quarter sales rose 17% year over year, driven by much-higher sales in international markets with same-store sales up 14%. Same-store sales in the U.S. grew just 3.5%, “lapping a difficult-to-beat increase of 16% in second quarter 2020.”
Speaking in the Aug. 2 “Dairy Radio Now,” DFMA analyst and editor Matt Gould pointed out that it’s not just pizza driving cheese sales, but credited quick service restaurant sales in general, which have soared, as we came out of the pandemic.
McDonalds reported U.S. sales were up 26% from a year ago, he said, and global sales were up 41%, although that’s measured against weak comparables a year ago. He said that “People are getting out, getting together, and going thru drive-thrus.” Considering overall cheese consumption, the sales are quite strong, he said. Comparable sales are also occurring in other chains, according to Gould, such as Burger King, Wendy’s, Chipotle, Papa Johns, Little Caesars, and others are “performing on all cylinders right now,” he concluded.
The July 26 Daily Dairy Report adds that “Nestlé, which makes DiGiorno, Tombstone, Jack’s, and California Pizza Kitchen pizzas, saw high single-digit growth in its frozen category last year, with DiGiorno called out as a key category.” Staffing is one of the big issues they face, according to the DDR.
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