Record high cheese, 9 year low milk price
It was a week of contrasts as we entered June Dairy Month. Cash block cheese set a new record high and the Agriculture Department announced the May Federal order Class III benchmark milk price at its lowest level in 11 years.
The COVID-incited plunge in milk prices fell to $12.14 per hundredweight, down 93 cents from April, $4.24 below May 2019, and the lowest it has been since September 2009. The 2020 Class III average stands at $15.10, up from $15.05 a year ago and $14.25 in 2018.
The June 5 Class III futures settlements portended a rebound in June to $19.88, with July at $18.67; August, $17.38; September, $16.97; October, $16.84; November, $16.65; and December at $16.34.
The May Class IV price is $10.67, down 73 cents from April, $5.62 below a year ago, and the lowest since August 2009. The Class IV average stands at $13.96, down from $15.81 a year ago and compares to $13.42 in 2018.
Cheddar block cheese set a record $2.5050 per pound on June 2 but pushed even higher, closing June 5 at $2.5525, up 32.25 cents on the week, seventh week of gain, 80 cents above a year ago, and surpassed the previous high of $2.45 on Sept. 19, 2014. The barrels climbed to $2.37 on June 4 but closed June 5 at $2.36, up 33.75 cents and 82.5 cents above a year ago but a whopping 19.25 cents below the blocks. six cars of block were sold and 10 of barrel.
FC Stone dairy broker Dave Kurzawski said there’s concern this rally will end as quickly as it started. He pointed out that “The wave of buying that began with export orders in April and gave way to pipeline refilling and new orders as states opened up in May, was given rocket fuel by government buying. In particular, the U.S. Food Box Program, which likely gets the most press because it’s the most unusual government program involving dairy in recent memory.”
“Food Box Program participants bid a price for all rounds up front,” Kurzawski said, “But Round quantities have yet to be determined. In the next couple of weeks we’re going to get some details as to Round 2 of the program and what those volumes may or may not look like. In other words, now that ‘Stranger Things’ is a dairy market headline, not just a Netflix series, we have to ask how many dairy boxes can be filled at higher levels. Will participants back out, unable to make the economics work? Will the USDA permit a price rebid?”
Meanwhile, Midwest cheesemakers are busy, according to Dairy Market News. Milk was still at “somewhat affordable rates” on the spot market, $1 to $3 over Class III at mid-week. Cheesemakers who had been selling milk are now using it and most are running six to seven day weeks. Pizza establishments in the Midwest and East are busy after areas reopened from COVID closures. Retail cheese sales remain busy and newly produced cheese is very tight. DMN said. “Calling cheese markets bullish would be understated,” as some expect $3 block prices ahead.
Block cheese is tight in the West, DMN said, and when food service demand dried up due to COVID-19, many manufacturers pivoted to selling the orphaned cheese into export markets. With the easing of shelter at home restrictions, there has now been a surge in food service buying, but loads of cheese are hard to find as a lot of cheese is tied up in short-term contracts with export buyers.
Government purchases and food box programs have also tightened stocks. Some of the companies with the food box awards are reportedly trying to buy cheese off of the national exchanges but are struggling to find the product they need in the time allotted, plus the run up in prices isn’t making things easy.
Butter jumped 29 cents on June 4 and hit $2.0150 per pound but relapsed June 5, losing 9 cents, and fell back to a $1.9250 close, still 26.5 cents higher on the week but a long 47.25 cents below a year ago. 42 cars were sold on the week.
Kurzawski credited restaurants re-opening and seasonal ice cream pull, but says a lack of available cream is the big issue. “Cheese plants may also play a role,” he said, “as they hold onto more cream to mix with skim. That may reveal an overall snugness on the available supply of fresh milk. Demand has been the key driver, but perhaps supply of fresh milk, or lack thereof, is playing a larger role.”
Butter makers have a growing concern of shortages in the fall, DMN said. Interest for bulk butter has increased significantly and spot cream prices have “pushed past the point of financial feasibility.” Retail ordering remains busy and food service orders have grown to replenish nearly depleted pipelines although the numbers still lack in comparison to previous years, but so does cream.
Western cream supplies are tightening. Some butter makers are taking advantage of higher prices by selling cream instead of producing butter. Butter inventories are still plentiful. Bulk butter interest has been flat and retail sales backed off slightly last week, but remain good. Restaurants and food services are reopening but butter requests remain below expectations, according to DMN.
Grade A nonfat dry milk weakened and finished at 97.75 cents per pound, down 5.25 cents on the week and 7.75 cents below a year ago, on 24 sales reported.
CME dry whey, after slipping 5.75 cents the previous week, closed June 5 at 34.50 cents per pound, up 4 cents on the week but 2 cents below a year ago, with 26 sales reported.
Lower feed prices could not offset a much lower All Milk price in April so the month’s milk feed price ratio fell for the fifth consecutive month. The USDA’s latest Ag Prices report put the ratio at 1.84, down from 2.23 in March and compares to 2.11 in April 2019.
The U.S. All-Milk price averaged $14.40 per cwt., down $3.60 from March and is $3.30 below April 2019.
California’s All Milk price plunged to $14.20, down $3.40 from March and $3.20 below a year ago. Wisconsin’s, at $14, was down $4.10 from March and $3.90 below a year ago.
The national average corn price averaged $3.29 per bushel, down 39 cents per bushel from March and 24 cents per bushel below April 2019. Soybeans averaged $8.35 per bushel, down 11 cents from March but 7 cents per bushel above a year ago. Alfalfa hay averaged $181 per ton, up $6 per ton from March but $17 per ton below a year ago.
The April cull price for beef and dairy combined averaged $64 per cwt., down $3.50 from March, $2.70 above April 2019, but is $7.60 below the 2011 base average of $71.60 per cwt.
But dairy farm margins continued to improve over the second half of May on strength in the milk market while feed costs held steady, according to the latest Margin Watch from Chicago-based Commodity & Ingredient Hedging LLC.
The MW stated “Class III milk continues to advance on strength in cheese as June futures approach $20 per cwt., sending nearby margins over the 90th percentile of the past 10 years. Deferred contracts also followed this strength to a lesser degree, with margins in both fourth and first quarter at the 80th percentile, offering dairy producers renewed opportunities to secure forward profitability.”
“The reopening of foodservice outlets is increasing demand for cheese which is behind the recent strength. Data from Open Table indicate that some markets in states which have begun to re-open their economies and allow in-dining service have recovered 40%-50% of their capacity which is encouraging. The strength comes despite growth in both milk production and stocks,” says the MW. ❖
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The House passed S.4054, the Grain Standards Reauthorization Act of 2020, by voice vote.