U.S. farm milk prices continue to fall. The proverbial light at the end of the tunnel was seen in the Dec. 4 Global Dairy Trade auction. The weighted average of products offered jumped 2.2 percent following a 3.5 percent drop on Nov. 20 and a 2 percent decline Nov. 6, ending seven consecutive sessions of decline. Sellers brought 80.4 million pounds to market, down from 94.7 million in the last event.
Gains were led by buttermilk powder, up 16.9 percent, followed by anhydrous milkfat up 3.9 percent after plunging 9.4 percent on Nov. 20. Butter was up 2.7 percent after leading the declines last time with a 9.6 percent drop, and whole milk powder was up 2.5 percent after dropping 1.8 percent last time. Skim milk powder inched up 0.3 percent after it saw a 1.6 percent decline last time.
The only loss was Cheddar, down 2.2 percent after it inched 0.2 percent higher.
FC Stone equates the GDT 80 percent butterfat butter price to $1.6573 per pound U.S., up 4.8 cents from the last session but is 36.7 cents below where it was a year ago. CME butter closed Dec. 7 at $2.2075. GDT Cheddar cheese equated to $1.4443 per pound, down 3.1 cents from the last event, 23.2 cents below a year ago and compared to the Dec. 7 CME block Cheddar at $1.35. GDT skim milk powder averaged 89.35 cents per pound, up from 89.13 cents last time, and whole milk powder averaged $1.2095, up from $1.1789. CME Grade A nonfat dry milk closed Dec. 7 at 88.5 cents per pound.
The Daily Dairy Report credited the higher prices to New Zealand-based Fonterra reducing volumes in this auction, and “given that context and higher NZX futures prices in recent weeks, today’s GDT results were disappointing.”
October U.S. dairy exports were mostly higher than year-ago volumes, according to the DDR, but continue to lag volumes in the first half of the year, before China and Mexico levied higher tariffs on U.S. dairy products. U.S. cheese prices have been low enough to make up for the tariffs at least for now.
When asked about low milk prices in the U.S., Jerry Dryer, analyst and editor of the Dairy and Food Market Analyst newsletter, stated in the Dec. 10 Dairy Radio Now broadcast that the U.S. has been playing in a worldwide market the past several years.
Milk output in New Zealand is expected to be up 3 percent to 4 percent in the current market year, he said, but it’s expected to be flat or down in Europe and flat or down in the U.S. by some time in the first quarter of 2019.
He admits demand is strong right now in the U.S. because of the holidays “but not as strong as it could be and production is even stronger (than demand).”
The supply of milk is and will be impacted, according to Dryer, from weather issues in Europe and weather and economic issues in the U.S., so he expects higher milk prices ahead, “but they’re still a few months away.”
Dryer gave a small preview of his December forecast, stating, “Given some feed quality issues, etc., we’re going to see that milk production number get trimmed pretty significantly, the growth in it could turn negative before the end of the first quarter” (in the U.S.), and in response to a comment on how low Class III futures are right now, he said, “the futures aren’t always a good forecaster of the future.”
He believes we will see some $17 milk by the end of the year and, if his hunch on milk supply becomes reality, “we could see $20 milk by the end of next year.”
Cash prices headed lower the first week of December. Cheddar blocks closed at $1.35 per pound, down a penny on the week and 12.5 cents below a year ago when they fell almost 9 cents. Barrels finished at $1.2225, down 9.25 cents on the week, 44.75 cents below a year ago and with the spread at an unsustainable 12.75 cents. Three cars of block sold on the week and eight of barrel.
Midwest contacts tell Dairy Market News that cheese volumes are “plentiful on the whole, but some buyers are holding off, awaiting the potentiality of further market bears.” Demand is mixed. Some relay average, or just below average sales for this time of the year, while others suggest orders are fairly robust and last-minute holiday orders are keeping production active. Milk availability was a bit more mixed last week. Some plants were still taking milk at a discount while others find regional milk is a little tighter. Spot milk prices ranged $1 over to $3 under Class III. “Cheese markets remain stagnant, with many contacts pointing to export declines and cheese inventories as market agitators,” says DMN.
Western contacts report that export demand “ebbs and flows with the rise and fall of prices. With U.S. cheese prices lower than a few months ago, there has been renewed interest from international buyers, but some foreign cheese prices have declined along with U.S. prices, creating stiff competition in a few markets.” Domestic demand has been steady, according to DMN, but there is pressure from the heavy stocks at all levels. Contacts say there is plenty of cheese in warehouses, so “buyers have no sense of urgency to make immediate purchases. Instead, they would rather focus their energy on 2019 contracts.” Cheese output is heavy and related to plentiful milk intakes with many plants at or near capacity.
Cash butter closed at $2.2075 per pound, down 3.5 cents on the week and 1.25 cents below a year ago, with 10 cars sold on the week. Butter markets are maintaining steadfastness, says DMN, but there are reports and concern that New Zealand butter will make way into the U.S. in 2019.
October cheese output totaled 1.12 billion pounds, according to the latest Dairy Products report, up 6.1 percent from September and 3 percent above October 2017. Year-to-date output hit 10.7 billion pounds, up 2.5 percent from a year ago. October was the 67th consecutive month output exceeded that of a year ago.
Wisconsin vats contributed 290.2 million pounds, up 4.1 percent from September and 1.1 percent above a year ago. California produced 214.7 million pounds, up 4.5 from September and 1.2 percent above a year ago. Minnesota, with 58.3 million pounds, was down 2.5 percent from September and 1.5 percent below a year ago.