The T.C. Jacoby Weekly Market Report Week Ending June 18, 2021

After a few hot weeks, stress is starting to sap milk yields. Nevertheless, there is more milk than manufacturers can accommodate in the Southwest and mountain states despite supply management programs.

The dairy markets were awash in red ink this week. June Class III milk gained a little ground, but all other Class III and Class IV contracts finished sharply lower. July Class III lost 81ȼ and closed at $16.72 per cwt. The August contract plummeted $1.18. Most Class IV contracts lost between 25 and 45ȼ.

For months, high feed costs have propped up second-half futures, based on the theory that poor margins would reduce milk output eventually. Now, the trade seems to be questioning that theory – and with good reason, given the size of the dairy herd – and concentrating on more immediate supply issues. There is milk in abundance, and it’s weighing on dairy product prices.

After a few hot weeks, stress is starting to sap milk yields. Nevertheless, there is more milk than manufacturers can accommodate in the Southwest and mountain states despite supply management programs. In the Upper Midwest, dairy producers have added cows sufficient to fill up new cheese processing capacity and then some. Excess milk is selling in the region for $4 to $6 under class. In the rest of the nation, there is still no shortage, and cooler weather is on the way nearly everywhere except California.

The cheese markets are looking especially weighed down by overproduction. Traders exchanged 56 loads of fresh Cheddar in Chicago this week, pushing a lot of product through the market of last resort. CME spot Cheddar blocks slipped 0.75ȼ to $1.4925 per pound. Barrels fell 13ȼ to $1.5425. Cheap milk is pushing some Midwest cheese plants to run at “max capacity,” according to USDA’s Dairy Market News. Meanwhile, “demand is mixed.”

Under pressure from abroad, CME spot nonfat dry milk (NDM) fell 3.5ȼ this week to $1.265. Powder values faded at the Global Dairy Trade auction, where skim milk powder (SMP) dropped 1.7% to the equivalent of (NDM) at $1.62 per pound. Big moves in the currency markets also weighed on the most export-dependent of the U.S. dairy commodities. On Wednesday, Federal Reserve officials offered a more optimistic economic outlook and hinted at the possibility of a slightly tougher stance on inflation. That prompted a dramatic turnaround in the dollar, which had been languishing at multi-year lows. Over the past three trading sessions, the U.S. dollar index rallied 1.9% against a basket of foreign currencies, a massive move in the generally stolid forex market. The stronger dollar makes U.S. NDM more expensive when priced in weaker foreign currencies. The snarled supply chain is not helping

matters. The container shortage and port backlogs continue to slow exports, while a lack of truck drivers has delayed domestic shipments.
Ever the contrarian, the whey market softened early in the week but made a strong showing on Friday. Still, CME spot whey finished 1.75ȼ lower than it was last Friday at 61ȼ. Buyers continue to balk when prices top 60ȼ, but stocks are tight, and sellers feel no pressure to lower their sights. High-protein whey products continue to sell at a good clip, mostly to foreign buyers. Although the strong dollar may trim whey exports at the margins, it is less of an issue for whey than for many other products, because China’s yuan is strengthening even more quickly than the greenback.

Butter started strong but faded throughout the week. It closed today at $1.785, down 0.75ȼ. Cream is plentiful and churns are running. Retail orders are starting to fade, but foodservice demand remains strong. European butter prices also softened, especially when adjusting for the currency effect. While benchmark German butter prices fell 1.7% in euro terms this week, they fell 3.7% when converted to dollars.

This week on LaSalle Street was one for the record books. Dragged down by soybean oil, the soy complex spent Monday through Thursday deep underwater. On Thursday, July soybeans capped off a seven-session losing streak by plummeting $1.1875 per bushel, the largest singlesession setback ever. The strong dollar and a Chinese crackdown on inflation weighed on commodities in general. The weather forecast – which promises some relief after a hot, dry stretch – pummeled the already weakened crop markets.

But the majority of the growing season still lies ahead, and there are some real trouble spots. As of last Sunday evening, USDA rated 68% of the corn crop in good or excellent condition, down four points from the previous week. In South Dakota, just 45% of the crop was in good or excellent condition, and ratings are sure to drop again next week after scant rains in the Northern Plains.

Today’s weather maps promised a bit less rain for the Corn Belt than previous iterations, and the crop markets came roaring back. But crop values are still much lower than they were last week after several days of red ink. July corn closed at $6.5525, down 29.25ȼ. New crop December corn was off 43.5ȼ at $5.6625. July soybeans dropped $1.125 to $13.96. July soybean meal fell almost $10 to $373.40 per ton.

Demand for feed remains strong, and the world is hoping for a big crop. It’s going to be a long, volatile summer in the grain pits.

Source: Jacoby

On the Chicago Mercantile Exchange milk futures picked up mixed steam Tuesday ahead of a slightly bearish cold storage report. Class III Milk finished mixed as well. June gained 2 cents to 17.33, July up 2 to 16.48/cwt and Aug fell 16 to 16.83. Class IV followed butter. June fell 4 cents to 16.44, July down 11 to 16.22, and August fell 19 cents to 16.40/cwt.

The CME spot trade continues to struggle and saw a mixed result.  Dry whey down $0.02 at $0.59. Two sales were made at $0.5850 and $0.59. Blocks up $0.0025 at $1.4750. Barrels down $0.01 at $1.47. Two trades were made from $1.4675 and $1.47. Butter down $0.0375 at $1.7840. Eight sales were made from $1.7450 to $1.7725. Nonfat dry milk up $0.0025 at $1.2575. Eight sales made from $1.2475 to $1.2625.

The opening milk price bidding war has created uncertainty for the Milk Exchange’s farm milk auction, which again failed to clear any product last week.

On the Chicago Mercantile Exchange milk futures opened the week again in lower trade with little direction for cash markets. Class III milk values had July 26 cents lower and August down 24 cents/cwt, respectively.  September 2021 through December 2022 printed settlements between 11 lower to 3 cents higher.  Class IV values were mainly unchanged to 10 cents/cwt lower.

Spot market was not any better as it was led lower by cheese declining in price as blocks up $0.02 at $1.4725. One trade was made at that price. Barrels down $0.0625 at $1.48. Three trades were made from $1.48 to $1.4925. Butter unchanged $1.7850. Dry whey unchanged at $0.61. Nonfat dry milk down $0.01 at $1.2550. Five sales made from $1.2550 to $1.26.

On the Chicago Mercantile Exchange milk futures continued to sell off Thursday pressured by declines on the cash market.  Class III mIlk gained 4 cents in June to $17.29, July fell 15 cents to 16.82, and Aug fell 25 cents to 17.44/cwt. The balance of 2021 fell 4-21 cents. Class IV milk also followed the trend. June was unchanged at 16.48, July fell 22 to 16.38, and August fell 19 cents to 16.64/cwt.

The CME spot dairy trade saw cheese get squeezed lower.  Blocks down $0.02 at $1.49. One sale was made at that price. Barrels down $0.0650 at $1.57. Five trades were made at $1.5650 and $1.57. Butter unchanged at $1.8050. Nonfat dry milk down $0.0150 at $1.25. Four sales were $1.25 and $1.2525. Dry whey unchanged at $0.5925.

Corn finished limit move lower, down 40 cents to 6.33/bu, Soybeans had expanded limits after soy oil finished a limit move lower on Tuesday. Soybeans tumbled $1.18 ¾ lower to $13.29 ¾, A move of $3.37 off the July contract high. Soybean meal moved $17.70 lower to $361.50/ton.

On the Chicago Mercantile Exchange milk futures closed lower Wednesday as pressure continues across commodities, block cheese was the only cash market to see positive movement. Class III milk futures have continued their freefall, with the third quarter seeing the brunt of the weaker price action.  June milk gained 7 cents to $17.32/cwt.  July milk fell 5 cents to $17.08/cwt.  August milk decreased 21 to $17.76/cwt.  Class IV milk futures moved lower on very little volume. 

Lots of trades changed hands in the block and barrel market during the CME Cash Dairy Product Trade.    Blocks up $0.0050 at $1.51. Ten sales were made at that price. Barrels down $0.0225 at $1.6350. Eighteen trades were made from $1.6350 to $1.64. Butter unchanged at $1.8050. Five trades were made from $1.78 to $1.8050. Nonfat dry milk down $0.0150 at $1.2650. Two sales were made at that price. Dry whey down $0.0075 at $0.5925.

On the Chicago Mercantile Exchange milk futures closed lower Tuesday following lower trade in cash markets and a selloff in commodities.  Class III Milk followed whey lower. June held unchanged at 17.25, July fell 34 to 17.13, and August fell 37 cents to 17.97/cwt. The balance of 2021 was down 8-27 cents. Class IV also slid lower. June down 8 to 16.48, July down 12 to 16.60, and Aug fell 22 cents to 16.90/cwt.

The CME spot trade also saw slight moves lower.  Dry whey down $0.0225 at $0.62. One sale was made at $0.60. Blocks unchanged at $1.5050. Barrels down $0.0075 at $1.6575. Butter down $0.0175 at $1.8050. One trade was made at that price. Nonfat dry milk down $0.0275 at $1.28. Eight sales were made from $1.2775 to $1.2850.

The Global Dairy Trade event 286 started the index had its largest decline since March, down 1.3 percent. Butter wasd down 1.7% as was Skim Milk powder. Whole Milk powder also saw a decline of 1.8%, however The cheddar index was slightly higher, up 2/10th of a percent. Lactose rose 4/10 of a percent, and Anhydrous milkfat was up 6/10th of a percent.

On the Chicago Mercantile Exchange milk futures closed mixed Monday with light movement along with cash trade. Class III 2021 settled out anywhere between even to 7 cents lower whereas 2022 was even to 14 cents stronger.  Class IV had August up 11 cents/cwt on the day.  Product markets finished with butter 3 cents higher to $1.8225/lb on 10 loads trading. 

Over in the spot markets, thinly traded markets were once again a story.   Blocks up $0.0050 at $1.5050. Three sales were made at $1.50 and $1.5050. Barrels down $0.0075 at $1.6655. Five trades were made from $1.6550 to $1.6650. Butter up $0.03 at $1.8225. Ten trades were made from $1.8175 to $1.83. Nonfat dry milk up $0.0075 at $1.3075.

Dry whey down $0.0050 at $0.6225.

Fonterra today announced an opening forecast Farmgate Milk Price range for the 2021/22 season of $7.25 – $8.75 per kgMS, with a midpoint of $8 per kgMS.

It also narrowed its 2020/21 forecast Farmgate Milk Price range, which reduces the midpoint by 5 cents to $7.55 per kgMS, and reported a strong performance for the nine months ending 30 April 2021. However, it cautions there will be significant pressure on earnings in the last quarter of the year due to the normal seasonal profile of the business combined with tightening margins.

CEO Miles Hurrell says that the improving global economic environment and strong demand for dairy, relative to supply, are sitting behind the Co-op’s $8 midpoint of its 2021/22 forecast Farmgate Milk Price range.

“At this point it would see the Co-op contributing more than $12 billion to the New Zealand economy next season.

“Global demand for dairy, especially New Zealand dairy, is continuing to grow. China is leading the charge as its economy continues to recover strongly. Prompted by COVID-19, people are seeking the health benefits of milk and customers are wanting to secure their supply of New Zealand dairy products and ingredients.

“Growth in global milk supply seems muted and the global supply of whole milk powder is looking constrained.

“Based on these supply and demand dynamics, along with where the NZ dollar is sitting relative to the US dollar, we’re expecting whole milk prices to remain at current levels for the near future.

“As we look out over the next 18 months, there are a number of risks, which is why at this early stage we have this large range on our forecast Farmgate Milk Price. Some of the major risks include: COVID-19, which is far from over; the impacts of governments winding back their economic stimulus packages; foreign exchange volatility; changes in the supply and demand patterns that can enter dairy markets when prices are high; and as always, potential impacts of any geopolitical issues around the world.”

Having sold most of its milk for the 2020/21 season, Fonterra is now in a position to narrow this season’s forecast Farmgate Milk Price range from $7.30 – $7.90 per kgMS to $7.45 – $7.65 per kgMS.

Hurrell says, at a mid-point of $7.55, 2020/21 would be the second year in a row with the forecast Farmgate Milk Price above $7 per kgMS.

“Since March, we have seen prices settle, somewhat, which is why we have revised our midpoint down 5 cents. In that extraordinary March GDT event, where prices jumped 15% and which contributed to the increase in our forecast 2020/21 Farmgate Milk Price range, the average price for whole milk powder was over US$4,350 per metric tonne. In the last three GDT events, however, the average price has reduced to close to $4,100 per metric tonne. And GDT butter prices have gone from almost $6,000 per metric tonne to below $5,000 per metric tonne for the first time since January.”

Business performance For the nine months ending 30 April 2021, Fonterra delivered a normalised Net Profit After Tax of $587 million, up 61% year-on-year, reflecting the Co-op’s improving underlying business performance and stronger balance sheet. Reported Net Profit After Tax was $603 million, up 2%.

Fonterra’s Total Group normalised Earnings Before Interest and Tax (normalised EBIT) was up 18% to $959 million, due to higher margins and reduced operating expenditure.

Hurrell says COVID-19 challenges are still very much part of life for the Co-op’s employees and customers around the world.

“It’s too easy to forget this if you’re sitting here in New Zealand – but today’s results show that despite these challenges we’ve lifted our financial performance. Over the last three months, we have also committed to getting out of coal by 2037 and made some promising progress in a trial using seaweed in cows’ feed to reduce emissions.

“I would like to thank all our employees for delivering another strong set of results and also our farmer owners for their high-quality New Zealand milk and ongoing support. I couldn’t be prouder of how our employees and farmers are working together.

“Greater China continues to be an important performer for us, delivering year-to-date normalised EBIT of $457 million, up 30% or $106 million year-on-year. Foodservice, once again, was the big driver behind this result, contributing $93 million of the growth. In the third quarter, the team continued to improve the strong gross margins we saw in Foodservice at half year by shifting milk into higher value products, for example cream cheese. As a result, the year-to-date margin increased from 21.5% to 28.6%.

Earnings outlook

Fonterra is maintaining its normalised earnings guidance of 25-35 cents per share. While year-to-date normalised earnings per share are 34 cents, the Co-op is expecting earnings in the fourth quarter to come under further pressure and is providing guidance that its full year earnings are expected to be more towards the mid-point of the range.

Hurrell says there are some clouds on the horizon when it comes to Fonterra’s earnings performance.

“While overall we’ve seen stronger gross margins so far this year, they’ve narrowed in the third quarter as the increasing raw milk prices have flowed through to our input costs and delayed our ability to pass through the increase in our input costs

“As a result, we’re forecasting increased pressure on margins in the fourth quarter. This is compounded by the normal seasonal profile of our business, where we have our ongoing fixed costs but lower volumes of milk being processed and sold. All of this means the fourth quarter will be challenging from an earnings perspective and we expect the margin pressure to continue into the first quarter of the 2022 financial year.”

Portfolio review update

Back at the start of the 2019 financial year, Fonterra set out its original three-point plan to turn around the business. Part of this involved a strategic review of our assets which led to, among other things, the Co-operative’s decision to sell down its investment in Beingmate Baby & Child Food Company Ltd (Beingmate) and its China farms.

During the third quarter, Fonterra completed the sale of its shareholding in Beingmate, marking a full exit of its investment in the company and completed the sale of Fonterra’s two wholly owned China farming hubs in Ying and Yutian.

In October 2020, Fonterra announced it had agreed to sell its 85% interest in its Hangu farm in China to Beijing Sanyuan Venture Capital Co., Ltd. (Sanyuan), for $42 million (RMB 190 million*). Sanyuan has a 15% minority shareholding in the farm and exercised their right of first refusal to purchase Fonterra’s interest. Due to lack of progress in agreeing the specific terms of the sale, the right of first refusal was terminated earlier this month and Fonterra will now look to open up the sale process to a wider group of prospective buyers.

Hurrell says the progress that has been made on the portfolio review is allowing Fonterra to really focus on its strategy of growing the value of New Zealand milk by using innovation, sustainability and efficiency to deliver products that customers value.

“It starts with having the best milk in the world – our New Zealand milk – and by having a more focused asset portfolio, it allows us to prioritise more of our resources around it and we can see this coming through in our performance.”

* based on an RMB to NZD conversion rate of 4.5

On the Chicago Mercantile Exchange milk futures closed mixed Thursday following the monthly supply and demand report while cash markets were mostly higher. June Class III milk up 13 cents at $17.20. July up seven cents at $17.60. August down a penny at $18.37. September 11 cents lower at $18.74. October through December contracts five cents lower to five cents higher.

In spot trade blocks up $0.0475 at $1.5050. Six sales were made at $1.5050 and $1.51. Barrels up $0.01 at $1.6075. Two trades were made at $1.5975 and $1.6075. Butter up $0.0025 at $1.7925. Thirteen trades were made from $1.79 to $1.8150. Nonfat dry milk down $0.0150 at $1.30. Six sales were made from $1.2975 to $1.3125. Dry whey unchanged at $0.62.

On the Chicago Mercantile Exchange Milk futures traded higher supported by strong cash movement Wednesday. June Class III milk up five cents at $17.07. July up seven cents at $17.53. August seven cents higher at $18.38. September up a nickel at $18.85. October through December contracts three to four cents higher.

On spot trade dry whey up $0.0150 at $0.62. Blocks down $0.0075 at $1.4575. Four sales were made at $1.4575 and $1.46. Barrels up $0.02 at $1.5975. Six trades were made from $1.58 to $1.5975. Butter up $0.02 at $1.79. Three trades were made at $1.7825 and $1.7850. Nonfat dry milk up $0.0150 at $1.3150. Eight sales were made from $1.2950 to $1.3175.

On the Chicago Mercantile Exchange milk futures traded mixed Tuesday following the direction of cash markets. June milk lost a dime to $17.05/cwt.  July slid 18 cents to $17.44/cwt.  August milk declined slightly with September and October finishing in green.  Class IV milk was higher on the strength of nonfat milk and butter.   

In the CME Cash Dairy Product Trade Dry whey up $0.01 at $0.6050. Two sales were made at $0.60 and $0.6050. Blocks down $0.01 at $1.4650. Eight sales were made from $1.4650 to $1.4725. Barrels down $0.0075 at $1.5775. Four trades were made from $1.5650 to $1.5775. Butter unchanged at $1.77. Nonfat dry milk up $0.03 at $1.30. Two sales were made at that price.

The USDA announced that the May Federal Order Class III milk price rose to $18.96 per hundredweight. That was $1.29 higher for the month, and $6.82 above May 2020.

So far, the Class III price has averaged $16.91 during 2021.

The Class IV component price was 73-cents higher than last month at $16.16, and $5.49 more than last year.

Last week, Wisconsin’s all milk price for April was announced at $18.80 cwt, which was $1.30 above last month’s price, and $5.50 more than the previous year.

U.S. Cheese Factories Churning Out More Product

Total cheese output was 1.14 billion pounds, 8.0 percent above April 2020, but 3.4 percent below March 2021.

According to the USDA’s National Ag Statistics Service, Italian type cheese production totaled 481 million pounds, 7.4 percent above April 2020, but 4.3 percent below March 2021.

American type cheese production totaled 473 million pounds, 6.0 percent above April 2020, but 0.7 percent below March 2021.

Butter production was 185 million pounds, 18.5 percent below April 2020 and 6.9 percent below March 2021.

Source: Wisconsin Ag Connection 

On the Chicago Mercantile Exchange milk futures opened in lower trade Monday, pressured by a bearish dairy products report and lower cash prices. Class III milk values printed red across the board.  June traded 18 cents lower while July was off 21 cents.  August through Dec softened 5-8 cents as well.  Class IV on the other hand was higher in most months despite October being the lone month to trade.  October rose 25 cents on 10 trades.  Third quarter 2021 months were up a similar amount.

Product markets alike were mainly lower across the board once again on Monday.  Dry whey down $0.0075 at $0.5950. One sale was made at that price. Blocks down $0.0250 at $1.4750. Six sales were made at $1.4750 to $1.49. Barrels down $0.03 at $1.5850. Two trades were made at $1.5850 to $1.59. Butter down $0.0050 at $1.77. One sale was made at that price. Nonfat dry milk up $0.01 at $1.27.

On the Chicago Mercantile Exchange milk futures traded mixed Thursday with little cash direction to provide support.  Both red and green were seen in class III futures with the trade being relatively quiet as of late.  June gained 1 to $17.33/cwt.  July lost 6 cents to $17.83/cwt.  August added 14 cents to $18.48/cwt.  Class IV milk futures declined 25-35 cents in August and September. 

On the CME Cash Dairy Product Trade barrels up $0.0025 at $1.5925. Butter down $0.0150 at $1.79. Nine trades were made from $1.7875 to $1.80. Nonfat dry milk down $0.0350 at $1.26. Three trades were made at $1.26 and $1.27. Dry whey unchanged at $0.6025. Blocks unchanged at $1.5050.

On the Chicago Mercantile Exchange milk futures traded mostly higher Wednesday as futures wake back up from their holiday break and find optimism in cash markets. Class III milk was quiet. June gained 4 cents to $17.32, July gained 2 to 17.89, and Aug gained 3 cents to 18.34/cwt. The balance of 2021 was unchanged to 5 lower. Class IV was also quiet with June falling 5 cents to 16.65, Aug down 15 to 16.88, and August unchanged at 17.25/cwt.

June Dairy Month brings us a CME spot trade of mostly green.  Barrels up $0.0150 at $1.59. Six trades were made from $1.5750 to $1.5825. Butter up $0.0150 at $1.8050. Two trades were made at $1.8050 and $1.8150. Nonfat dry milk unchanged at $1.2950. Four trades were made at $1.29 and $1.2950. Dry whey up $0.0025 at $0.6025. Blocks down $0.0050 at $1.5050. Nine trades were made at $1.5050 and $1.51.

The Global Dairy Trade index in New Zealand continued its trend lower Tuesday, down 0.9 percent. Butter milk fat was down 7.5 percent, followed by declines in butter and lactose. Cheddar posted the only gain, up 0.5 percent.

MF index down 0.8%, average price US$5,654/MT

Butter index down 5.4%, average price US$4,690/MT

BMP index down 7.5%, average price US$3,810/MT

Ched index up 0.5%, average price US$4,324/MT

LAC index down 1.6%, average price US$1,236/MT

SMP index down 0.5%, average price US$3,415/MT

WMP index down 0.5%, average price US$4,062/MT

On the Chicago Mercantile Exchange milk futures opened the week in mostly lower trade pressed by cash cheese markets and lower global trade. June Class III milk up four cents at $17.28. July down 17 cents at $17.87. August down 20 cents at $18.31. September down 14 cents at $18.75. October through December contracts five to 13 cents lower.

Dairy prices weakened once again as cheese faltered. Blocks down $0.02 at $1.51. Ten trades were made at $1.51 and $1.5125. Barrels up $0.0050 at $1.5750. Six trades were made at $1.57 and $1.5750. Butter down $0.02 at $1.79. Six trades were made from $1.79 to $1.8025.  Dry whey down $0.0225 at $0.60. Two sales were made at $0.60 and $0.61. Nonfat dry milk up $0.0025 at $1.2950. Three trades were made at $1.2925 and $1.2950.

Cooperatives Working Together (CWT) member cooperatives accepted 15 offers of export assistance from CWT that helped them capture sales contracts for 507,063 pounds (230 metric tons) of Cheddar, Gouda, and Monterey Jack cheese, 476,199 pounds (216 metric tons) of whole milk powder, and 440,925 pounds (200 metric tons) of cream cheese. The product is going to customers in Asia and South America and will be delivered during the period from May through September 2021.

CWT-assisted member cooperative year-to-date export sales total 15.4 million pounds of American-type cheeses, 10.4 million pounds of butter (82% milkfat), 7.1 million pounds of anhydrous milkfat, 16.2 million pounds of whole milk powder, and 5.9 million pounds of cream cheese. The products are going to 30 countries in six regions. These sales are the equivalent of 732.8 million pounds of milk on a milkfat basis.

Assisting CWT members through the Export Assistance program positively affects all U.S. dairy farmers and dairy cooperatives by strengthening and maintaining the value of dairy products that directly impact their milk price. It does this by helping member cooperatives gain and maintain world market share for U.S dairy products. As a result, the program has significantly expanded the total demand for U.S. dairy products and the demand for U.S. farm milk that produces those products.

The amounts of dairy products and related milk volumes reflect current contracts for delivery, not completed export volumes. CWT pays export assistance to the bidders only when export and delivery of the product is verified by required documentation.

All dairy farmers and dairy cooperatives should invest in CWT. Membership information is available on the CWT website.

On the Chicago Mercantile Exchange milk futures flipped lower Thursday taking their direction from the cash market. Class III milk struggled to follow with a sell off in spot Whey. May gained 4 cents to 18.97, June fell 33 to 17.65, and July fell 21 cents to 18.34.  The balance of 2021 was 10 lower to 6 higher with winter months popping higher.

The CME spot trade had dry whey down $0.03 at $0.6225. One trade was made at that price. Blocks unchanged at $1.5675. Five trades were made from $1.57 and $1.5725. Barrels down $0.0225 at $1.62. Nine trades were made from $1.62 to $1.65. Butter up $0.0250 at $1.81. One trade was made at that price. Nonfat dry milk down $0.0175 at $1.2725. Six trades were made at $1.27 to $1.23.

Feed prices bounced back on Thursday after giving some buying opportunities. Corn finished limit higher gaining 40 cents to 6.64 1/2/bu. Soybeans bounced 33 ½ cents higher to $15.37, and soybean meal gained back $6.50 to 390.30/ton.

On the Chicago Mercantile Exchange milk futures continued their strength into midweek supported by strong cash cheese trade. Nearby class III futures months traded higher on the day. May milk was up 2 cents to $18.98/cwt. June milk added 24 to $17.95/cwt. July milk surged 38¢ to $18.59/cwt. 

Cheese showed signs of life after a long stretch of negative trading sessions in the CME Cash Dairy Product Trade.  Blocks up $0.0475 at $1.5675. Ten trades were made from $1.5525 to $1.5675. Barrels up $0.0275 at $1.6425. Four sales were made from $1.6250 to $1.6450. Butter down $0.0350 at $1.7850. Two sales were made at $1.7825 and $1.79. Nonfat dry milk down $0.0125 at $1.29. Eight trades were made at $1.29 to $1.3125. Dry whey unchanged at $0.6525.

Grain markets were mixed coming off early morning lows. December corn moved as low as $5.0025, settling at $5.2075/bushel. November soybeans inched a quarter cent lower to $13.47/bushel. July soybean meal fell another $2.50 to $383.80/ton. September Chicago Wheat finished at $6.5250/bushel. 

Good news for Fonterra farmers: the co-operative has announced an opening forecast farmgate milk price range for the 2021-22 season of $7.25 – $8.75/kgMS, with a midpoint of $8/kgMS.

On the Chicago Mercantile Exchange milk futures turned higher Tuesday as traders bought back oversold positions while cash markets were mixed. May Class III milk a penny higher at $18.96. June up 16 cents at $17.71. July up five cents at $18.21. August up four cents at $18.63. September through November contracts five to eight cents higher.

In spot trade dry whey up $0.0050 at $0.6525. One trade was made at $0.65. Blocks down $0.01 at $1.52. Five trades were made from $1.58 and $1.6150. Barrels up $0.0350 at $1.6150. Nine sales were made from $1.58 to $1.5875. Butter unchanged at $1.82. Two sales were made at $1.8225 and $1.8350. Nonfat dry milk up $0.0050 at $1.3025. Eight trades were made at $1.3025 and $1.3050.

On the Chicago Mercantile Exchange milk futures opened the week in lower trade continuing the negative trend spilling over from grains and cash markets.  Class III Milk was unchanged in May at 18.95, June fell 58 cents to 17.55 and July fell 74 cents to 18.16/cwt. The balance of 2021 was down 13-53 cents. Class IV milk also slid lower, May unchanged at 16.33, June fell 19 to 16.83, and July fell 30 cents to 17.28/cwt. The balance of 2021 falling 6-38 cents.

The CME spot trade had cheese blocks down $0.04 at $1.53. Ten trades were made from $1.53 to $1.56. Barrels down $0.0275 at $1.58. Five sales were made from $1.58 to $1.5875. Butter down $0.05 at $1.82. Fifteen sales were made from $1.82 to $1.8450. Nonfat dry milk down unchanged at $1.2975. Dry whey up $0.0025 at $0.6475. One trade was made at $0.6450.

The USDA released our April Cold Storage report. The USDA says butter stocks are growing while cheese drew down some. Cheese stocks during April totaled nearly 1.5 billion pounds, down two percent from 2020 and one percent on the month. Butter inventories were up eight percent from the previous month and three percent higher than last year at more than 385 million pounds.

Cooperatives Working Together (CWT) member cooperatives accepted seven offers of export assistance from CWT that helped them capture sales contracts for 403,446 pounds (183 metric tons) of Cheddar and Monterey Jack cheese, and 524,700 pounds (238 metric tons) of butter. The product is going to customers in Asia, the Middle East, and Oceania. It will be delivered during the period from May through October 2021.

CWT-assisted member cooperative year-to-date export sales total 14.9 million pounds of American-type cheeses, 10.4 million pounds of butter (82% milkfat), 7.1 million pounds of Anhydrous Milk Fat, 15.7 million pounds of whole milk powder, and 5.5 million pounds of cream cheese. The products are going to 29 countries in six regions. These sales are the equivalent of 722.3 million pounds of milk on a milkfat basis.

Assisting CWT members through the Export Assistance program positively affects all U.S. dairy farmers and dairy cooperatives by strengthening and maintaining the value of dairy products that directly impact their milk price. It does this by helping member cooperatives gain and maintain world market share for U.S dairy products. As a result, the program has significantly expanded the total demand for U.S. dairy products and the demand for U.S. farm milk that produces those products.

The amounts of dairy products and related milk volumes reflect current contracts for delivery, not completed export volumes. CWT pays export assistance to the bidders only when export and delivery of the product is verified by required documentation.

All dairy farmers and dairy cooperatives should invest in CWT. Membership information is available on the CWT website.

Milk buyers lifted their bid prices in Victoria at the Milk Exchange’s third trading event on Wednesday.

On the Chicago Mercantile Exchange milk futures continued to trade mixed Thursday as did cash markets ahead of the USDA’s milk production and slaughter reports. Most months rallied around 3-8 cents/cwt higher from May 2021 through the end of the year.  June is now pricing out at a value of $18.34/cwt while the second half average is $19.125/cwt.  Class IV trade went the opposite route as futures in second half 2021 fell double digits in many months.  July down four cents at $19.06. August up four cents at $19.29. September through November contracts three to nine cents higher. The second half average sits at $17.76/cwt.

The spot cheese markets once again saw great volumes trade during Thursday’s session.   Blocks down $0.0225 at $1.58. Nine trades were made from $1.58 to $1.5950. Barrels up $0.0125 at $1.8675. One sale was made at that price. Butter up $0.0025 at $1.8550. One sale was made at that price. Nonfat dry milk unchanged $1.3025. One sale was made at $1.30. Dry whey up $0.0050 at $0.6450.

On the Chicago Mercantile Exchange milk futures traded mostly lower following the direction of grain markets while cash trade was mixed. Class III Milk was mixed May gained 5 cents to 18.93, June fell 18 to 18.30, and July fell 2 cents to 19.10/cwt. Balance of 2021 was down 2 to 10 higher. Class IV gained 3 cents in May to 16.25, June was unchanged at 17.00 even, and July fell 5 cents to 17.39/cwt. The balance of 2021 was unchanged.

The CME spot trade was weaker.  Dry whey up $0.0050 at $0.64. One sale was made at that price. Blocks down $0.03 at $1.6025. Ten trades were made from $1.60 to $1.63. Barrels down $0.0025 at $1.6250. Twelve sales were made from $1.6250 to $1.63. Butter up $0.0025 at $1.8550. One sale was made at that price. Nonfat dry milk down $0.01 at $1.3025. Six sales were made from $1.3025 to $1.31.

The T.C. Jacoby Weekly Market Report Week Ending May 14, 2021

Some dairy producers are partially shielded from higher feed expenses through a combination of inventories, contracts, and farming. Many have been battered by low Class IV values and widespread depooling, and are now being clobbered by immense feed bills. They are reeling.

Soybeans made their debut at the Chicago Board of Trade in 1936. In the past 85 years, they have traded above $16 per bushel in just 61 daily trading sessions, including four times this week. Record-breaking exports have reduced U.S. soybean supplies to impossibly low levels. USDA projects that when the season ends on August 31, there will be just 120 million bushels of soybeans left over, an all-time low. With stocks dwindling, July soybean futures briefly touched $16.675 per bushel on Wednesday, the highest price since 2012, when crops withered in a crippling drought.

USDA expects big exports in the 2021-22 crop year as well, although the volumes will likely fall short of the staggering totals sent abroad in the current season. In its first detailed look at the next crop year, the agency called for bigger soy acreage and higher yields than last harvest. Even so, next year’s ending stocks will be historically low at 140 million bushels. There is no room for error in the soybean balance sheet and prices will likely remain high. Although soybean and soybean meal futures took a big step back on Thursday, they started to climb once again today. July soybeans closed at $15.84 per bushel, down 5.75ȼ this week.

Record-breaking exports are tightening corn supplies too, although not to the extremes seen in the soybean market. USDA expects that when the season ends in a few months, corn stocks will fall below 1.26 billion bushels, the smallest ending inventories since 2013-14. USDA stuck with the 91.1 million acres of corn it called for in the Prospective Plantings report, but corn prices have done nothing but climb since the agency surveyed farmers in March. Farmers have likely increased their ambitions for corn acreage since then. The agency calls for a trend-line yield of 179.5 bushels per acre. If the weather cooperates, this record-setting yield would help U.S. corn inventories back over 1.5 billion bushels by the end of next season. The prospect of a huge corn crop weighed heavily on the futures market. July corn settled at $6.7475, down 57.5ȼ from last Friday.

Although crop valuesfell back this week, they are still historically high. Dairy producers are paying more to feed their cows than they have in years, and they likely won’t see much relief until a bumper crop is assured. Even then, soybean meal is likely to remain pricey. Expensive feed and staggering construction costs are likely suppressing dairy producers’ appetite to build new facilities, but there is no evidence that they are crimping production just yet. Dairy producers were still adding cows at a rapid clip earlier this spring. In March, the milkcow herd reached a 25-year high. Slaughter volumes remain well behind the pace set in 2019 and 2020, when the herd was notably smaller than it is today.

Big milk checks have likely numbed the impact of exorbitant feed costs for dairy producers who derive most of their revenue from Class III. And some dairy producers are at least partially shielded from higher feed expenses through a combination of inventories, contracts, and farming. But many have been battered by low Class IV values and widespread depooling, and they are now being clobbered by immense feed bills. They are reeling.

Fortunately, Class IV values are on the rise. Most contracts added between 25 and 45ȼ this week. Second-half futures scored life of contract highs and are now projected to average $17.84 per cwt., sharply higher than in the last six months of 2020, when Class IV contracts averaged a pitiful $13.21. Class III futures moved higher early in the week and then fell back. But they still gained ground. Most Class III futures contracts settled 15ȼ to 45ȼ higher than last Friday. The June through November contracts sit north above $19.

After a couple rough weeks, the butter market came roaring back. CME spot butter jumped 10.5ȼ from Friday to Friday and now stands at $1.875 per pound. Booming ice cream sales have helped to tighten cream supplies in the West and slow churning activity at the margins. However, in the rest of the country, cream supplies are not as

tight as they were a few weeks ago. Butter makers report that demand is coming in fits and starts. According to Dairy Market News, “Accurately forecasting demand remains a challenge for dairy manufacturers and food service customers both.”
CME spot nonfat dry milk slipped 2.25ȼ this week to $1.30. Domestic buyers have started to balk at high prices, and sales are slowing a bit. But exports remain strong. After several months in the doldrums, Mexico is catching up on its milk powder purchases. Drought is widespread south of the border, which is likely to raise costs and reduce milk output down the road. But for now, milk continues to flow. Mexican milk production was up 2.2% in April and is up 2.4% for the year to date.

CME whey powder values climbed 1.25ȼ this week to 64ȼ. The futures consolidated. Exports are moving and demand for high-protein whey products remains strong, but domestic whey powder buyers are backing off a little in hopes that prices will falter.
CME spot Cheddar barrels climbed through most of the week and reached $1.78 on Thursday. But they dropped a nickel today and closed at $1.73, up just 0.25ȼ from last Friday. Blocks dropped 2.25ȼ to $1.725. At some point, formidable cheese output could weigh on prices, but for now, cheese and Class III values remain lofty.

Original Report

On the Chicago Mercantile Exchange milk futures were mixed Tuesday as were cash markets, while global trade provided little direction. Class III values took it on the chin during Tuesday’s trading session.  June fell back 44 cents to $18.47/cwt while July and August were down 20-28 cents as well. September lost 12 cents and October was down 11.  2022 months ranged from 5 to 17 cents lower also.

Cheese suffered losses in both the barrel and block markets on Tuesday.  Blocks down $0.05 at $1.6325. Four trades were made at $1.6325 and $1.6375. Barrels up $0.03 at $1.8525. Sixteen trades were made from $1.6250 to $1.64. Dry whey down $0.0050 at $0.6350. Four sales were made from $0.6350 to $0.6450. Butter down $0.0525 at $1.8225. Nonfat dry milk up $0.0075 at $1.3125. Six trades were made from $1.31 to $1.3150.

GDT Event 284 was released this morning with the overall index losing 0.2%. Butter was down 2.2 percent, followed by declines in whole milk powder and anhydrous milk fat. Lactose was up 1.6 percent along with cheddar and skim milk powder.

On the Chicago Mercantile Exchange milk futures opened the week in lower trade pressured by declining cheese trade. May milk fell 4 cents to $18.84/cwt.  June plummeted 42 cents to $18.94.  July lost 25 cents to $19.39/cwt.  Class IV months were down with the weakness in spot butter. 

On the CME Spot Dairy Auction blocks down $0.0425 at $1.6825. Four trades were made at that price. Barrels down $0.03 at $1.70. Two trades were made at that price. Butter down $0.0525 at $1.8225. Eight sales were made from $1.8225 to $1.8425. Dry whey unchanged at $0.64. Nonfat dry milk up $0.0050 at $1.3050.

December corn was down 5.50 cents to $5.3725/bushel.  November soybeans fell 3.75 cents to $13.97/bushel.  July soybean meal declined $3.60 to $414.90/ton.  September Chicago Wheat lost 7 cents to $6.9950/bushel.

Dairy prices are likely to remain stronger for longer as farmers are constrained in ramping up supply to meet robust demand, analysts say.

BNZ on Friday raised its expectation for Fonterra’s forecast milk price for next season, to $7.80 per kilogram of milk solids, from $7 per kgMS. That’s higher than BNZ’s forecast for this season of $7.70 per kgMS.

Fonterra is due to make its first milk price forecast for next season by the end of this month. Expectations from the four major banks range from $7.30 per kgMS to $8 per kgMS.

Dairy prices have lifted strongly this year, with the global dairy trade price index 44 per cent ahead of the same time last year and 29 per cent higher than its five-year average. That’s largely attributed to strong demand from China where a wealthier population and increased focus on health and wellbeing after the Covid-19 pandemic has been stoking demand for better nutrition.

“We have been of the view that product prices will ease from current levels over the coming 12 months as global supply responds to the recent run up in prices. That is what usually happens when prices lift,” BNZ senior economist Doug Steel said in a note titled Milk Price Drivers Positive. “But the chances of this response being reduced or delayed have increased.”

Steel said there’s been a very large rise in global grain prices in recent months, with United States corn prices jumping nearly 40 per cent over recent weeks to be well over twice what they were a year ago. US pasture is also in poorer condition than normal due to weather issues, and in the United Kingdom hay prices have ramped higher.

“Higher production costs for New Zealand’s northern hemisphere competitors makes an aggressive global milk supply response to current high dairy prices less likely,” he said. “Indeed, the current milk price to feed ratio in the US for example, suggests milk production growth is more likely to slow – rather than lift – into the end of this year.”

Meanwhile in New Zealand, future milk supply is likely to be constrained by environmental limitations, he said.

“This raises the chances that recent global dairy price strength sticks around for a bit longer and any price decline is slower than would be the case had competitor costs not lifted so sharply,” Steel said.

Westpac senior agricultural economist Nathan Penny also thinks dairy prices will remain strong into next season and his Fonterra milk price forecast is at the top of the range at $8 per kgMS.

Normally New Zealand production would be going “gangbusters” with such high dairy prices, but producers are struggling to find easy ways to produce more milk, Penny said.

“We could get the case that prices don’t fall any time soon,” he said.

BNZ’s new forecast still builds in some global price decline over the coming year.

“Global dairy prices could prove stronger than anticipated such that a higher milk price than forecast transpires. It’s not difficult to imagine something above the $8 mark,” Steel said.

Fonterra’s highest first forecast for a new dairy season is $7 per kgMS, and given current market conditions, the coming season could be the highest yet, he said.

Still, the outlook remains uncertain as strong global growth and recovery from the pandemic could bolster the case for higher prices while a downturn in Chinese demand, tighter monetary policy, or a Covid-19 resurgence could dent commodity prices.

Fonterra’s is likely to release a wide forecast range and it’s difficult to know where it will end up at the close of the season, Steel said.

For the current season, Fonterra has forecast a milk price of between $7.30 and $7.90 per kgMS, with a mid-point of $7.60 per kgMS. That’s up from $7.14 per kgMS last season. The major banks are forecasting between $7.60 per kgMS to $7.90 per kgMS.

“The combination of high global prices and a relatively contained New Zealand dollar is a very positive mix for milk price payments to farmers,” Steel said. “Recent dairy auction results reinforce the likelihood of a strong milk price, perhaps even a bit higher than our point estimate.”

Dairy products are the country’s largest commodity export and Fonterra estimated milk payments to its 10,000 farmer suppliers for this season would contribute about $11.5 billion to the economy.

Source: stuff.co.nz

On the Chicago Mercantile Exchange milk futures fell Thursday after traders corrected overbought positions while cash trade was mixed.  Class IV milk jumped higher to print $18 for fall. May finished the day up 12 to 16.21, June up 16 cents at 17.00, and July up 33 cents to 17.45/cwt. Class III gave back some of yesterday’s impressive gains. May fell 4 cents to 19.03, June down 2 to 19.62, and July fell 20 cents to 19.88/cwt.

The CME spot market saw dry whey up $0.0050 at $0.6350. One trade was made at that price. Blocks down $0.0250 at $1.7875. Fourteen trades were made from $1.78675 to $1.7950. Barrels up $0.0250 at $1.78. Three trades were made at $1.77 and $1.78. Butter up $0.0150 at $1.8650. Nonfat dry milk up $0.0025 at $1.31. Four trades were made from $1.31 to $1.32.

On the Chicago Mercantile Exchange milk futures pushed past $20 in summer contracts supported by optimism for declining feed costs and strong cash sales. Class III futures set new contract highs in second half 2021 as well as the 2022 calendar year with gains as high as 70 cents in the June contract.  Class IV prices also finished higher to end the day. 

May Class III milk up 18 cents at $19.07.  June up 64 cents at $19.64. July up 69 cents at $20.08. August up 65 cents at $20.04. September through November contracts 33 to 45 cents higher.

On the CME Cash Dairy Product Trade dry whey up $0.0025 at $0.63. Blocks up $0.0425 at $1.8125. Seven trades were made from $1.78 to $1.8075. Barrels up $0.0650 at $1.7550. Three trades were made from $1.6875 to $1.71. Butter up $0.0375 at $1.85. Nonfat dry milk down $0.0150 at $1.3075. Five trades were made from $1.3075 to $1.3150.