Despite signs of continued contraction, the dairy markets have been experiencing a decline, with CME spot Cheddar blocks leading the retreat. Cheddar output has fallen below year-ago volumes since October, and overall cheese production was lower than prior-year output in December and January. The industry remains concerned about the capacity to make more, with domestic demand described as “lackluster,” but they hope it will perk up for Easter. Cheap cheese has attracted a few export contracts, but most foreign buyers are deterred by the shape of the futures curve, which persistently offers pricier product later this year.
CME spot whey dropped a nickel this week to 39.5ȼ, within a penny of the year-to-date low. Demand for high-protein whey products remains strong, but with cheese vats full, there is more than enough whey leftover for the drier. Chinese demand for U.S. whey is in decline, with Chinese whey imports falling 24% from last year in January and February. The U.S. accounted for an unusually small share of the shrinking pie, and U.S. whey shipments to China in February plummeted to a four-year low.
Chinese milk powder imports also disappointed, with Chinaimporting more whole milk powder (WMP) in January and February than it did last year, but that was a very low bar to clear. Chinese imports of skim milk powder (SMP) fell short of 2023 volumes in February. Comparisons to previous years are skewed by changes to tariff policy, as before 2023, tariff structures incentivized Chinese milk powder buyers to stock up early in the year before low-tariff quotas ran out. Now that tariffs on Kiwi milk powder are no longer in play, there is no new year’s rush.
Even butter lost ground this week, although the setback in the butter market was modest and felt much different from the significant lows notched in the rest of the dairy complex. CME spot butter fell 1.5ȼ to a still lofty $2.8075. USDA reports that cream is “readily available” but “not overwhelming.” When combined with a healthy dose of demand and a dash of anxiety about butter supplies later this year, that’s a recipe for stubbornly strong butter prices.
Class IV futures didn’t go anywhere at all this week, with nearby contracts settled on either side of last Friday’s close, and deferred futures settled a penny or two higher than last week. Class III futures are low and falling, with the April contract plunged 27ȼ this week to a devastating $15.74. The market promises better prices later this year, but it’s going to be a rough spring flush for many dairy producers with low Class III prices and steep discounts besides.
Financial pain is sure to translate to an uptick in sellouts and a decline in cow numbers. Milk output is inching lower in the Southwest as dairy producers there combat a mysterious illness. Regional milk production declines so far have been incremental, and milk powder plants in the Southwest are still running at nearly typical volumes. Dairy producers are restricting cattle movement and adopting stricter biosecurity measures.
Original Report At: https://www.jacoby.com/market-report/dairy-markets-continue-to-drop/
