Milk, Dairy and Grain Market Commentary
By Sarina Sharp Daily Dairy Report Sarina@DailyDairyReport.com
Milk & Dairy Markets
Prices shot higher at the Global Dairy Trade (GDT) auction this week, igniting rallies across the dairy complex. Buyers from Asia and the Middle East bid with enthusiasm. The GDT index jumped 6.7%, its strongest performance since November 2016. Nearly all products moved higher, but milkfat products and powders were particularly buoyant. Whole milk powder (WMP) surged 8.4% to its highest price since June. Skim milk powder (SMP) climbed 3.9% to a two-year high, reaching the equivalent of nonfat dry milk (NDM) at $1.23 per pound, far above benchmark SMP and NDM prices in Europe and the United States. CME spot NDM was uninspiring in comparison. It closed today at 99.5ȼ per pound, down 0.75ȼ from last Friday.
The other CME spot markets gained ground. Spot dry whey rebounded 0.25ȼ to a still meager 36.5ȼ. Butter added a half-cent and reached $2.295, on the high end of its well-trod trading range. Cream is relatively inexpensive and butter churns are running hard.
The cheese markets offered more excitement. CME spot Cheddar blocks climbed 2.75ȼ to $1.5275, the highest value since mid-October. Cheddar barrels surged 7.25ȼ to $1.3725, a more than three-month high. With that, March and April Class III futures gained some ground this week, but deferred contracts moved a little lower. Class IV futures were mostly a nickel or so in the red.
The spot cheese rally and anecdotal reports suggest that although barrels remain plentiful, supplies are less burdensome than they have been. USDA’s Dairy Products report shows that milk continues to move to cheese vats. Although the data is stale, it helps to clarify the shift in the dairy product mix as milk supplies tighten in the East and continue to grow in the West. In November, U.S. cheese production topped 1.08 billion pounds, 1% more than the prior year. A 5.2% year-over-year increase in Western cheese production more than made up for a 3.3% shortfall in the Atlantic region and a 1.5% drop in the Central states. Cheddar output in November was 2.7% higher than in November 2017, which helps to explain the abject weakness in the spot Cheddar market over the past few months.
Although U.S. dairy products are competitively priced, exports did not impress in November. Retaliatory tariffs from China and Mexico are clearly taking a toll. U.S. butter and milkfat exports were 41.4% higher than year-ago levels. However, the gain was more than offset by increased butterfat imports. All other dairy product categories reported lower export volumes than November 2017. The United States sent 12.7% less NDM, 9.5% less cheese, 62.6% less cream, and 18.1% less whey products abroad than in the prior year.
Exports accounted for 13.9% of U.S. milk solids production in November, according to the U.S. Dairy Export Council, down from 16.8% in the first half of the year, before Mexican and Chinese tariffs took effect. From July to November, U.S. dairy product exports to China fell 34%. Cheese exports to Mexico grew 2% in the first half of 2018 but fell 4% from July to November.
Lower milk powder exports contributed to an increase in U.S. manufacturers’ stocks of NDM from October to November, despite slowing production. The Daily Dairy Report theorizes, “The month-to-month increase suggests demand for milk powder slowed, likely due to rising prices. CME spot NDM approached 90ȼ per pound in late November, which could have deterred buyers, at least temporarily. Continued increases in NDM prices over the past two months suggest that buyers have become resigned to more expensive milk powder.” And this week’s GDT auction makes U.S. NDM look like a bargain despite the strengthening U.S. dollar.
Grain Markets It was a surprisingly quiet week in the grain markets. March corn futures fell 4ȼ to $3.7425 per bushel. March soybeans slipped 3.25ȼ to $9.1775. Catching up after the government shutdown, USDA released a slew of data regarding crop production and demand. The markets greeted the reports with a shrug. Although USDA lowered its estimates of 2018-19 corn and soybean yields, inventories remain large. The agency lowered its projection for end-of-season soybean inventories from 955 million bushels to 910 million bushels. Although lower than USDA’s December estimate, that’s still more than double the size of soybean inventories in the preceding decade. With a massive domestic stockpile and decent crops in South America, the market should be signaling farmers to plant fewer soybeans. Planting season is fast approaching and at today’s prices farmers are not getting the message.