Record-setting exports

Chicago Mercantile Exchange barrel Cheddar set a record high on Wednesday, hitting $2.6225 per pound, eclipsing the previous $2.53 high Nov. 2, 2020. It closed Friday at $2.59 however, up 10.50 cents on the week, up 49 cents in four weeks, and 99 cents above a year ago when it had dropped 21 cents to $1.60.

Cheddar block, after gaining almost 24 cents the previous three weeks, went in the other direction, as new capacity comes online. The blocks fell to $2.2450 on Wednesday and rallied Thursday but backtracked Friday to close at $2.2375, down 3.75 cents on the week, and 45.75 cents above a year ago when they lost a dime and dipped to $1.78. The inverted spread grew to 37.75 cents Wednesday, just shy of the record 38.5 cents in November 2019, and stood at 35.25 cents Friday.

There were seven CME sales of block on the week and 11 of barrel, as traders awaited the afternoon’s August milk production report.

Midwest cheesemakers are beginning to shift to retail holiday baskets and packages, according to Dairy Market News. Production remained inconsistent for the third consecutive week as multiple plants have been running lighter schedules due to maintenance and/or plant updates. Barrel processors have only recently begun to be able to offer loads to customers and some say this is the first instance of extra barrels being available since the early weeks of summer, which helps explain the record price. Milk availability is improved but only due to the plant downtime. Mid-week milk prices were above Class III but the wide price spread is viewed as an indicator of potential market instability, warns DMN.

Milk demand from Western cheese manufacturers is steady to strong. However, milk availability varied due to bottling demand and milk production dips. Cheese production is steady to strong. Stocks are accommodating obligations and spot demand, however, are reportedly tight, barrels especially. Domestic cheese demand is steady to lighter. Export demand is more mixed, according to DMN.

Cash butter fell below the $3 mark on Thursday, the first time since May 29, and closed Friday at $2.9725 per pound, down 15.75 cents on the week, lowest since April 30, and 2.75 cents below a year ago when it jumped 28.25 cents and hit $3 per pound. There were 14 sales on the week.

Central butter production is busier than seasonally expected, says DMN. Cream availability remains ample within the region and from Western sources as school bottling spins off and fat components continue to trend higher. Some butter makers have said the last two weeks of regular churning schedules were not expected to last as long as they have, but now, some expect cream availability to last at least into the following week.

Butter demand is picking up the holiday pace and customers are adding to orders to prep for the holiday push, according to DMN.

Butter production in the West is steady to strong. Some manufacturers continue to build inventory ahead of fourth-quarter maintenance projects. Fourth-quarter bookings are stronger, but export demand varies from light to moderate.

Grade A nonfat dry milk closed Friday at $1.38 per pound, down 1.25 cents on the week but 21 cents above a year ago. There were 32 sales on the week.

Dry whey finished at 58.75 cents per pound, 1.75 cents lower but 28.50 cents above a year ago, on 12 CME sales for the week.

July’s dairy supply and utilization data tells a behind-the-scenes story. While cheese prices saw great strength, it was due more to supply than demand, according to Betty Berning, a dairy economist with HighGround Dairy Inc.

Speaking on the Sept. 23 “Dairy Radio Now” broadcast, Berning said American cheese utilization has been down every month of 2024, Cheddar vats have put out less product, and the tight milk supply is a factor. However, fast food chain offerings have been strong, she said, and, “When you think about what goes on a cheeseburger, it’s processed cheese made with barrel cheese.”

Total domestic cheese utilization was up 0.8% but off 0.4% year to date. Exports totaled 88.7 million pounds, up 9.6% from July 2023, and up 22.1% year to date.

“For the first time in 2024, both domestic utilization and commercial butter exports marked growth above the prior year,” Berning said. Domestic use was up 5.5% and exports were up 15.4%. The CME price has slipped, she said, but is still historically high.

Nonfat-skim milk powder utilization was down 19.2%, the lowest since 2014, according to HGD. Domestic use was down 70% and year to date was down 41.1%. Exports were up 10.8% in July but down 8.5% year to date. HGD attributes the higher CME prices to nervousness about the milk supply.

Dry whey usage was down 28.6% domestically while exports were up. HGD points out that dry whey production sharply declined between May and July due to manufacturing issues and said, “Limited supplies are behind the price rally above 50 cents per pound on the CME, rather than hearty demand.”

Income over feed costs, while not an exact science, are headed to levels that are historically high, Berning said. “There’s great opportunity for producers to lock in margins into next year and ensure they can maintain profits, pay down debt, invest in operations, feed a higher quality ration, or do whatever is needed to take advantage of these very good milk prices.”

Fluid milk sales were up in July after dipping 2.9% in June. The U.S. Department of Agriculture’s latest data shows packaged sales at 3.4 billion pounds, up 4.3% from July 2023.

Conventional product sales totaled 3.1 billion pounds, up 3.7% from a year ago. Organic products, at 257 million pounds, were up 11.7% and represented 7.6% of total sales for the month.

Whole milk sales totaled 1.3 billion pounds, up 4.7% from a year ago and 2.5% year to date, representing 37.9% of total sales for the month of July.

Skim milk sales, at 146 million pounds, were down 8.7% from a year ago and down 12.3% YTD.

Packaged fluid sales for the seven months totaled 24.7 billion pounds, up 1.1% from 2023. Conventional product sales totaled just under 23 billion pounds, up 0.7%. Organic products, at 1.8 billion pounds, were up 6.8% and represented 7.1% of total milk sales in the seven-month period. The figures represent consumption in Federal Milk Marketing Orders, which account for about 92% of total fluid sales in the U.S.

The October Federal Order Class I base milk price was announced by the USDA at $23.17 per hundredweight, up $1.57 from September, $3.70 above October 2023, and the highest Class I price since November 2022. It equates to $1.99 per gallon, up from $1.67 a year ago. The 10-month Class I average stands at $20.02, up from $19.09 a year ago, and compares to $23.73 in 2022.

Dairy farm margins were flat to slightly higher over the first half of September as milk prices continued to advance while feed costs were steady to slightly higher, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC. 

“Spot milk availability continues to be limited for processors who are paying premiums of up to $4 per cwt. over Class prices, the highest spot price for milk in mid-September since 2010,” the MW said. “Dairy product prices continue to be supported at lofty levels, helping to drive strength in Class III and Class IV milk.” 

“Butter prices have maintained at $3.00 per pound or higher in spot CME trade since late May, with European prices exceeding $4.00 due to the fallout from bluetongue disease. Cheese prices are likewise firm.”

 “Year-to-date through July, Cheddar vats have turned out 8% less product compared to the same period in 2023, while strong international demand for cheese has helped boost exports. The U.S. exported more than 100 million pounds per month in March, April and May, with export shipments exceeding 85 million pounds both in June and July,” said to the MW. “Exports to Mexico through the first six months of the year were nearly 250 million pounds, up 39% from 2023. Exports to Mexico have set new monthly records now for 14 consecutive months.”

“Exports of other dairy products have likewise been impressive. July whey exports were up 22.4% year over year, led by a 34% increase in shipments to China. U.S. exports of nonfat dry milk hit a 14-month high in July and outpaced July 2023 by 10% with shipments to Mexico setting a record for the month, up 20% from a year ago,” the MW concluded.

The USDA’s latest livestock slaughter report showed an estimated 231,300 head of dairy cows were slaughtered under federal inspection in August, up 5,400 from July, but 43,900 head or 16% below August 2023.

Slaughter for the week ending Sept. 7 totaled 47,700 head, down 6,500 from the previous week, and 6,900 or 12.6% below a year ago. Year to date, 1,894,100 dairy cows had been culled, down 311,700 or 14.1% from 2023.

The week’s crop progress report showed 45% of U.S. corn was rated mature as of the week Sept. 15, up from 29% the previous week, 3% behind a year ago, but 7% ahead of the five-year average. Sixty-five percent was rated good to excellent, up 1% from the previous week, and compares to 51% a year ago. Nine percent had been harvested, up 1% from a year ago, and 3% ahead of the five-year average.

Forty-four percent of the soybeans were dropping leaves, 3% behind a year ago, but 7% ahead of the five-year average. Sixty-four percent were rated good to excellent, down 1% from the previous week, but compares to 52% a year ago. Six percent have been harvested, 2% ahead of a year ago, and 3% ahead of the average.

The agriculture department’s monthly Livestock, Dairy, and Poultry Outlook, issued Sept. 18, mirrored milk price and production projections in the Sept. 12 World Agricultural Supply and Demand Estimates report.

The Outlook said “Despite some fluctuations, dairy product consumer price indexes have generally risen in 2024, contrasting with the broader decline in overall product and food CPIs. The recent decline in the food service sector, particularly restaurants, may be also underlying the decline in the domestic consumption of dairy products.”

“The National Restaurant Association’s Restaurant Performance Index has been consistently lower in 2024 compared to the previous year, suggesting that restaurants are facing challenges such as reduced consumer spending, rising costs, and shifts in consumer preferences, all likely impacting demand for dairy products from the foodservice sector,” the Outlook said.

“Improved margins are likely to create incentives for farmers to increase their herds in 2025,” according to the Outlook, “However, the tight supply of heifers will moderate growth in the first half of the year.”

“The forecast for the 2025 dairy herd was unchanged at 9.360 million head. With lower 2024 forecasts for milk per cow and expected steady increases in milk solids components, the 2025 forecast for yield per cow was lowered 30 pounds to 24,345 pounds. U.S. milk output is projected at 227.9 billion pounds, 300 million pounds lower than last month’s forecast,” according to the Outlook.

The weighted average in Tuesday’s Global Dairy Trade was up 0.8%, following its 0.4% slip Sept. 3. Volume climbed to 85.6 million pounds, up from 84.5 million, and the average metric ton price inched up to $3,883 U.S., from $3,833.

The rise was led by Mozzarella cheese, up 4.5%, following a 7% rise last time. Cheddar was up 2.9%, after a 0.9% advance. Lactose was up 3.5% after dropping 8.9%. Skim milk powder was up 2.2%, following a 4.5% rise, and whole milk powder was up 1.5%, after dropping 2.5%. Butter was down 1.7%, after slipping 0.9%, and anhydrous milkfat was down 1.2%, following a 0.7% rise last time.

StoneX says the GDT 80% butterfat butter price equates to $2.8969 per pound U.S., down 5.7 cents from Sept. 3, and compares to CME butter which closed Friday at $2.9725. GDT Cheddar, at $2.0145, was up 5.3 cents, and compares to Friday’s CME block Cheddar at $2.2375. GDT skim milk powder averaged $1.2740 per pound, up from $1.2486, and whole milk powder averaged $1.5640 per pound, up from $1.5404. CME Grade A nonfat dry milk closed Friday at $1.38 per pound.

Analyst Dustin Winston said, “North Asian purchases fell from last year’s levels but still made up more than half of the purchase volume in this GDT. Skim milk powder continues to be a large factor in their purchase volume. The Middle East and North America were the only regions to increase their purchase volume from both last year and last event,” Winston said.

The Federal Reserve lowered its interest rate by a half percent or 50 basis points, the first cut since Covid. “Recent indicators suggest that economic activity has continued to expand at a solid pace,” the Fed said. “Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the committee’s 2% objective but remains somewhat elevated.” “The economic outlook is uncertain, and the committee is attentive to the risks to both sides of its dual mandate.”