02/15/2019
Futures Recap
| Futures Month | Class III 02/08 | Class III 02/15 | Change | Cheese 02/08 | Cheese 02/15 | Change | Dry Whey 02/08 | Dry Whey 02/15 | Change |
| Feb-19 | $13.98 | $13.97 | ($0.01) | $1.400 | $1.400 | $0.000 | 45.875¢ | 46.000¢ | 0.13¢ |
| Mar-19 | $14.59 | $14.53 | ($0.06) | $1.480 | $1.484 | $0.004 | 43.350¢ | 41.375¢ | (1.98¢) |
| Apr-19 | $14.80 | $14.43 | ($0.37) | $1.514 | $1.485 | ($0.029) | 41.000¢ | 38.825¢ | (2.18¢) |
| May-19 | $15.22 | $14.80 | ($0.42) | $1.562 | $1.528 | ($0.034) | 40.000¢ | 38.375¢ | (1.63¢) |
| Jun-19 | $15.56 | $15.30 | ($0.26) | $1.603 | $1.582 | ($0.021) | 39.350¢ | 37.775¢ | (1.58¢) |
| Jul-19 | $15.92 | $15.78 | ($0.14) | $1.645 | $1.628 | ($0.017) | 39.000¢ | 38.000¢ | (1.00¢) |
| Aug-19 | $16.25 | $16.05 | ($0.20) | $1.679 | $1.660 | ($0.019) | 39.025¢ | 38.400¢ | (0.63¢) |
| Sep-19 | $16.41 | $16.32 | ($0.09) | $1.693 | $1.682 | ($0.011) | 38.750¢ | 38.750¢ | 0.00¢ |
| Oct-19 | $16.39 | $16.26 | ($0.13) | $1.697 | $1.683 | ($0.014) | 38.025¢ | 38.400¢ | 0.38¢ |
| Nov-19 | $16.34 | $16.23 | ($0.11) | $1.692 | $1.683 | ($0.009) | 38.025¢ | 38.000¢ | (0.02¢) |
| Dec-19 | $16.23 | $16.06 | ($0.17) | $1.683 | $1.672 | ($0.011) | 38.300¢ | 38.000¢ | (0.30¢) |
| Jan-20 | $15.89 | $15.81 | ($0.08) | $1.664 | $1.655 | ($0.009) | 39.325¢ | 37.000¢ | (2.33¢) |
| 12 Mo Avg | $15.63 | $15.46 | ($0.17) | $1.609 | $1.595 | ($0.014) | 40.002¢ | 39.075¢ | (0.93¢) |
| Futures Month | Butter 02/08 | Butter 02/15 | Change | Class IV 02/08 | Class IV 02/15 | Change | NDM 02/08 | NDM 02/15 | Change |
| Feb-19 | 226.25¢ | 226.00¢ | (0.25¢) | $15.93 | $15.85 | (0.08¢) | 98.900¢ | 98.250¢ | (0.65¢) |
| Mar-19 | 227.50¢ | 225.98¢ | (1.53¢) | $16.00 | $15.80 | (0.20¢) | 99.300¢ | 98.225¢ | (1.08¢) |
| Apr-19 | 228.30¢ | 227.50¢ | (0.80¢) | $16.10 | $15.99 | (0.11¢) | 100.175¢ | 99.025¢ | (1.15¢) |
| May-19 | 229.00¢ | 227.50¢ | (1.50¢) | $16.25 | $16.13 | (0.12¢) | 101.300¢ | 101.050¢ | (0.25¢) |
| Jun-19 | 229.08¢ | 229.68¢ | 0.60¢ | $16.41 | $16.43 | 0.02¢ | 103.525¢ | 102.525¢ | (1.00¢) |
| Jul-19 | 230.75¢ | 230.45¢ | (0.30¢) | $16.55 | $16.62 | 0.07¢ | 105.300¢ | 104.000¢ | (1.30¢) |
| Aug-19 | 232.00¢ | 231.53¢ | (0.47¢) | $16.77 | $16.83 | 0.06¢ | 105.825¢ | 105.800¢ | (0.03¢) |
| Sep-19 | 232.48¢ | 232.55¢ | 0.08¢ | $16.80 | $16.90 | 0.10¢ | 106.475¢ | 106.525¢ | 0.05¢ |
| Oct-19 | 231.50¢ | 232.03¢ | 0.53¢ | $16.94 | $16.90 | (0.04¢) | 107.250¢ | 107.900¢ | 0.65¢ |
| Nov-19 | 230.70¢ | 231.40¢ | 0.70¢ | $16.94 | $16.90 | (0.04¢) | 108.000¢ | 108.125¢ | 0.13¢ |
| Dec-19 | 228.50¢ | 229.75¢ | 1.25¢ | $16.79 | $16.78 | (0.01¢) | 109.000¢ | 108.475¢ | (0.53¢) |
| Jan-20 | 220.75¢ | 222.00¢ | 1.25¢ | $16.45 | $16.50 | 0.05¢ | 109.275¢ | 108.950¢ | (0.33¢) |
| 12 Mo Avg | 228.90¢ | 228.86¢ | (0.04¢) | $16.49 | $16.47 | (0.02¢) | 104.527¢ | 104.071¢ | (0.46¢) |
Spot Market Recap
| Spot Product | 2/8 | 2/15 | Change |
| Cheddar Blocks | $1.5275 | $1.5800 | $0.0525 |
| Cheddar Barrels | $1.3725 | $1.4350 | $0.0625 |
| Butter | $2.2950 | $2.2500 | ($0.0450) |
| Grade A NDM | $0.9950 | $0.9875 | ($0.0075) |
| Dry Whey | $0.3650 | $0.3525 | ($0.0125) |
Spot Market Trade Volume
Fluid Milk Output
Northeast milk production is level to growing slightly. Frigid weather is still affecting the area, but milk is readily available for manufacturers to run full production schedules. Milk output in the Mid-Atlantic is trending higher this week, but balancing plants are not at capacity. In the Southeast, milk production is on the rise and Class I sales are a bit lower. That is allowing for more milk to move into cheese manufacturing. In Florida, milk output is beginning to level off. Eastern cream supplies are readily available and are higher than current demand.
Fluid milk and cream remain in abundance in the Central region. Bottling demand is slow, allowing more milk to move into cheese and drying channels. Cheesemakers are hesitant to take on any extra milk which is weighing on spot load prices. They ranged from $1-2 under Class III this week.
In California, milk production is robust, keeping processors running on 7-day schedules to handle all the loads. In contrast, milk output in Arizona is trailing year-ago levels, despite a strong yield. The flush has started in the state, but so far the milk market tone is stable, with very limited volumes moving out-of-state. New Mexico milk production is nudging higher, with a few new farms helping push output higher. Balancing plants are running on busy schedules.
Finally, in the Pacific Northwest, milk production declined from last week as a strong winter storm brought blizzard conditions to parts of the region. Some milk had to be discarded, while nearly 1,600 cows perished in the Yakima Valley. Fluid milk demand spiked just prior to the storm, clearing grocery shelves, and it make take some time to refill the bottling pipeline. The mountain states of Idaho, Utah and Colorado were spared the poor weather, and milk production in these states remains strong. Most manufacturers are running on 7-day schedules.
Butter
Cream is easily accessible on the Northeast and demand is steady to soft. Butter output is strong as manufacturers work to clear available cream supplies. Inventories are balanced to growing. Central region manufacturers report generally slower butter sales, while cream is readily available. These is some concern that butter may move into an over-supply situation in the mid-term, and prices have started to push towards the lower end of the range. Western butter processors are running churns hard to clear the ample supplies of cream. Some distressed loads are being discounted to move them out of the region. Retail sales are generally good, while inventories are in balance with demand.
Dry Whey
Eastern dry whey prices continued to decline this week. Both domestic sales and exports are lower at this time, so even though supplies are somewhat tight, market conditions remain soft. Trading has picked up in the Central region, but pries continue to grind lower. Some buyers are fully stocked, so are remaining on the sideline, while Chinese buyers have pulled away, just as output has started to increase. The market tone for Western dry whey is weak, with lackluster demand from both domestic and international accounts. Sales have been challenging, with buyers asking for prices below published prices.
Nonfat Dry Milk
NDM production is active in the East due to the high milk supply. Sales have slowed some, due to buyers having enough NDM on hand. Inventories are balanced to growing. Central region contacts report continued interest and shipments of Midwest NDM to Mexico. Production is on the rise as more milk is finding its way into drying, but most inventories are generally contractually obligated. Western NDM prices declined this week, with active production and increasing stocks. Some contacts are worried the market will become oversupplied during the spring flush. Both domestic and international sales are stable, but there is a pessimistic view that any additional supply can be absorbed.
Cheese
An increasing milk supply in the Northeast is resulting in cheese makers running full production schedules. Inventories are stable to growing. Harsh winter weather has caused some stoppages at Midwest cheese plants, but the market continues to slump. Some plants are trying to slow production in an effort to better manage inventories. Western cheese makers report having trouble making new business deals. Demand is slow and buyer interest isn’t steady. Contracted cheese is still moving, but there doesn’t seem to be anything that will boost sales. Inventories remain long.
International
Cheese demand in Western Europe is strong and supplies are tight. Many potential buyers, both domestic and export, are being turned away. Almost all cheese production is committed and sold in advance. Aging stocks have been drawn down to help meet demand. After wrapping up a free trade agreement with Japan, the EU-Singapore free trade agreement was ratified this week. Vietnam is next on the EU agenda.
Some parts of Australia are still experiencing temperatures north of 100 degrees F, but they are not as extreme as a couple weeks ago. Hay is in short supply in some parts of the country, and is eagerly sought. December milk production in Australia was down 6.9% vs. the prior year, while the current milking season (July-Dec) was down 5.1%.
New Zealand continues to enjoy mild weather conducive to milk output. Some concern is noted over the new Zero Carbon Act legislation, set to be introduced and debated early this year, which could then eventually become law. SMP prices are higher this week, with most current production committed. Butter prices were higher this week as well, with most observers expecting further increases in the coming months. Cheddar prices increased slightly, with buyers becoming more aggressive in securing contracts for the coming months.
Commentary
Class III futures began the week with a lot of optimism as bidders returned to the spot market for cheese. Indeed, spot cheese prices finished solidly higher compared to a week ago, while spot NDM, butter and dry whey lost ground. The block/barrel average settled at $1.51/lb, a price not seen since last October (see graph).
With spot cheese trading at an equivalent of over $15.00 Class III, one would normally have seen a significant rally. But each move higher in spot was met with futures coming off their highs and in come cases going negative by the end of the day. As each day passed, the sentiment grew that the spot cheese rally was not sustainable, which is exactly what happened. After reaching a high of $1.5925 on Wed, blocks finished the week at $1.58. Barrels managed to settle at its weekly high, but not without buyers taking on 20 loads. March Class III began its calculation period this week and at $14.53 settlement today, continues to be at a steep discount to spot, which works out to about $14.90 before any NDPSR basis, which would put it closer to $15.30. Clearly Class III futures are expecting further declines in spot cheese prices. After our recommendation last week to sell Q2 on a continued rally, it was hammered into new lows, losing an average 35 cents/cwt. It never even reached our first sell target of $15.37, but peaked intra-day on Wednesday at about $15.28.
So where do we go from here? In the near term, it looks ugly. As we head in to peak production season, there continues to be plenty of milk moving into manufacturing from coast to coast, despite financial hardship and aggressive culling (this week’s dairy cow slaughter was up 4% YoY, and the total of 70,800 head was the highest since the third week of 2013). At the same time, domestic sales seem to be sluggish and inventories are growing. The EU is aggressively going after dairy free-trade agreements while the U.S. continues to be stuck in the negotiation phase. Global milk growth should be fairly flat this year, which may help if demand can pick up, and weather is always a wildcard. We would look to continue to hedge Q2 milk on a secondary bounce. If spot cheese can put in a higher low, we may see the March Class III contract spring to life due to it trading at a significant discount. This could help the Apr-Jun contracts higher as well. Plan for it. Execute the plan.
Have a great weekend!
