08/23/2019
Block cheese set a new multi-year high of $1.91/lb on Tuesday, before backing off and finishing the week unchanged. Barrel cheese and butter went into free-fall, however, giving up a dime and 11¼¢ respectively.
Spot Market Recap
Futures Recap
With the weakness in spot cheese and butter, Class III and cheese futures took quite a hit. But more was in store. This week’s Cold Storage Report put butter stocks at the end of July up 4% vs. last year, which was higher than expectations.
Butter futures traded limit down following the report, and also put a drag on the spot market. On the positive side, however, American cheese stocks at the end of July were down 6% vs. a year ago, which was well below most expectations.
Weekly updates from Dairy Market News also contacts reporting solid domestic cheese demand, to the extent that some Midwest manufacturers are at the point of falling behind current orders. Spot loads of milk are trading mainly a premium to class. With many schools now open, very little manufacturing milk is available in the East.
This week’s Milk Production Report had July milk production in the U.S. unchanged from a year ago, with declines registered in the heavy cheese-making region of the Midwest. In addition, cow numbers declined 9,000 head from June, putting the milking herd 82,000 head below July 2018 levels.
The smaller herd size may be due partly to strong culling numbers for July. 256,800 head were removed from the milking herd during the month, the highest total in over 14 years and up 7.1% (17000 head) vs. July 2018.
With all the positive news coming from this week’s USDA reports and weekly updates, we’re left scratching our heads a little after the heavy losses experienced this week. If anything, it’s an important reminder to be actively working on your hedge plan and to not get complacent, thinking prices will continue to rise. The market is always right. We’re honestly not sure where prices go from here. The uncertainty with heightening trade disputes had the stock market take a tumble on Friday, and we continue to read more about increasing demand for dairy alternatives. While we have very good information regarding dairy supply, less is known about changes in demand. The cause of this week’s decline could be the anticipation of less than stellar fall demand. That doesn’t reconcile with the strong demand we read about this week, but it’s hard to measure short-term vs. long-term impacts. We’d like to say we’re near the bottom up front. Certainly, on a technical basis, we’re very over-sold. But, we’ll just have to wait and see how the start of next week begins. Current spot prices work out to about $17.20 Class III. Including basis, September Class III futures are trading a 30-50 cent discount to spot. Should buyers return next week, Sep could see a bump. But all that goes away if the block/barrel spread is fixed by a substantial drop in the block price. Hang in there!
