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June 04, 2021 MPC Friday Report Highlights

Updated: Jan 17, 2022


Milk, Dairy and Grain Market Commentary By Sarina Sharp, Daily Dairy Report

The dairy markets dropped again this week. CME spot Cheddar blocks fell 3ȼ to $1.50 per pound, a one-year low. By any measure, blocks are a bargain, and they’re likely attracting some foreign buyers. Barrels are a bit pricier. They climbed 4.5ȼ this week to $1.615.

Exports will be an important outlet for a market that is heavy with product. There is plenty of milk, and cheese plants are running full throttle. USDA reported cheese production at nearly 1.14 billion pounds in April, up 8% from the somewhat depressed volumes of a year ago. This makes the month-to-month decline in cheese inventories all the more impressive, implying that manufacturers were able to keep product moving as restaurants reopened this spring. Steep discounts on spot milk and commentary from processors suggest that cheese output remains formidable, and that stocks are beginning to pile up.

Last April, butter churns ran at a frantic pace, to prevent the industry from dumping any more cream than was absolutely necessary. This year, operations returned to normal. April butter output totaled 185.2 million pounds, down a whopping 18.5% from a year ago. However, excluding last year’s massive output, this was the strongest April butter production on record. The fact that stocks did not balloon this spring implies healthy demand. More recently, butter makers tell USDA’s Dairy Market News that retail demand is fading a bit, while foodservice orders are climbing in fits and starts. CME spot butter slipped 3.5ȼ this week to $1.775. That’s about a dime lower than the recent highs but still on the upper end of the 2020 and 2021 trading range.

After sprinting straight upward all spring, the powder markets found themselves alone at the peak. Buyers who had climbed with them step-for-step much of the way showed no inclination to linger with nonfat dry milk (NDM) above $1.30 or dry whey in the mid-60s. So the powders have taken a few steps back to more accommodating elevations. CME spot whey retreated 2ȼ this week to 60.25ȼ. NDM fell 3.25ȼ to $1.26. At the Global Dairy Trade (GDT) auction on Tuesday, both skim milk powder (SMP) and whole milk powder lost 0.5%. Adjusted for protein, GDT SMP is roughly equivalent to NDM at $1.65. Demand for protein remains hearty. Despite a huge uptick in cheese production, dry whey output fell 1% from the prior year as manufacturers directed whey into higher protein concentrates and isolates. Whey stocks moved lower once again in April and now stand 21.5% below prior-year levels, thanks to strong demand from China.

Driers ran at a good clip in April, but, like butter churns, they fell short of the frenzied pace set last year at the height of the pandemic shutdowns. Combined production of NDM and SMP totaled 236 million pounds, down 7.1% year-over-year but still high by historic standards. Nonetheless, manufacturers’ stocks of NDM dropped in April, signaling strong demand. We likely have exports to thank for keeping milk powder stocks in check.

Low slaughter volumes, an immense milk cow herd, and formidable dairy product output all point to the possibility of lower prices in the months to come. Indeed, both Class III and Class IV futures took another step back this week. Compared to last Friday, most Class III contracts settled about a dime lower, while Class IV contracts dropped 30ȼ on average. Cheddar block values are starting to strain under the weight of unprecedented production. But the other dairy markets look relatively resilient. They climbed a bit too high and suffered a small setback, but they seem stable. Milk and dairy product output is strong, but, thankfully, so is demand.

USDA announced the May Class III price at $18.96 per cwt., up $6.82 from the unbearably low depths plumbed a year ago. At $16.16, May Class IV was $5.49 higher than that of May 2020 and the highest Class IV price since February 2020, just before the pandemic began to sicken the market. The futures promise continued improvement in Class IV values, a welcome relief to those dairy producers who suffered watered down milk checks and punishing producer price differentials for the past 14 months.


California Creamery Operators Association Virtual Meeting Will Cover a Plethora of Important Dairy Issues

By Geoff Vanden Heuvel, Director of Regulatory and Economic Affairs

The California Creamery Operators Association (CCOA) will host its 121st Annual Meeting as a virtual event on June 28-30. The three half-days are packed with informative and engaging keynotes and panel discussions. A line-up of more than 20 expert speakers will be sharing the latest insights on federal policies, consumer trends, dairy innovation, exports and international markets, water scarcity, and more. The event’s theme is Innovation in An Era of Challenges and Opportunities.

I’m excited to moderate a panel at the conference titled, “Surviving Increased Water Scarcity in California.” I look forward to engaging with this esteemed panel of Golden State water thought leaders

2021-06-04 MPC Newsletter
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