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Milk, Dairy and Grain Market Commentary

By Sarina Sharp, Daily Dairy Report

Milk & Dairy Markets

The dairy markets soared to historic heights early in the week. Butter and Cheddar reached all-time highs at the Global Dairy Trade (GDT) auction on Tuesday, while both skim milk powder (SMP) and whole milk powder (WMP) prices climbed to fresh seven-year highs. The GDT Index advanced 4.2%, its third straight increase above 4%.

The milk powder markets got off to a strong start in Chicago as well. For the first time since 2014, CME spot nonfat dry milk (NDM) traded at $1.90 per pound. Traders exchanged three loads at that price on Monday and two more on Tuesday. Rising NDM values propelled March and April futures to the highest Class IV price ever, at $25 per cwt. But after a brief spell at those dizzying heights, the markets faltered. March and April Class IV settled at $24.40 and $24.32, respectively, not far below the peak set in 2014. Most Class IV contracts finished 40 to 65ȼ lower than the life-of-contract highs they scored a week ago. Spot NDM finished at $1.85, down 4.75ȼ from last Friday.

While U.S. milk powder prices edged carefully back from the peak, butter slipped and fell. Spot butter closed today at $2.69, down 6.5ȼ for the week. Although butter remains tight, high prices have shaken some loose. Butter makers brought 17 loads to Chicago last week and another 28 this week. Cream is reportedly a little more available as well, although multiples remain high. The Daily Dairy Report warns that butter could be harder to come by later this year. “Unseasonably high cream multiples, labor and trucking shortages, and an inverted futures market are all encouraging butter sales and discouraging output at a time when production is usually at its peak.”

The cheese markets bucked the trend and moved higher. Spot Cheddar blocks leapt 8ȼ to $1.9875. Barrels rallied 2.5ȼ to $1.935. Anecdotal reports suggest that exporters are fielding a few more calls. Some cheesemakers are switching their production lines to meet export orders and making less commodity Cheddar. U.S. cheese looks like a bargain compared to European or Oceanian product, so exports are likely to remain a vital outlet that will help to prevent formidable U.S. cheese output from becoming burdensome.

CME spot dry whey slipped 1.25ȼ to 81ȼ. Whey demand remains healthy, and supplies are not as scarce. Dairy Market News reports, “Producers are more actively offering edible dry whey loads.” Still, they aren’t feeling any pressure to discount whey to keep it moving. Regional prices inched upward.

Strong spot cheese prices boosted the February Class III contract. The other Class III futures tested life-of-contract highs last Friday or early this week, but then fell back. Most contracts settled 15 to 30ȼ lower than last week’s close. March through June Class III milk averaged $22.38 when the closing bell rang. Class IV averaged an astounding $24.10 for the spring flush months.

The best cure for high prices is high prices, and the dairy markets seem to be tasting this medicine for the first time in years. Buyers are a little less aggressive to purchase expensive products, and dairy merchants are pushing a little more product out the door. But as long as demand holds, prices will remain high.

Lofty milk prices will surely elicit a response from dairy producers, but for now, global milk production remains in decline. Assuming steady output in Spain, European milk collections were 1.6% lower than the prior year in December. Annual output in the Eurozone and the United Kingdom fell 0.7% short of the 2020 total. Aussie milk collections were also 0.7% lower in 2021 than in 2020, and December milk output fell 1.2% below that of December 2020. Smaller dairy herds and mounting environmental restrictions will likely keep growth in check in Europe and Oceania, leaving more room for U.S. dairy exports.

In the United States, higher milk prices are likely already prompting better output, but there are major barriers to rapid growth. Pricey feed, energy, freight, and labor have raised costs on the farm. After years of red ink, several large dairy operators in California and the Southwest are taking advantage of rising asset values and cashing out. Many of their peers are looking to add cows, but they may face several major hurdles, including tapped out processing capacity, construction delays, and scarce heifer supplies. USDA estimates there were 4.45 million dairy heifers when the year began, 3.4% fewer than the year before and the smallest total since 2009. The number of heifers expected to calve and enter the herd over the next 12 months is smaller than in any year since 2005. Dairy producers will still be able to add cows by lowering cull rates, and they are clearly trying to do so. Through early February, dairy slaughter is 6.4% behind the 2021 pace and 4% lower than the five-year average cull rate. U.S. milk output is starting to climb, but structural issues suggest growth will be modest.

Grain Markets

The feed markets were buffeted by global forces this week, as the world watched the buildup at the Ukrainian border. Both Russia and Ukraine are major wheat exporters, and Ukraine grows a lot of corn as well. The wheat markets, and to a lesser extent the corn markets, moved wildly back and forth as the headlines declared that an invasion was imminent, only to reverse course hours later and assert that it was all a Russian ruse. Meanwhile, dry weather in South America boosted soybean prices. The forecast calls for some showers next week, but it will take more than that to break the drought.

May corn futures settled today at $6.5275 per bushel, up almost 3ȼ from last Friday’s close. May soybeans climbed 17.25ȼ this week to $16.035. May soybean meal futures dropped almost $9 to $445.70 per ton.


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