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Milk, Dairy and Grain Market Commentary

By Sarina Sharp, Daily Dairy Report

Milk & Dairy Markets

The butter market has outdone itself once again. On Wednesday it climbed to $3.24 per pound, matching the all-time high set in September. Yesterday it leapt to $3.2675, a new peak. Today it closed at $3.2175, down a nickel from the day before but still among the loftiest butter prices ever recorded and up 7.25ȼ since last Friday. Traders exchanged 35 loads of butter in Chicago, evidence that high prices have not yet killed buyers’ appetite. Grocers are still worried about empty shelves and willing to pay whatever it takes to get their hands on more butter. But in just a few weeks they will be done stocking up for the holiday baking season, and prices are expected to plummet. October butter settled today at $3.19, while the December contract was $2.765. d

August production and trade data explain why butter stocks are so low. August butter output dropped to 144 million pounds, down 2% from a year ago and 4.5% lower than August 2020. Cream remained unusually pricey in September, suggesting that churns ran slow last month as well. Meanwhile, butter and milkfat exports climbed to an eight-year high, and imports shrank. August exports reflect deals that were negotiated months before, when U.S. butter was the cheapest in the world. In a month or two, the U.S. is likely to become a net butter importer, but that won’t help shore up stocks today.

Nearly everything about the cheese market – production, stocks, and, thankfully, trade – is at record highs. Exporters sent 84.6 million pounds of cheese and curd abroad in August. That’s the highest total ever for the month, and 4.9% more than the already hefty volumes from August 2021. U.S. cheese exports reached all-time highs in 2021, and we are currently 13% ahead of last year’s impressive pace.

August cheese output reached 1.15 billion pounds, up a curiously small 0.1% from the year before. Mozzarella production was robust, up 3.1% from August 2021. Americans are clearly hungry for pizza. Cheddar output was surprisingly low at less than 314 million pounds, down 2.1% from last year. And it’s likely that the majority of that Cheddar was pressed into blocks rather than barrels. There is no shortage of aged cheese, but fresh Cheddar barrels eligible for sale at the CME spot market are in short supply. Spot barrels climbed 2.5ȼ this week to $2.225. Blocks jumped 5.5ȼ to $2.0225. Those prices seem a bit rich for such a heavily-laden market. But as long as U.S. cheese prices remain competitive for exports, values can stay high.

The powders retreated this week. Spot whey fell 1.75ȼ to 42.25ȼ. Exports were strong and production faltered in August, but the price and anecdotal reports suggest that orders have slowed since then. According to USDA’s Dairy Market News, “Dry whey supplies are not overwhelming, but demand is subdued.”

CME spot nonfat dry milk (NDM) fell 3ȼ this week to $1.54. The powders came under pressure at the Global Dairy Trade (GDT) auction as well, with skim milk powder (SMP) down 1.6% and whole milk powder (WMP) off 4% from the previous event. Combined production of NDM and SMP totaled 190 million pounds in August, down 2.1% from the year before. Manufacturers’ stocks of NDM declined seasonally from July to August, but they were still up 9.5% from a year ago. Exports did not impress, and USDA’s Dairy Market News reports that Mexican buyers have gone quiet. U.S. milk powder is the cheapest in the world, and it’s especially affordable when priced in pesos. Nonetheless, with concerns about the global economy rising to the fore, buyers on both sides of the border are hoping for another setback in the milk powder market before they step back in.

USDA announced the September Class IV price at $24.63 per cwt., down 18ȼ from August and up an astounding $8.27 from a year ago. At $19.82, September Class III was 28ȼ lower than August but still up $3.31 from September 2021. That’s the first time Class III prices have dropped below $20 in 2022, and it’s likely to be a one-time event. Stubbornly high barrels helped to lift October Class III to $22.11 today, up 36ȼ to the highest weekly close since early July. November Class III futures jumped $1.22 this week and the December contract was nearly a dollar higher. Class IV futures gained around 35ȼ on average this week. The October contract finished at $24.85, a four-month high.

Grain Markets

Corn futures have settled into a well-trod range between $6.70 and $6.90 per bushel. The December contract closed today at $6.8325, up 5.5ȼ from last Friday. The trade is trying to fine-tune its estimate of the corn crop ahead of next week’s Crop Production update. Reports from farmers are mixed, with some surprisingly good yields in the eastern Corn Belt and lots of disappointing readings in the Northern Plains.

November soybeans finished at $13.67, up 2.25ȼ. December soybean meal fell another $2.30 to $400.70 per ton. The soy complex remains under pressure as harvest picks up speed. Low water levels on the Mississippi River have grounded the barges needed to move the crop from the Corn Belt to the Gulf, likely slowing soybean exports in the vital post-harvest window. The strong dollar and weak Argentine peso are also making U.S. soy product exports less competitive at a crucial juncture. The U.S. exports more than half of its soybeans between October and January. Exports typically drop hard in February when South American crops hit the market. If exports drag in the coming months, the U.S. could lose some sales to Argentina, Brazil, and Paraguay. However, it’s another La Niña year and weather will be the final arbiter. A poor crop in South America would result in more opportunities for U.S. exports and sharply higher prices.


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