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Milk, Dairy and Grain Market Commentary

By Sarina Sharp, Daily Dairy Report

Milk, Dairy & Grain Markets

The commodity boom continues to thunder through the feed and dairy markets. Once again, the storm roared loudest in the wheat pits. On Tuesday, the most actively traded May winter wheat contract climbed to an all-time high at $13.635 per bushel and then plunged as low as $11.64. The trading range was a fraction of a cent away from $2, wider than the annual trading ranges from 2015 through 2020. Despite ongoing concerns about Black Sea production and exports, May wheat finished far from the highs, at $11.07 per bushel, down $1.02 from last Friday.

Corn futures swung wildly back and forth but ultimately finished higher. May corn settled today at $7.625, up 8.25ȼ for the week. New crop corn futures climbed as well. The December contract closed at $6.5525, up 25.75ȼ over the past five sessions. Lower grain output in Ukraine will necessitate a massive U.S. corn crop in order to feed a hungry world. On Wednesday, USDA raised its estimate of U.S. corn exports by 75 million bushels but also noted that this represents “an initial assessment of the short-term impacts” of the war in Ukraine. Further increases in U.S. exports – and even lower end-of-season corn supplies – are likely. This year’s corn seed and the extremely pricey inputs needed to grow a big crop are still lying dormant in shops and barns and tanks all across the nation. There is a lot of weather and uncertainty to price in between now and harvest.

USDA slashed its estimate of soybean production in Brazil, Argentina, and Paraguay by a combined 9.5 million metric tons, a 5% decline from last month’s assessment. Together, South America’s three largest producers are expected to grow 10% fewer soybeans than last year. Meanwhile, soybean meal prices and crushing margins in China are sky-high, so importers are looking abroad. U.S. soybean exports are big and getting bigger by the day. May soybean meal futures closed today at $477.10 per ton, up $16.70 from last Friday.

Dairy producers cannot afford to pay this much for feed unless milk prices remain high. The market is well aware that global dairy stocks are relatively low, and that output is shrinking. So, for now, milk prices are climbing nearly step for step with the feed market to deter further declines in milk production. From April onward, Class III contracts scored life-of-contract highs this week. Most contracts finished 50ȼ to 60ȼ higher than last Friday with the largest gains weighted to the back of the board. May and June futures topped $24 per cwt.

April and May Class IV finished slightly lower than last Friday, but the other contracts continued to rise. April through June futures held above $25, and most other Class IV contracts traded well north of $24.

The cheese markets were particularly strong this week. Both blocks and barrels forged new 2022 highs and added 4ȼ from Friday to Friday. Blocks closed at $2.19, while barrels finished at $2.01. USDA’s Dairy Market News captures the market’s confusion around potential demand at these high prices. Some cheesemakers believe that buyers will eventually balk at the cost, “while others say buyers are actively trying to stay ahead of further price increases.” Meanwhile, U.S. cheese is priced to move abroad. U.S. cheese exports topped 65 million pounds in January, up 16.5% from a year ago thanks to strong sales to Mexico.

Exports make up a relatively small piece of the butter equation. Nonetheless, strong sales in January made the U.S. a net butterfat exporter and contributed to concerns that low supplies in January will translate to a shortage later this year. CME spot butter rallied 2.5ȼ to $2.71. The futures swung wildly but ultimately closed higher than last Friday.

The powders were the laggards this week. CME spot dry whey held steady at 75.75ȼ. Domestic buyers who backed away when whey topped 80ȼ may have to step back in soon to replenish supplies. But competition for whey is notably less fierce than it was much of last year thanks to a slowdown in exports. The United States sent 26.7 million pounds of dry whey abroad in January, the lowest monthly volume since October 2019 and 34% less than in January 2021. Whey exports were already soft in December. The back-to-back disappointment suggests that Chinese buyers have become more sensitive to price as pork profit margins erode.

CME spot nonfat dry milk (NDM) fell 3.25ȼ this week to $1.84. High freight costs and port backlogs are making it more expensive to move milk powder from the warehouse to consumers in other countries, and that is starting to weigh on export demand. The United States exported just shy of 131 million pounds of NDM in January, down 6% year over year. U.S. milk powder is among the least-expensive in the world, and slower milk output in other nations is likely to result in milk powder production deficits. So export volumes are likely to be healthy in the coming months, and U.S. NDM prices are not likely to fall much further.

Australian milk collections plummeted to 714 million liters in January, down 6.3% from the prior year. Dairy Australia blamed the smaller dairy herd and hot, humid weather for the shortfall. Combined milk production among the world’s major exporters has fallen short of year-ago levels since September, and there is no sign that that will change anytime soon. Until it does, dairy product prices are likely to be lofty.


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