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October 08, 2021 MPC Friday Report Highlights

Updated: Jan 17, 2022


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

he milk powder markets just keep getting stronger. CME spot nonfat dry milk (NDM) leapt 6.25ȼ this week to $1.46 per pound, a seven-year high. Skim milk powder (SMP) prices continued to climb at the Global Dairy Trade (GDT) auction as well. The average auction price for SMP was 0.5% higher than the previous event.

Hot weather weighed on U.S. milk yields and slowed milk powder output in August. Combined production of NDM and SMP slumped to less than 183 million pounds in August, the lowest volume in nearly two years and 15.6% less than in August 2020. As the impacts of the summer heat wave fade and bottlers settle into the school milk routine, there is more milk available for processing. But, like many industries, milk driers have been hampered by staffing shortages.

Despite historically high prices, demand remains strong. USDA’s Dairy Market News reports that “the overall NDM market tone is resoundingly bullish.” In Europe, SMP output has fallen well behind year-ago levels, and manufacturers are selling more product in the domestic market. That has left room for U.S. exports, which jumped to 174 million pounds in August, accounting for nearly the entire month’s output. U.S. NDM exports were record-high in 2020, and 2021 exports are running an impressive 12.4% ahead of that pace. Still, U.S. warehouses are well stocked.

Whey prices are also high and rising. CME spot whey added another 1.5ȼ this week and reached 59.5ȼ, its highest value in almost four months. Manufacturers continue to direct much of the whey stream into high-protein products, leaving less for the drier. Dry whey output in August slipped to 74.9 million pounds, down 2.6% from a year ago. Exports dropped below year-ago levels in August, but year-to-date exports are 13.5% ahead of 2020, thanks to a 59% increase in shipments to China.

Like the aforementioned crossfitter, whey is doing a lot of heavy lifting to boost the Class III price. So far this year, spot whey has averaged 57ȼ, compared to 37ȼ in 2020 and 35ȼ in 2019. If whey values were at 2020 levels, the Class III price would be roughly $1.23 lower than it has been this year.

U.S. cheese output jumped 4.4% year over year in August and reached 1.14 billion pounds. Surprisingly, Cheddar production fell 1.5% year over year, which limited the impact of formidable cheese output on prices in Chicago. Cheesemakers made 6.7% more Mozzarella than in August 2020, a sign that consumers were hungry for pizza as they watched football or scrambled to keep up with new school schedules. Cheese exports remain strong. They were 18% greater than the prior year in August. For the year to date, they’re up 7.2% from the record-breaking volumes of 2020.

The Cheddar markets diverged this week. CME spot Cheddar blocks fell 4ȼ to $1.81. Barrels added 4.5ȼ, climbing to $1.79. Class III futures moved higher again. The November contract advanced 57ȼ to $18.77 per cwt. After big gains this week, 2022 contracts now average $18.04.

Spot butter took a small step back, retreating 2.75ȼ to $1.72. Butter demand is climbing seasonally, while output remains below prioryear levels. U.S. butter production dropped to just 148.4 million pounds in August, down 1.7% year over year and the lowest daily average production since September 2019. Butter makers are on edge as they work to keep their plants staffed and acquire packaging materials on time for holiday orders.

Despite the setback in butter, Class IV futures moved convincingly higher. Most contracts finished 20ȼ to 30ȼ above last Friday’s settlements. Class IV futures average $17.45 in the fourth quarter and $17.75 next year. That’s not enough to cover the rising cost of milk production for many producers, but it’s the best Class IV price we’ve seen in seven years.

2021-10-08 MPC Newsletter
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