Butter Climbs to a Record High, Possibly Due to an Overcorrection

The following is from Lee Mielke, author of a dairy market column known as “Mielke Market Weekly.”

Butter set a new record high to start October and cheese was mixed. The CME Cheddar blocks fell to $1.68 per pound last Wednesday, lowest since July 19, but closed last Friday at $1.7025, 1.75 cents lower on the week, fifth week of loss, and 32 cents below a year ago. The barrels finished at $1.5775, up 9.75 cents on the week, 64.75 cents below a year ago, and 12.50 cents below the blocks. There were 24 sales of block and 20 of barrel.

Midwestern cheesemakers continue to report limited milk offers, according to Dairy Market News. Loads did change hands at lower prices than in previous weeks but at mid-week were at least slightly higher than Class III.

Retail and food service cheese demand in the West is steady. However, sources indicate September was lighter for restaurant traffic compared to prior months, making that destination for cheese lighter. Export demand is moderate to light. Cheese production is steady and Class III milk demand is strong, says DMN.

CME butter set new records daily, mainly on unfilled bids, peaking at the all-time high of $3.5025 per pound, up 20.25 cents on the week, up 84.25 cents in the last five weeks, and 28.50 cents above a year ago, with only one sale all week.

Speaking in the Oct. 9 “Dairy Radio Now” broadcast, HighGround Dairy economist Betty Berning cited data from the Dairy Products report and Cold Storage report to justify what has happened to the butter price and blamed a slippage in cheese demand for the fall in cheese prices, adding that they “may have overcorrected.” She also pointed to the comparison between Class III and Class IV prices, noting that last week saw the butter price at twice the price of cheese, “something we may not have ever seen before.”

Butter makers told DMN that demand remained intact despite the prices and churning rates were not moving higher. “Bulls are clearly overwhelming any bears,” said DMN, but contacts expect downward correction near-term, though “markets have yet to get that memo.”

Spot cream was slightly more available last week in northern parts of the West but overall, is tight. Most of it is committed to contract obligations. Retail and food service demand is strong to steady. Exports are moderate to light, according to DMN, but then, it is the most expensive butter in the world.

Grade A nonfat dry milk saw its Friday finish at $1.18 per pound, down a half-cent on the week and 36 cents below a year ago, with 10 loads trading hands.

Dry whey oscillated some but closed the week .75 cents higher, at 29.75 cents per pound, 12.50 cents below a year ago, on 55 CME sales for the week.

Speaking of the powder, StoneX reports that the U.S.-Mexican border headed into week 3 of “more stringent efforts by the Texas governor to slow down immigration, which has slowed down inspections of trucks, causing congestion of trade flow at El Paso. This is starting to affect Mexican nonfat buyers who are beginning to get more concerned above the availability of product.”

We see how big an issue this is in August data. Milk powder exports totaled 150.6 million pounds, up 4.2% from August 2022 and topped a year ago for the third consecutive month, mainly due to Mexico, which set an August record, according to HighGround Dairy. Year-to-date, Mexico holds slightly more than a 50% market share, against weaker demand from Southeast Asia and China.

Cheese exports unfortunately totaled only 82.1 million pounds, down 2.9% and the fifth consecutive month to be below a year ago. Shipments to South Korea were down 50%, according to HGD, with notable losses to Saudi Arabia, Indonesia and Chile. Gains into other regions helped offset some of that, with sales to Mexico up 14%, Japan, up 37%, and Australia, up 86%.

Butter exports were down 62.7% and have been down every month of 2023, except January, says HGD, who blamed high prices, which will price the U.S. out of the export market for the foreseeable future. Shipments to Canada, the U.S.’ No. 1 export market for butter, up 32.7%.

Dry whey exports were down 38.3%, down for the fifth month in a row. HGD says volumes to China improved slightly, to five-month highs, but remain well below last year, down 45%.

The bulls got a little more fodder in last Tuesday’s Global Dairy Trade auction where the weighted average headed higher for the third session in a row, up 4.4%, following the 4.6% rise on Sept. 19, and 2.7% on Sept. 5. Traders brought 84.5 million pounds of product to the market, up from 82.4 million on Sept. 19. The average metric ton price climbed to $3,104, up from $2,957 on Sept. 19, and highest since July 18.

Skim milk powder again led the gains, up 6.6%, following a 5.4% rise on Sept. 19. Whole milk powder was up 4.8%, following a 4.6% gain. Anhydrous milkfat was up 3.7% after gaining 5.3%. Butter was up 1.3%, which followed a 3.8% gain on Sept. 19. Buttermilk powder was up .6%. GDT Cheddar was down again, falling 4.8%, after slipping 1.7% on Sept. 19, and lactose was off 1.3%. It did not trade last time.

StoneX says the GDT 80% butterfat butter price equates to $2.1267 per pound, up 3.7 cents from the Sept. 19 event, and compares to CME butter which closed last Friday at a world high $3.5025. GDT Cheddar, at $1.7479, was down 8.6 cents, and compares to last Friday’s CME block Cheddar at $1.7025. GDT skim milk powder averaged $1.1604 per pound, up from $1.0887, and whole milk powder averaged $1.3296 per pound, up from $1.2694. CME Grade A nonfat dry milk closed last Friday at $1.18 per pound.

Volume purchased by North Asia, which includes China, fell from the previous event but was up from last year, according to analyst Dustin Winston. “The aggressive buyers at this event were Southeast Asia and the Middle East, who both bought significantly more than the previous event, although SEA purchases were down slightly from last year,” according to Winston.

Back on the farm, significant drops in feed, plus a hefty increase in the All-Milk Price, moved the milk feed ratio higher. The USDA’s Ag Prices report shows the August ratio at 1.67, up from 1.38 in July, and compares to 1.69 in August 2022.

The All-Milk Price average saw its first advance in 10 months, jumping to $19.70 per hundredweight, up $2.30 from July but $4.40 below August 2022.

The national corn price averaged $5.73 per bushel, down 49 cents from July, after falling 27 cents the previous month, and was $1.51 per below August 2022. Soybeans averaged $14.10 per bushel, down 60 cents, after rising 20 cents the previous month, and is $1.20 per bushel below a year ago. Alfalfa hay dropped to $230 per ton, down $14 per ton from July and $46 per ton below a year ago.

The August cull price for beef and dairy combined climbed to an average $115 per hundredweight, up $4 from July, $24.90 above August 2022, and $43.40 above the 2011 base average.

Income-over-feed costs in August were below the $8 per hundredweight level needed for steady to higher milk production for the seventh month in a row, according to dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Mo. Input prices were lower, he said, but all three commodities were in the top five for August all time. Feed costs were the fifth highest ever for the month and the 37th highest of all time. The ratio was below the five-year average for the 15th month running, as the average ratio for August is 2.00, says Brooks.

“For 2023, milk income over feed costs (using Sept. 29 CME settling futures prices for Class III milk, corn and soybeans plus the Stoneheart forecast for alfalfa hay) are expected to be $7.86 per hundredweight, a loss of 40 cents per hundredweight versus last month’s estimate. 2023 income-over-feed would be below the level needed to maintain or grow milk production, and down $4.05 from 2022’s level.”

Meanwhile, dairy margins continued to decline the second half of September despite lower projected feed costs, although price movement between Class III and Class IV milk has deviated drastically, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.

Source : The Farmer’s exchange Oct 13th 2023 by Lee mielke