Historic Day for CME Spot Markets Send Dairy Complex to Fresh Lows

COVID-19 has upended markets, routines, prices, and just about every aspect of life for billions of people around the globe. Luckily, the food supply chain is strong and there remains no shortage of food in the US. It was a historically bearish day for CME spot dairy markets to close out last week with block and barrel cheddar dropping near one-year lows, butter falling to levels not observed since October 2013 and nonfat dry milk settling at December 2018 lows. The $0.1025 per pound move lower on butter last Friday was the largest one-day drop since June 2017 while block cheddar’s one-day move was the steepest since November 2014. All these statistics highlight the bearish atmosphere spreading through markets as cities around the world practice social distancing and people are unable to go to work, out to eat, shop, travel, or attend concerts and sporting events, negatively impacting the economy.

The drop in cheese was inevitable once the retail surge was over as the panic buying was not sustainable enough to offset the loss in foodservice demand. Earlier this month, the Washington, D.C.-based National Restaurant Association said large-scale closures and restrictions on gatherings across the US will hit the industry with at least a $225 billion loss. Between five million to seven million of the US’s 15.6 million workers at the nation’s one million restaurants will become jobless over the next three months, according to the association, with the White House and others projecting a potentially longer period for reduced operations (source).

Concerns Over Trade With Mexico Deepen

In just over a week, Mexico has gone from seeing its president kissing and hugging his supporters on tours to hearing the government’s strict call for people to stay home. Speaking from a hotel in Tijuana, Baja California, on Friday night, President López Obrador explained that government workers who are not directly engaged in providing essential services have already been given permission to stay at home. He called on businesses in the private sector to allow their employees to work from home if possible, which includes administrative roles that would typically be processing import permits. The Mexican economy last year registered its first contraction in a decade and the prospects for 2020 have turned even more negative due to the anticipated impacts of COVID-19.
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