Monday Morning Huddle
16 November 2020

Highlights From Last Week

Cheese Decline Continues on Bearish Fundamentals

Cheese prices continued their freefall last week as reality arrives to bring values into alignment with the rest of the dairy complex. The CME spot block Cheddar price dropped below $2.0000 per pound for the first time since September 2 and settled down 42.5 cents versus the prior Friday. Blocks have lost 86.5 cents per pound versus the recent price peak on October 30. It was the third largest weekly average block price decline on record. The barrel price saw even great price erosion and sank to the lowest settlement since September 16; Friday’s price was down 70.75 cents versus the prior week and down 92 cents versus the recent high on November 2. The value fell 29 cents on Friday, the steepest single-day barrel decline on record. Last week marked the second largest weekly average barrel decline in history. The spread widened to 30.75 cents, wider versus average but well below record levels seen in recent weeks.

Bearish fundamentals have been at play for weeks with cheese prices poised for a steep decline. USDA-induced purchasing for the Farmers to Families Food Box program has slowed significantly as round four spending is the smallest of any round in the program to date. Foodservice demand is weak with a negative outlook as colder weather arrives in the northern part of the country, limiting outdoor dining options. Furthermore, as virus cases surge across the country, some cities and states are enacting lockdowns similar to those seen at the beginning of the pandemic. Holiday purchasing, usually a key time of year for dairy demand, is questionable as some families cancel celebrations. From the supply side, milk and cheese production is increasing quickly and will climb seasonally through the spring. Milk supplies are expected to be burdensome as farmers maximize output; cheese production will climb and keep prices pressured throughout the first half of 2021.

China Finds Coronavirus on Packaging from LatAm, New Zealand

Over the weekend, Reuters reported that coronavirus had been found in China on packaging from Brazil (beef in Wuhan), Argentina (beef in Shandong and Jiangsu), Bolivia and New Zealand as they ramp up testing on frozen foods. However, New Zealand Prime Minister Jacinda Ardern said on Monday she was confident no meat products were exported from the country with COVID-19. Ardern said at a news conference that New Zealand was told there had been positive tests on packaging of beef products from Argentina, and some New Zealand products were in the same cold store where the positive tests had been returned.

World’s Largest Trade Deal: Regional Comprehensive Economic Partnership

China and 14 other Asia-Pacific countries signed the world’s largest trade agreement on Sunday. The Regional Comprehensive Economic Partnership spans 15 countries and 2.2 billion people, or nearly 30% of the world’s population, according to a joint statement released by the nations on Sunday, when the deal was signed. Their combined GDP totals roughly $26 trillion and they account for nearly 28% of global trade based on 2019 data. The deal includes several of the region’s heaviest economic hitters aside from China, including Japan and South Korea. New Zealand and Australia are also partners, as are Indonesia, Thailand and Vietnam in Southeast Asia. Analysts believe that this highlights China’s Dual Circulation Strategy, which is focused on domestic market support, but also relies heavily on imports.

Last Week’s Reports & Analysis

US Dairy Commodity Price Forecast
Following the highest monthly block average on record, CME block and barrel cheddar cheese values have lost more than 80 and 90 cents per pound, respectively, over the past two weeks as… Full Report

Pre-GDT Forecast Volume Analysis
Very small changes were made to Fonterra’s offer volumes that were primarily unchanged. Instead, the cooperative simply moved more whole milk powder (WMP) forward to meet market demand; the contract offer quantities… Full Report

Reports This Week

USDA Crop Progress – Monday, November 16
GDT Auction – Tuesday, November 17
Weekly EU Dairy Commodity Prices – Wednesday, November 18
Milk Production (Oct ’20) – Wednesday, November 18
National Dairy Products Sales Report (NDPSR) – Wednesday, November 18
Advanced Prices and Pricing Factors – Wednesday, November 18
USDA Weekly Dairy Cow Slaughter – Thursday, November 19
USDA Dairy Market News Midpoint Prices – Thursday, November 19
USDA Biweekly International Prices – Thursday, November 19
Livestock Slaughter – Thursday, November 19
Cattle on Feed – Friday, November 20

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