Monday Morning Huddle
11 January 2021

Highlights From Last Week

CME Spot Cheese Races Higher After Food Box Announcement

CME spot block and barrel cheese prices increased last week following the Monday announcement that USDA would spend $1.5 billion on a fifth round of the Farmers to Families Food Box program. Spot settlements declined on Monday before the news, but block Cheddar gained 30 cents in the four days that followed while barrels gained 17 cents. Cheese prices on Friday were at levels not seen in nearly two months, since mid-November. 36 block loads changed hands to mark a multi-year high as the most in a single week since the week ending April 29, 2016. It was the most single-week barrel trades since May 2020. There is likely additional price strength to come this week as vendors procure product to meet anticipated food box demand.

Gains were not limited to cheese markets, with dry whey and nonfat dry milk spot values climbing last week as well even as butter met resistance. The dry whey price continues to be supported by strong Chinese demand coupled with weaker output as total cheese production gains were muted in Q4. Global price support is the key factor holding up nonfat dry milk prices in the US, with demand heavier abroad while availability is tight from New Zealand and the EU. A weaker US dollar will support nonfat dry milk exports and the US price in the coming months.

Fifth Round of Food Box Program Commences

In this fifth round of food box purchases, USDA will again purchase combination boxes that include produce, dairy, and meat. The solicitation will be issued to over 240 organizations that have previously received Basic Ordering Agreements (BOA). Solicitations to existing BOA holders likely began late last week, with contract awards expected to be made by January 19. Deliveries will begin shortly after awards are issued and continue through the end of April.

Based on the cost per box in the prior round, HighGround estimates USDA could fund as many as 40 million boxes in this round of the program. This would equate to 40 million gallons of milk, more than 50 million pounds of cheese, and tens of millions of pounds of butter, sour cream, cottage cheese, or other lower cost products. While bullish, the demand is balanced against rapidly expanding US milk production that will grow to burdensome levels in the coming months. Cheesemakers started to take on extra milk last week to meet food box demand, with spot milk ample and available for between $8.50 to $4.00 per hundredweight under Class, according to USDA

Last Week’s Reports & Analysis

November 2020 Dairy Products Report Analysis
Cheese production trends established in October persisted into November, with milk pushed into American-style cheese, including Cheddar, at the expense of Mozzarella. It was the… Full Report

November 2020 US Dairy Export & Import Volume Analysis
Beginning with nonfat dry milk, the weaker market share that the US experienced into Southeast Asia coincides with the strong September Global Dairy Trade events when China attempted to outbid its competition. While there had been impressive… Full Report

Reports This Week

World Agricultural Supply and Demand Estimates – Tuesday, January 12
Crop Production – Tuesday, January 12
Grain Stocks – Tuesday, January 12
Weekly EU Dairy Commodity Prices – Wednesday, January 13
National Dairy Products Sales Report (NDPSR) – Wednesday, January 13
Commercial Disappearance – Thursday, January 14
Fonterra Pre-GDT Offer Volume Analysis – Thursday, January 14
USDA Dairy Market News Midpoint Prices – Thursday, January 14
USDA Weekly Dairy Cow Slaughter – Thursday, January 14

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