February has been a bearish month for US dairy prices as every commodity sold off last week to settle below the 200-day moving average, a technical signal that confirms the recent downtrend. Class IV milk has experienced an incredibly steep decline as butter deteriorates further and nonfat dry milk pushes to fresh five-month low as milk availability out west strengthens. CME spot butter prices settled Friday at $1.7550 per pound ($1.77 average for the week), lows not observed since April 2015.

Cheddar cheese block values at the CME fell for the fourth consecutive week to an average of $1.7969 per pound, the lowest since June 2019. Barrels continue to move the opposite direction as the spread attempts to normalize though as of Friday’s settlement, blocks are holding onto a $0.1775 per pound premium. While this is still historically high, it is the tightest the spread has been this calendar year. The calendar is approaching spring with expectations for strong milk collections throughout the Northern Hemisphere, which is being exasperated by the spread of coronavirus (COVID-19) to South Korea, Italy and Iran that has the ability to temper consumer spending on a global scale. While there was temporary support within the US, primarily in nonfat dry milk, from improved trade relations with China, the rising US dollar to three-year highs is offsetting export optimism. 

Before coronavirus headlines started to disrupt dairy, there was a strong level of support under the market as global milk production was muted in 2019, alongside impressive demand from Asia. Combined US, EU, Oceania and Argentina milk production was UP only 0.1% from prior year as losses were recorded from New Zealand, Australia and Argentina (Jan-Dec). Weather will remain a concern throughout Oceania in 2020 and the EU is expected to have to deal with stronger sustainability efforts and tighter budget expectations at the farm level following Brexit. Volatility will ensue for the foreseeable future but once COVID-19 fears have been overcome there will be a need to refill demand pipelines across Asia and the Middle East.

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Alyssa Badger

Director | Global Operations

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