Monday Morning Huddle
27 March 2023
CME Spot Cheese Rallies Further
CME blocks and barrels extended their upward swing last week. Cheddar blocks have increased 32 cents since settling at a six-month low on March 10th. Last Friday, blocks settled at $2.10/lb., the highest since January 11th. Volume traded was also notable with 14 loads exchanging hands, the most weekly trading since the week ending May 13th, 2022. HighGround has heard from industry contacts that cheese supplies are available, but not in the right size or age, with CME-eligible 4-30 day old blocks being in tight supply for near-term delivery and prompting the current short term rally. CME barrels continued rising on the weekly average, although just 19 car lots moved last week, the lowest volume since the holiday-shortened week of January 17-20, 2023. The market has jumped in March, with barrels touching a 2023 low of $1.53/lb. on March 2nd, and increasing ever since, gaining more than 28%. Last week, barrels only increased ¼ penny from Friday to Friday, a sign that the market may be finding a short-term top. The interest in the barrel market continues to be a large end-user accumulating inventory.
Other Dairy Commodities Move Lower at CME:
Butter, nonfat dry milk (NFDM), and whey prices fell against the prior week’s averages. NFDM made a two-year low of $1.15/lb. in four of five trading days last week. Butter’s weekly mean moved down a penny, and stocks built 12% YoY in USDA’s latest Cold Storage report, suggesting that demand for butter has slowed from last year’s voracious appetite.
Flooding Persists in California, with Cows Evacuated:
Tulare County’s sheriff ordered evacuation notices to dairies in Alpaugh, California, due to breaches in levees. Tens of thousands of acres in California’s Central Valley are underwater, and the flooding will remain a concern for some time as the snowpack from the Sierra Nevada’s melts.
International Prices Move Lower at GDT:
Global Dairy Trade (GDT) prices all moved lower at this past Tuesday’s event, as the overall index lost 2.6%. Cheddar dropped over 10% in price compared to the previous event, ending the auction with an average price of $1.84/lb, over $0.25/lb below Friday’s CME block close.
Current Fundamentals Point to Lower Prices Ahead:
USDA released its milk production report last week, and the US herd has increased in size by 21,000 head since December, despite historically high slaughter rates. Spot milk continues to be cheap in the Midwest, with Dairy Market News reporting loads going for $4-$11/cwt. under Class III pricing this past week. With spring flush beginning, more milk will be available in the Northern Hemisphere for processing, adding to the already copious amounts produced, potentially pushing prices down. Furthermore, some US dairy products are not competitive with international prices, indicating room for US prices to decline. California is a wild card, as farmers there deal with massive rainfall and snow melt, and infrastructure problems there could give markets a bit of a lift.
Last Week’s Reports & Analysis
February 2023 US Milk Production Report Analysis
The market anticipated an increase in February’s milk production report, with robust supplies in the Upper Midwest and steady production in other parts of the country reported…Full Report
February 2023 US Cold Storage Report Analysis
February butter stocks grew versus prior year for the third consecutive month. The 32-million-pound build starkly contrasted…Full Report
Comprehensive GDT Auction Analysis
HighGround could not find any data points that encouraged a bullish outlook prior to this auction, with fundamental indicators pointing to another slide. The normal forward view provided by the SGX-NZX Dairy Derivatives market remains very blurry at best, with the only commodity to land near prior…Full Report
Reports This Week
- GDT Pulse – Tuesday, March 28
- Weekly EU Dairy Commodity Prices – Wednesday, March 29
- Weekly National Dairy Products Sales Report (NDPSR) – Wednesday, March 29
- Pre-GDT Fonterra Offer Volume Estimates – Thursday, March 30
- USDA Dairy Market News Weekly Midpoint Prices – Thursday, March 30
- USDA Weekly Dairy Cow Slaughter – Thursday, March 30
- USDA Prospective Plantings Report – Friday, March 31
- USDA Quarterly Grain Stocks Report – Friday, March 31
- Agricultural Prices Report – Friday, March 31