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Other Chicago bears’ win is sign of things to come

 

The Chicago Bears may have lost to the Green Bay Packers on Sunday, Nov. 9, but the "other Chicago bears" won the following week at the Chicago Mercantile Exchange where bearish fundamentals crashed cheese prices.

Cheese prices

 

Block cheddar fell below $2 per pound Thursday, first time since July 31, and closed Friday, Nov. 14, at $1.9425 per pound, down 25.75 cents on the week but still 12.25 cents above a year ago and the lowest they have been since Dec. 16, 2013. The barrels finished at $1.9150, down 20.5 cents on the week but 15.75 cents above a year ago. One car of block traded hands on the week and four of barrel. The NDPSR-surveyed U.S. average block price fell to $2.2198, down 1.7 cents, while the barrels averaged $2.0921, down 3.6 cents.

Midwest cheese production has been active with some plants operating near capacity, reports Dairy Market News (DMN). Milk supplies are readily available. Some cheese plants are fortifying vats with nonfat dry milk. This has resulted in a situation where cheese supplies are increasingly being viewed as long as holiday orders move closer to being filled. Buyers have been adding to inventories, but recent CME activity reflects sellers with extra blocks and barrels finding less buyer interest than expected. The weaker buyer interest has surprised some cheese sellers.

Western cheese manufacturers have "good" milk supplies, even with this being the seasonal low for milk production. Some cheese manufacturers with multiple product production options are running cheese production close to full, rather than diverting milk into other dry dairy products.

Butter

 

Cash butter closed Friday, Nov. 14, at $1.9875 per pound, down 2 cents on the week, 33.75 cents above a year ago, but $1.0725 below its September record high peak of $3.06. Twenty two cars traded hands on the week, up from five cars the previous week. NDPSR butter averaged $1.9672, down 2.1 cents.

DMN says the Central butter market is active. Production is steady, and demand for both print and bulk butter is good. Cream supplies are in balance with churning needs. Retail butter orders are good. Some Western butter manufacturers are using their available cream to churn for retail butter orders rather than sell cream. Retail orders are keeping churns busy.

NDM drop is harbinger

 

Cash Grade A nonfat dry milk closed Friday, Nov. 14, at $1.18, up 2 cents on the week. Ten cars were sold in the spot market. NDPSR powder averaged $1.4633, up 0.6 cent, and dry whey averaged 64.54 cents per pound, up 0.6 cent.

Falling powder prices are indicative of what’s ahead, according to HighGround Dairy’s Eric Meyer in his analysis of the previous week’s Dairy Products report.

"Though U.S. supply-side fundamentals have been lining up bearish for the past few months, it has taken until now to witness some global market price convergence," he wrote. "CME butter prices dropped by $1.29 per pound or 42 percent of its value during the month of October, and cheese prices have likely seen the last of the $2.30s for a while. However, both markets are in a short-term upside correction phase, meaning domestic holiday building is not yet through."

Meyer says there is one U.S. market that is downright weak. "CME Grade A nonfat dry milk (NDM) prices have declined by 22 cents or 16 percent over the past three weeks and settled at 2 1/2-year lows (April 2012) Friday, Nov. 7.

Though domestic sales ran hot in September because of favorable cheese manufacturing economics and value buying, monthly exports were their lowest in 20 months. Once domestic inventory building subsides, there will still be plenty of powder available as U.S. farmers will likely not get the signal to produce less milk until First Quarter.

Then you can count 4-6 months to see year-over-year declines.

Why is this important? Meyer believes NDM is a leading indicator for many U.S. dairy commodities. The cheaper NDM gets, protein substitutes (dry whey, whey protein concentrate) become less attractive. Cheese manufacturers begin using more in their make process, increasing yields, which requires less fluid milk to make a pound of cheese. And as U.S. exporters either lose or choose not to participate in international tenders for First Quarter or First Half 2015 delivery, the reality of NDM backing up domestically is growing by the week.

Milk prices

 

Checking the price front, the California Department of Food and Agriculture announced its December Class I milk price at $23.72 per cwt. for the north and $23.99 for the south, lowest level this year since February. Both are down 61 cents from November, $1.99 above December 2013, but $2.37 below the record high set in October.

That put the 2014 average for the north at $24.76, up from $20.29 in 2013 and $19.06 in 2012. The southern average is $25.03, up from $20.56 in 2013 and $19.33 in 2012.

Supply and demand

 

USDA’s World Agricultural Supply and Demand Estimates (WASDE) report, released Nov. 10, raised the milk production forecast for 2014 from last month "as growth in milk per cow has increased." However, for 2015, the production forecast was lowered "as the expansion in cow numbers and growth in milk per cow are expected to be more moderate."

The 2014 production and marketings were projected at 206.2 billion pounds and 205.2 billion pounds, respectively. Both are up 100 million pounds from last month’s projections. If realized, 2014 production and marketings would be up 2.5 percent from 2013. The 2015 production and marketings were projected at 212.3 billion pounds and 211.3 billion, respectively. Both are down 500 million pounds from a month ago. If realized, 2015 production and marketings would be up about 3 percent from 2014.

Export forecasts for 2014 and 2015 were lowered as U.S. dairy products, especially on a skim solids basis, remain less competitive in world markets.

Cheese and nonfat dry milk (NDM) prices were raised for 2014, reflecting current price movements, but the price forecasts for 2015 were lowered as domestic supplies are expected to be relatively large. Butter prices were reduced for both 2014 and 2015 based on prices to date and weaker expected exports. Whey prices were unchanged from last month.

11/19/2014