Friday, February 7, 2020
CapitalPress.com 13
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DAIRY
MARKETS
Lee
Mielke
Dairy
prices
remain
choppy
By LEE MIELKE
For the Capital Press
D
airy prices looked for
direction the last week
of January, as the mar-
ket anticipated this week’s
Global Dairy Trade auction.
The Cheddar blocks closed
Friday at $1.92 per pound,
down 7.5 cents on the week,
42 cents above a year ago but
1.75 cents below their Jan. 2
perch.
The barrels finished the
week and the month at $1.50,
down 11 cents, 20 cents above
a year ago, and 14.25 cents
below their Jan. 2 closing.
There were no sales of
block cheese last week at the
CME but 43 for the month
of January, down from 37 in
December. Only 3 cars of bar-
rel exchanged hands last week
and 94 for the month, down
from 103 in December.
The blocks were
unchanged Monday but
slipped a half-cent Tuesday, to
$1.9150, as traders absorbed
the drop in the morning’s
Global Dairy Trade auction
and awaited the afternoon’s
December Dairy Products
report from the USDA.
The barrels lost 4.5 cents
Monday, falling to the lowest
CME price since March 13,
2019, and set a record spread
of 46.5 cents. They gained
1.5 cents Tuesday, and
climbed to $1.47, 44.5 cents
below the blocks.
FC Stone’s Dave Kurza-
wski wrote in Tuesday morn-
ing’s Early Morning Update
that “barrel weakness per-
sonifies the milk ‘flush’ that
becomes widely discussed
this time of year. No doubt
we have milk available. Cer-
tain regions are awash in milk
already, like Idaho and Cal-
ifornia. Other areas, not so
much. Either way, this bar-
rel market is either the leading
symbol of a larger bear trend
developing or one final push
lower.”
“Realistically, it seems to
make sense that blocks come
down somewhat,” says Kurza-
wski. “But in the same breath,
$1.45 barrel market reads as
too low. So, in a perfect dairy
world, based on our analysis,
we’d expect this spread to nar-
row with barrels catching a
bid and blocks falling.”
Midwestern cheesemak-
ers tell Dairy Market News
that 2020 sales are meeting
or beating expectations but
the market remains “in flux”
because of the large block-bar-
rel price spread. Regional
demand for both “is anything
but unstable,” says DMN.
Milk prices are holding just
under class for the most part
on slow trading. Stocks are
generally balanced regionally
and “mostly positive.”
Ample milk is keeping
western vats busy. Demand
is “moderate” and cheese is
moving well through cur-
rent contracts but “there is a
capacity to sell more cheese.”
Contacts are hoping for
strong reorders now that the
Super Bowl is behind us “to
carry the cheese market into
spring and the distant grilling
season.”
The December cold stor-
age report suggested that total
cheese inventories were pulled
down a bit nationwide but
western inventories did not
follow that pattern. Ameri-
can cheese stocks grew in the
West and other natural cheese
inventories were fairly stable.
Spot butter fell to $1.7750
per pound last Tuesday, low-
est since Oct. 21, 2016, and 66
cents below its July 16, 2019,
high of $2.4350. It rallied to
close Friday at $1.90, up
4 cents on the week but 39
cents below a year ago; 53 cars
sold on the week, 28 alone on
Friday, and 82 on the month.
Dairy/Livestock
Economists: Cheese markets bullish for milk prices
By CAROL RYAN DUMAS
Capital Press
The U.S. dairy industry has had
large inventories of American-style
cheese over the last couple of years,
but they’re starting to shrink. That
and other factors should help sup-
port milk prices, according to econo-
mists at the University of Wisconsin.
There’s nothing that feels tight
yet, but those cheese stocks are in
a comfortable zone, Mark Stephen-
son, dairy economist at the univer-
sity, said in the latest “Dairy Situa-
tion and Outlook” podcast on Friday.
The latest report shows Ameri-
can-style cheese inventories, which
is mostly cheddar, were down 7.1%
year over year at the end of Decem-
ber, Bob Cropp, fellow dairy econo-
mist at the university, said.
There’s been a little activity in
the markets, probably reflecting that
tightness, Stephenson said.
“So I think that’s somewhat bull-
ish for prices,” he said.
The cash cheddar market has
been volatile, with barrels at $1.39 a
pound in October. That price was $2
in November and December before
dropping to $1.47. It’s come back to
$1.63, Cropp said.
Blocks had been over $2 a pound
until Nov. 12 and got down to $1.23.
University of Wisconsin
Bob Cropp, left, and Mark Stephenson of the University of Wisconsin.
But with the latest stocks report, they
jumped back up to $2, he said.
More good news came this week
with the milk production report, he
said.
U.S. cow numbers didn’t increase
from November to December,
although they are up 22,000 head
from the low point in August. Pro-
duction per cow was only up 0.8%,
perhaps reflecting some of the forage
quality problems, he said.
Combined with slightly fewer
cows than a year ago, milk produc-
tion was only up 0.7% year over
year, he said.
Both the cheese market and milk
production have pushed the futures
market for Class III milk, and prices
have come up substantially, he said.
He doesn’t know if they’ll stay
there, but farmers might want to take
advantage of the prices in the futures
market, he said.
“They’re pretty attractive right
now, a lot better than it was 10 days
ago,” he said.
Futures prices for Class III milk
deteriorated a month or so ago, but
they’ve been roaring back the last
few days, Stephenson said.
They were below $17 per hun-
dredweight 10 days ago, and
they’re now $18 by February or
March and sitting in the high $17s
and $18s the rest of the year, Cropp
said.
With strong cheese exports,
a good domestic economy and
soft world milk production, he’s
expecting good milk prices in
2020. He thinks the Class III price
will average $18.15 to $18.20 for the
year — higher than the $16.96 aver-
age in 2019.
As for now, cheddar inventories
are finally down to a comfortable
level, product is still readily avail-
able, it’s past the major buying sea-
son, buyers can purchase as needed
and there’s no price direction, Ste-
phenson said.
“I think the next big piece of
information the markets will be look-
ing for is the (spring milk) flush,” he
said.
If it’s a big flush, cheese buyers
will sit back and wait for prices to go
lower. If it’s not a big flush, they’ll
step in and start buying early, he
said.
Cropp said he doesn’t anticipate
a big flush given feed quality issues.
“So I’m staying fairly optimis-
tic,” he said.
DMC enrollment wanes on improved market outlook
By CAROL RYAN DUMAS
Capital Press
Participation in the Dairy Margin
Coverage program for 2020 is down
about 44% from 2019.
The amount of milk enrolled in the
insurance program that guarantees a
certain margin between milk prices
and feed costs is down about 35%
from 2019.
“I don’t think it’s too surprising,”
Michael Nepveux, an economist at
the American Farm Bureau Federa-
tion, told Capital Press.
“We’re looking at a pretty good
year for dairy, at least relative to
where it’s been the last couple of
years,” he said.
DMC’s decision tool shows a zero
percent chance of payments this year,
he said.
“It’s not really that surprising you
saw a decline in DMC enrollment,”
he said.
The forecast is for an all-milk
price of about $20 and no substantial
increase in corn and soybean prices.
With inputs remaining fairly low, the
margin isn’t that bad, he said, add-
ing that the probability of an indem-
nity payment in any month in 2020 is
pretty low.
“If there’s a low probability of a
payment, market conditions are more
favorable than they have been the past
couple of years,” he said.
Margin coverage levels in DMC
run from $4 to $9.50 per hundred-
weight of milk, and USDA is fore-
casting margins of more than $10 per
hundredweight through September.
“DMC isn’t expected to pay out
anything,” he said.
USDA data as of Jan. 21 shows
12,968 dairy operations were enrolled
in DMC — about 47% of all opera-
tions with an established production
history for USDA programs.
That compares to 23,361 opera-
tions and about 82% of eligible opera-
tions enrolled in 2019.
The decline was a function of pro-
ducers who didn’t lock in coverage
for five years in the 2019 enrollment,
Nepveux said.
That represented roughly half of
the producers who enrolled in 2019,
according to USDA.
But farmers had an incentive to
lock in coverage, a 25% discount on
premiums, he said.
USDA doesn’t post a breakdown
of the number of producers who
locked in for five years, but data as
of Jan. 15 provided to Farm Bureau
show 72% of those enrolled for 2020
were locked in, he said.
USDA also doesn’t post a breakout
on margin coverage levels. But data
as of Jan. 6 provided to Farm Bureau
show 28 billion pounds of milk is
insured at the $9.50 margin. That’s
about 24% of all milk enrolled.
The program has different cover-
age levels and premium rates for the
first 5 million pounds of annual milk
production (Tier I) and milk above
that annual production (Tier II). Pre-
miums are lower in Tier I, which
offers top coverage at a $9.50 margin.
The highest margin level in Tier II is
an $8 margin.
As of Jan. 6, almost all of the milk in
Tier I was insured at the $9.50 margin,
only 5.7 billion pounds was insured at
the premium-free catastrophic level
of a $4 margin. Nepveux said.
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