Dairy Prices Continue High Through 'Flush'
This year, dairy prices seem to be establishing a new high for their low.
Let me explain. Typically, milk production reaches its seasonal peak, or "flush," near the end of May and, consequently, milk prices trend lower to their annual low point during May. The usual scenario seems to have unfolded again this year, but with a twist.
Dairy commodity prices are lower, but they are still very high. Cheese prices at the Chicago Mercantile Exchange, for example, have moved from a record-shattering high of $2.20 to $1.80 per pound during the past couple of months. The cheese price is lower seasonally, but still at a record high level for this time of year.
Some argue that the market should and will move lower. They cite sluggish demand and ready volumes of milk for manufacturing as schools close and Class I sales struggle under the cloud of sharply higher prices.
On the flip side, others anticipate shortages of milk and manufactured products later this year.
Dairy Farmers of America has bought more than 300 loads of cheese in trading at the CME since the first of May. During this timeframe, the price has moved from $2.15 to $2.00 where it held for seven sessions before retrenching to $1.80. Almost everyone I've talked to recently is convinced that huge volumes of cheese will continue to move to the Exchange over the next several weeks.
"DFA's CME purchases are for our own use and our projections indicate a shortage of cheese for this fall and winter needs," I was told by an official of the large, Missouri-based cooperative.
At least seven different sellers brought cheese to the Exchange last week.
Several readers have asked: Are CWT funds being used to support the market at these levels? Spokespersons for both DFA and the National Milk Producers Federation, the administrator of the self-help program, told me, "No". Further, the sources said, no CWT money is being used to subsidize cheese exports.
Cheese production was up 5% during April vs. one year ago, according to estimates released late last week by USDA. Butter production, on the other hand, was down 21% for the month.
American cheese production registered a 4.3% gain; mozzarella is up 5.7%. Skim milk powder output was down 16% percent; whey, minus 0.9%.
Through the first four months of this year, product production looked like this: Total cheese, plus 5%; American cheese, plus 2%; butter, minus 18%; skim milk powder, minus 19%, and whey, minus 5%. All comparisons factored out the extra day in February this year.
Despite these production gains, the CME block cheese price won't drop below $1.80 until at least October, according to estimates recently published by MCT Dairies, a cheese and indredient supplier from Milburn, N.J. In the company's monthly newsletter, MCT said it expects the block price to average $1.80 this month and then climb to an average of $2.10 during September before easing back to $1.93 during October, the last month included in the forecast.
Barrel cheese is forecast to trail blocks by three to five cents during the summer and fall.
MCT expects the butter price to average $1.81 this month before climbing to $2.23 in September and slipping back to $2.08 in October.
There have been several record-setting monthly average prices thus far this year, and it looks like there may be a few more.