Milk and Product Price Advance During 1Q04
Dairy product prices at the Chicago Mercantile Exchange marched sharply higher during the first quarter, and more increases are expected.
Cheese prices moved about 80 cents per pound higher during the quarter and tacked on most of the gain during March when prices climbed 60 cents higher.
Buyers in the cheese pit are so hungry, one tried to buy another's bid for cheese 10 days ago. Two days later, a buyer bought two loads of cheese before the seller could spit out an asking price.
Open your mouth in the trading pit and someone will back a truck up to it trying to get a load of cheese.
Manufacturers can't find enough milk to fill current orders. Rationing is in full bloom. Yes, a few people have some cheese tucked away. Not enough to satisfy current requirements and none to spare for the future. Stocks of cheese originally put away for aging are now being offered for sale.
After marching higher since the first of the year, the butter price fell 34 cents in spirited activity on the last Friday of March. The sharp drop still left the butter price above two bucks a pound.
Can you spell c-o-r-r-e-c-t-i-o-n? Maybe a 34-cent drop in the butter price should be characterized as more than a correction, but that's all it was. Most folks, including at least one major butter manufacturer, were not happy with butter trading well above $2.30.
Butter sellers came out of the woodwork. There were 58 uncovered offers left on the board at the end of the session. Twenty trades had been executed ranging from $2.32 early in the session to $2.0050 before the price reversed direction and closed at $2.0225.
Dozen of conversations and a hard look at all of the data leave me with just one thought: The butter price will visit the $2.50 level before it visits the $2.00 level.
Yes, these higher butter and cheese prices will put at least a modest crimp in demand over the next couple of months. However, there will likely be an even bigger crimp put in the milk supply.
Meanwhile, commercial disappearance of milk and dairy products was 2.6 percent greater during the most-recent-three months (Nov 03 - Jan 04), according to USDA estimates in late March.
The estimates suggest that disappearance was soft during January, but I don't lend much creditability to the monthly estimates. These estimates are too subject to quirks in shipment dates, etc. The three-month data look very positive and anecdotal evidence indicates that disappearance was very good during February and March.
Other (than American) cheese and butter have been the big drivers. During the most-recent-three months, commercial disappearance of butter was up 5 percent; other cheese, up 2.7 percent. Disappearance of American cheese for the three months was off about 1 percent vs a year ago.
A large slice of the slump in American cheese disappearance can be attributed to processed cheese usage. Retail sales are measurably lower (minus 1 to 2 percent) and there is an apparent slump in foodservice usage. With the value-menu wars behind them, fast food operators are optioning for more natural cheese on their menus.
Retail natural cheese sales have been very strong and foodservice sales are staging a major recovery from a lackluster performance last year.
Meanwhile, back on the farm:
(1) There are few cows in the nation's milk herd;
(2) The number of replacements is low and Canadian border remains closed;
(3) Production per cow is below year-ago levels;
(4) Feed prices are sharply higher;
(5) Feed quality, both forage and corn, are questionable in many regions of the country and
(6) Milk producers are struggling to get out from under the tangles of two years of historically low milk prices.
Milk production is running two to three percent below year-ago levels and it looks like it will remain so until at least the third quarter.
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