Dairy margins started off 2014 where they ended 2013 by strengthening further through the first half of January, according to the latest CIH Margin Watch report from Commodity & Ingredient Hedging, LLC.
Soaring milk prices are responsible for all of the margin improvement since the end of last year, as feed costs have been steady to higher in the past couple weeks. Nearby milk values, in particular, have strengthened significantly, with the February Class III contract up $2.50/cwt. in just the past two weeks.
The market has largely responded to the spot cheddar market, where blocks and barrels have rallied 20¢/lb. and 30¢/lb, respectively, since the beginning of the year. Cheese prices are the strongest for January since 2008.
Meanwhile, export data for dairy products continues to impress – particularly for butter, non-fat dry milk (NDM) and skim milk powder (SMP). November butter exports of 19.8 million lbs. were up 214% from 2012, with year-to-date gains up 81% from the prior year. NDM and SMP exports in November totaled 100.4 million lbs., up 55% from 2012, with year-to-date gains through November up 24% from the prior year. Clearly, U.S. product remains competitive on the world market, which has helped to support prices.
On the feed side, USDA released their much-anticipated January crop report, which surprised the corn market in particular. Ending stocks unexpectedly dropped 161 million bushels from December as both corn production and quarterly stocks came in below trade expectations.
For the soybean complex, while production was raised as expected, increased exports and crush estimates swallowed all of those gains such that ending stocks were left unchanged from December.