Barrel cheese has been the beneficiary of strong buying interest recently with prices gaining 43 cents over the course of two weeks. This has been a surprise as barrels are reported to have more plentiful supplies than blocks. Buyers have been aggressive and have been trying to outbid each other to obtain product. The last time we saw a move higher similar to this was during the period from early September 2022 through early October 2022. The gain totaled 40 cents during that period.
Over the period of the next five months, prices fell 72 cents to the lowest level since November 24, 2021.There have been a number of similar price increases back through 2021. Once the market topped, prices fell faster than it increased (see chart). In 2020, there were other factors such as the Farmers to Families Food Box program which created substantial volatility. Currently, there has not been a significant change of fundamentals leaving the recent increase somewhat suspect.
One has to wonder whether the strong movement was driven by buyers leap frogging over each other trying to purchase what they can before prices again moves higher. We have seen this happen many times as a certain fear is triggered with buyers pulled into the buying frenzy. Block cheese prices have increased, but not at the same magnitude as barrels with blocks reported to be in a tighter supply than barrels.
Milk supply is not tight with many manufacturing plants running on full schedules. Dairy Market News reports spot milk in the central region of the country has been offered for as much as $10.00 to $12.00 below class for the past 13 weeks. This is unprecedented as spot milk does not retain that much of a discount for that duration after the end of the year holidays. It has continued this year with spring flush just around the corner. Demand will need to improve for this recent price strength to hold and for milk prices to improve as we move through the year.
Current milk production continues to outpace last year with February production up 0.8% from February 2022. U.S. Milk production has been above the previous year for the past eight consecutive months. There had been a question over the swing in milk cow numbers with December showing cow numbers down 8,000 head from the previous month while January showed an increase in cow numbers of 9,000 head. It appeared one of these reports might have misreported cow numbers However, cow numbers in February increased 12,000 head from January giving the impression the December number may not have been accurate. Farmers continue to add cows rather than culling more heavily which will keep milk production strong.
The current financial events with recent bank failures and some having to be shored up with outside loans or buyers has had impact on a number of other commodity markets, but dairy so far has been immune and continues to respond to supply and demand rather than being impacted by spillover from other markets. This certainly is very positive for the dairy industry indicating it may not be affected by the present circumstances. However, the long-term impact is unknown unless the banking industry suffers further difficulties which could impact many areas of the economy not only in the U.S., but the World.
Robin Schmahl is a commodity broker with AgDairy, the dairy division of John Stewart & Associates Inc. (JSA). JSA is a full-service commodity brokerage firm based out of St. Joseph, MO. Robin’s office is located in Elkhart Lake, Wisconsin. Robin may be reached at 877-256-3253 or through the website www.agdairy.com.
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