There was hope that seasonal buying was under way and prices would trend higher. Seasonal buying is taking place, but buyers have no need to be aggressive. Sellers are not holding back and continue to offer supply to the spot market. The recent weakness of cheese prices eliminated three weeks of gain in Class III futures. This makes traders less willing to purchase when underlying cash prices show gains and quick to sell when there is weakness. Over the period of three days, October Class III futures fell $1.17 and have yet to rebound, finding no support from cheese prices.
Butter prices have been more stable, which has allowed Class IV futures to hold better support keeping futures above Class III prices. There have been two times during the past year in which Class III futures moved above Class IV futures, but both of those times have been short-lived. There has been greater consistent support in butter versus cheese. This has been a bit surprising as the butter inventory has been above the previous year so far this year and exports have been dismal with July exports down 54.7%. This is the lowest July exports since 2020. Exports have been running below the previous year since February. One of the reasons butter exports are significantly lower is reduced demand from China. Other than the month of June, exports to China have been down substantially (see chart). Active churning has kept sufficient supply available with buyers unconcerned over supply. Sellers have been offering a substantial amount of butter on the spot market allowing buyers to increase ownership for immediate demand as well as later demand without having to be aggressive buyers. This may limit upside price potential for butter through the end of the year.
Source: Trade Date Monitor
The recent World Agricultural Supply and Demand report did provide some good news even though they were only estimates for milk prices and dairy product prices for this year and next year. The September Class III average price was raised $0.45 to $17.35 from the August estimate this year and $1.00 per cwt next year. The Class IV price was raised $0.10 to $18.60 this year as $0.20 cents to $18.00 next year. The All-milk price was raised $0.45 this year to $20.40 and $0.95 next year to an average of $20.30. This was positive but still far short of what we would like to see.
The Consumer Expenditures report, a recent report by the U.S. Bureau of Labor and Statistics, highlighted the fact that the annual average expenditures on food purchases in 2022 rose 12.7%. It was the third largest category of consumer expenditures for the year. The report indicated overall expenditures increased 9% for the year while income rose 7.5%. It is too early to tell how this will end up this year, but food prices have been rising.
The bright spot is that prices for some dairy products are lower than a year ago. The U.S. City Average retail prices in August for a gallon of whole milk was $3.93, down $0.04 per gallon from July and down $0.27 from August 2022. Natural cheese price for August averaged $5.90 per pound, down $0.02 from July and down $0.10 from a year. ago. However, higher prices are seen in processed cheese and ice cream which should not be relative to what milk prices are now compared to a year ago. Processed cheese price in August declined $0.05 per pound from July at $4.73 per pound but increased $0.07 per pound from a year ago. Ice cream was $5.90 per half gallon in August, an increase of $0.06 from July and up $0.26 from July 2022. The report does not compare butter prices for some reason.
**If you are attending the World Dairy Expo this year that is being held during the first week of October, stop by our AgMarket.Net booth number 664 located in the Trade Center. I would enjoy meeting with you and showing you what we have to offer. I also will be speaking during the Knowledge Nook session at 1:30 PM Thursday on the topic, “Focusing on Income Over Feed Rather Than Just Milk Price”.
For more on milk prices, read:
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.
The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is risk of loss in trading commodity futures and options on futures. It may not be suitable for everyone. This material has been prepared by an employee or agent of JSA and is in the nature of a solicitation. By accepting this communication, you acknowledge and agree that you are not, and will not rely solely on this communication for making trading decisions.
