Cash dairy markets see record-breaking week

posted Dec. 18, 2017 10:31 a.m. (CDT)
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by / Lee Mielke

It was a record-breaking week in the cash dairy markets. CME block Cheddar fell to $1.4450 on Dec. 12, the lowest price since March 29, but then rallied and closed Dec. 15 at $1.53 per pound, up 5.5 cents on the week, and reversed six weeks of decline but was 27 cents below a year ago. Barrels closed at $1.66, down a penny, 4 cents below a year ago and 13 cents above the blocks after setting a record inverted spread of 22.5 cents on Dec. 12. They also set a record single-day volume of 36 cars sold Dec. 11, the highest since daily trading started Sept. 1, 1998, and eclipsed the previous high of 35 loads set June 18, 2010, according to FC Stone. A total of 97 cars were sold on the week at the CME and seven of block.

Dairy Market News reports that milk remains readily available to Midwestern cheese plants, with spot loads ranging from $1-$4.50 under Class III. Some cheese producers warned that only heavily discounted milk offers will be considered for the remainder of 2017. Cheese production is moderately active and cheese sales are steady to slow. The large and inverted CME price gap has resulted in an “unsteady cheese market tone,” says DMN.

The Dec. 14 Daily Dairy Report provided some interesting market data, reporting that the CME’s new electronic trading has resulted in soaring cheese volumes in the first six months of implementation. It states that “with just two weeks left in 2017, 2,246 loads of CME spot Cheddar cheese traded, compared to 1,055 loads for full-year 2016. In fact, this year’s CME spot trade has eclipsed trading volumes for every year back to 2011.

“This year, barrels represented 75 percent of total trades,” according to the DDR. “Between 2011 and 2014, barrel cheese represented only 47 percent of the volume, a figure very similar to the proportion of barrels reported in the National Dairy Products Sales Report during that time. Barrel activity increased in 2015 and 2016 to 65 percent of total trades. But this year’s high mark for barrel trading was new territory, and it’s staggering that the quantity of barrels traded this year rivals the total volume traded from 2014 to 2016.”

Cash butter slipped to $2.19 per pound Dec. 11, then reversed gears and slowly climbed to $2.26 Dec. 14 but saw a Dec. 15 close at $2.2450, up 2.5 cents on the week and 5.5 cents above a year ago when it jumped 12.5 cents. Forty cars traded hands on the week at the CME.

New Zealand based Fonterra lowered their latest milk price forecast, just as USDA has reduced some of its projections. Jerry Dryer, editor and analyst of the Dairy and Food Market Analyst newsletter, said in the Dec. 18 Dairy Radio Now interview that he has also lowered his forecasts, saying “the futures market keeps catching up to my forecasts by slipping lower.”

The other side of the coin, he said, is that milk production is also backing off, citing USDA’s latest estimates, and he said that there are early warning signs in New Zealand of drought conditions, as weather has been quite dry in various parts of the country — up to a month without rain, which is earlier than usual.

Dryer has lowered his predictions for global and U.S. milk output, but he warned of “a period of low and declining prices near term. However, supply could tighten up enough to be very supportive of prices in the second half of next year.”

When asked how low he sees the Class III price going, he said it could get to $12.50 in the second quarter of 2018, but “supply tightening turns it around.”

Congress is working to overhaul the federal tax code. The House and Senate have passed their respective tax reform bills and are now reconciling the two versions to send a final bill to President Donald Trump. National Milk says it is working with lawmakers to “shape the massive, complicated legislation so that it delivers a positive outcome for dairy farmers and their cooperatives,” according to NMPF’s “News for Dairy Co-ops.”

“NMPF is working with others in agriculture to preserve the benefits that farmers and cooperatives enjoy from the Domestic Production Activities Deduction, also known as Section 199. NMPF has long supported this deduction, which cooperatives claim on the proceeds from sales of agricultural products like milk. Cooperatives pass through a majority of the benefit, nearly $2 billion nationwide, directly to their farmer owners and reinvest the remaining proceeds in infrastructure improvements to help both the farmer and the cooperative.

“While the House and Senate bills both repeal DPAD, the Senate legislation allows cooperative members to claim a new 23-percent deduction on their taxable income for qualified cooperative dividends, which refers to patronage dividends, per-unit retain allocations, qualified written notices of allocations and similar amounts. Cooperatives could also claim the 23-percent deduction on taxable income, but it would be limited to 50 percent of their wages. NMPF is attempting to improve these provisions to ensure that the final tax reform legislation continues to recognize the unique nature of how cooperatives are taxed,” NMPF says.

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