CME’s Dairy Dynamics: Tracking Cheese And Butter Market Trends
Spot butter prices at the Chicago Mercantile Exchange that took place the week of September 25th set new record highs, while cheese prices continued to fall as foreign competition has kept prices low, according to market analysts. Barrels settled at $1.48 and blocks at $1.72 today, down from their peaks in the high $1.80s and low $2.00s, respectively, last month.
“U.S. exports — or the lack thereof — is the driving factor in cheese prices tumbling,” says Erica Maedke, managing director, Ever.Ag. “It seems a simple equation: if the U.S. is exporting cheese, it’s not coming to Chicago. We’ve heard that export deals booked in early summer finished shipping, and now the volume is back looking for a home and ultimately going to the CME.”
Dairy Market News Insights
USDA’s Dairy Market News offers insights that reflect on the current CME dairy price trends. There’s a noted hesitation among cheese buyers due to recent market developments. Cheesemakers in the Midwest are relaying mostly similar notes to previous weeks regarding demand and their respective inventories. Foodservice demand remains intact, while retail demand expectations are somewhat firm as well. Cheesemakers expect buyers to continue to hold off until prices settle, and then they expect some larger-scale orders to come.
Barrel processors, despite facing stronger bears than their block processing counterparts, say inventories are not a near-term concern, Dairy Market News adds. Milk availability has something to do with this, as a number of processors say they are not running at full capacity for the first time this year.
Competitive Pricing On Global Stage
Analysts see cheese prices continuing to remain lower in order to compete abroad.
“Prices in Europe and New Zealand are around $1.80, so U.S. prices can’t exceed that to be competitive. However, seasonally stronger demand should support blocks, but barrels could struggle to get back to the $1.70s to $1.80s in Q4,” says Mike McCully, president of The McCully Group.
He adds that futures prices also will need to drop below European and New Zealand prices for U.S. cheese to be competitive over a longer period of time.
Maedke also anticipates that the U.S. cheese price needs to fall low enough to book export business again.
“With EU prices for Mozzarella within a nickel of $1.60 per pound, that likely implies that barrels need to be under $1.50 to drum up new business,” she says.
For the U.S. to attract significant export business, CME dairy price trends need to be aligned or be more competitive than international rates.
Spot Butter Market Analysis
Spot butter, on the other hand, set a record-high of $3.30 on Wednesday, up 46 cents compared to the previous Wednesday. Thursday butter climbed again to another record at $3.335 before settling again at $3.30 today.
“Clearly, butter markets are in the midst of a notably bullish wave,” Dairy Market News said in Wednesday’s Central U.S. Butter report.
The report notes that butter producers in the region say day-to-day operations are somewhat in line with where they have been in previous weeks, but some are concerned that the $3+ per pound market prices are going to slow buyers into a necessity-purchasing mode.
“That said, inventories are not abundant regionally, as there are loads available here and there, if customers are willing to pay the increasing rates,” Dairy Market News adds.
Factors Driving Butter Prices
Maedke says the record-high butter prices are driven by strong domestic demand and lower seasonal production.
“Despite high wholesale prices, feature activity is strong as grocers invest marketing dollars to drive store traffic. Overall, scanner data indicates year-to-date butter and butter blend sales up 2%,” she says. “Anecdotally, we’ve heard that retailers did stock up on print butter earlier this year when the futures curve provided incentive to carry. That may be contributing to a smaller volume of available bulk butter — exactly the product traded at the CME and currently in high demand. I suspect retailers would like to run holiday butter features, but wholesale prices over $3 per pound may cut that opportunity.”
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Source: Cheese Market News
