Rebound In U.S. Dairy Exports Boosts CME Spot Cheese & Butter Price
Spot cheese and butter prices at the Chicago Mercantile Exchange (CME) ended the week of April 5 on near-term highs as news of improved export numbers boosted market sentiment, analysts say.
“The February export data was bullish for cheese — the largest volume exported since June 2022,” says Mike McCully, owner of McCully Consulting, South Bend, Indiana.
Weekly Performance and Pricing Trends At The Chicago Mercantile Exchange
CME spot Cheddar barrels settled at $1.53 per pound April 5, up 8 cents, while blocks settled at $1.5150 per pound, up 7.5 cents.
While these prices are not highs for the year, they are an improvement from prices seen in recent weeks, as Cheddar blocks dipped into the upper $1.30s in March. This week, cheese prices continued to move upward, settling at $1.5725 for barrels and $1.5350 for blocks today.
Factors Influencing The Cheese Market
In addition to positive export news, the rise in cheese prices may be due to oversold conditions, says Eric Meyer, president of HighGround Dairy, Chicago.
“We’ve had poor cheese demand throughout Q1 and price levels that I think most people, four to five months ago, felt were far too low,” Meyer says, referencing prices in the $1.30s and $1.40s seen earlier this year.
He adds that while there is milk availability — due largely to the seasonal spring flush — milk production isn’t really growing from year-ago levels. Additionally, Cheddar production is down for the first two months of the year on a daily average basis.
Cheddar Production And Export Advantage
Sara Dorland, managing partner with Ceres Dairy Risk Management, Seattle, agrees, noting Cheddar output was down 7.1% in February — a significant drop contrasted against improving demand.
However, U.S. cheese prices, both spot and futures, currently are at a significant discount to global prices, Dorland adds.
“That could provide a tremendous advantage for U.S. exporters. The gap to Europe is 40-50 cents per pound — that could encourage European brokers to source U.S. cheese to fulfill their commitments,” she says.
Chicago Mercantile Exchange Butter Price Dynamics And Market Analysis
CME spot butter, meanwhile, reached a yearly high of $2.94 per pound last week before bumping up another 3 cents on Monday to $2.97. Butter since has declined 5 cents to settle at $2.92 per pound today.
Analysts are a bit more stumped on the butter market, with McCully noting it has many “perplexed.”
“Most of the supply fundamentals are not that bullish, or in some cases, a bit bearish. However, demand remains strong, particularly at retail. Butter is being used as a loss leader, so consumers are not getting the signal to cut back on purchases. In addition, there is less and less bulk butter being produced, which has tightened the supply of Chicago Mercantile Exchange tradeable butter. Given the runs to $3.25-$3.50 in the last two years, my outlook is for butter prices to exceed $3 for most of the rest of the year,” McCully says, adding, however, that the upside is hard to predict given the nervousness in the market.
Dorland notes butter output is above last year, and stocks are building.
Future Outlook And Market Speculation
“Over the past two years when prices climb above $2.75 per pound, demand falters,” she says. “Whether $3 is too much too fast will hinge on whether consumers continue to buy and what retail prices look like over the next few months.”
When it comes to the butter market, “anything is possible,” Meyer says.
“These price levels we’re seeing are much higher than expectations, even given the latest fundamental news in the market. We’ve got strong butter production levels, and cream multiples are more normal for this time of year,” he says.
“We won’t necessarily be exporting more than we did in 2023, but it still provides a reason for buyers to want to own the physical asset, especially if we’re at prices this high during the spring,” Meyer says, adding that the threat of prices being any higher around a heat wave or slowing milk production, for example, would incentivize buyers to procure product now.
Meanwhile, analysts reiterate that current ample milk supplies likely are seasonal at best.
“Unless there is a big jump in cow numbers in the next few months, which is not expected, milk production is forecast to remain below year-ago levels to mid-year,” McCully says.
He adds, however, that by July, the year-over-year comparisons become much easier, and improving dairy farm margins should support modest growth at that point.
Meyer notes that the macro picture from a milk production perspective is that dairy farmers in this country are not seeing much profitability in their milk checks today.
“There is a lot of cheese capacity going in. While I think the milk ultimately will be there for these plants, I think there are still a lot of producers who don’t have an incentive to grow production,” he says.
Keep Up To Date On Cheese Industry News
Find all of HART Design & Manufacturing’s current industry news here.
Source: Cheese Market News