August 10, 2020
Robin Schmahl, AgDairy
Records are meant to be broken, but it is always surprising when they are. I stated in my last article that many price records have been broken so far this year and since then it continues with a little less than five months remaining in the year. Unfortunately, block cheese price recorded a record weekly price decline during the first week of August of 54 3/4 cents while barrel cheese price recorded a record decline of 71 3/4 cents. These declines were on top of the declines that had already take place since mid-July. This is devastating to milk prices that have not been able to be taken advantage of due to wide spread between Class I, Class III and Class IV prices which resulted in substantial negative PPD’s. The good news is that the large negative PPD’s will not be as large once we see the August and September milk checks. August will still be substantial, but not a large as July. Unfortunately, decreasing negative PPD’s will take place at the expense of milk prices.
There was some positive news with the recent release of June dairy exports. The export volume was up 28% over June 2019. The value of those exports increased 22% over a year earlier. This certain is impressive due to disruption of the coronavirus of normal shipping movement. Cheese exports reached a record 38,427 metric tons, up 29% from June 2019. Butter, NDM/SMP, and whey sales were strong. This is certainly good and one of the reasons cheese price moved to a record high. The U.S. Dairy Export Council reports that much of the cheese purchases were booked when prices were at historic lows in April and May.
Lest we get to carried away thinking that if export sales of cheese were this strong during the time of market uncertainly, then we are well on our way to increasing exports now that adjustments have been made to a changing market. The reality that much of this was purchased during very low prices may not continue due to record prices that were seem two month later. When cheese price reached their record on July 13th, price was over $1.00 per pound over world price. It is likely international interest in U.S. cheese slowed considerably due to it being so high. The impact of record high cheese price will be seen on export reports in two to three months from now. It is a strong possibility that sales will show significant declines. This same pattern took place during previous times of very high prices. There is a lag time of a few months as prices increase and well as when they decrease.
During the period of high prices, imports of dairy products increased as buyers in the U.S. saw more attractive prices for some products that made it cost effective to increase purchases. This is also a usual result of exceptionally high prices in relationship to world prices. This same thing has taken place numerous years in the soybean market when U.S. soybean prices were higher than Brazilian soybeans. Some loads were imported into the Southeast to poultry operations as it was less expensive than purchasing local supplies. The result was that it always drove the price of U.S. soybean lower in order to compete.
The current market is likely reflecting the impact of high prices. This will be supported by future exports sales reports as well as domestic supply/demand reports. Thus, for every action, there is a reaction and the saying that high prices cure high prices and low prices cure low prices is always true.
dairyherd.com
