Dry Whey Spot Market Addition is Positive
The CME Group is planning to introduce a daily spot Dry Whey market on its CME Direct Auction Platform this year. They plan to implement it sometime during the second quarter of this year. Butter, cheese, and nonfat dry milk have already been trading electronically on this platform. This will be a positive addition to the marketplace. It will provide this industry with a way to monitor dry whey prices on a daily basis rather than on the current weekly basis that is already a generally 4 days behind. For example, the Agricultural Marketing Service released the Dairy Prices report on January 24th which were the average prices and volume for the week ending January 20th. This gives market participants more information to use to make decisions for either buying or selling dry whey futures to either hedge a component used in the calculation of class prices or to speculate on price movement. Trading activity may increase in the dry whey futures and options market as traders will have more information with which to make decisions.
Dry whey prices have declined substantially over the past year due to substantial inventories. Demand has been strong with exports in the month of November reaching a record high of 50,590 tons. This was a 10 percent increase of last year. Southeast Asia and China were the largest customers. Heavy cheese production keeps inventory large resulting in low prices.
Butter and cheese markets are also dealing with substantial inventories. Butter inventory closed 2017 with 2 percent more in inventory than 2016. This results in three consecutive years of year-over-year growth of inventory. American cheese settled the year 3 percent above 2016 and the third consecutive year-over-year growth. Swiss cheese inventory closed 9 percent higher for the year with only the second consecutive year of growth. Other cheese inventory closed 13 percent above 2016 with 2017 showing the sixth consecutive year of growth. Total cheese inventory for 2017 closed 7 percent above 2016 and was the sixth consecutive year of growth.
Butter inventory is the highest it has been since 1993 for the month of December. American cheese inventory goes back a few more years. The last time it was this high for the month of December was 1985. Swiss cheese stocks are the largest since 2012. Other cheese inventory to close the year was at a record inventory. Total cheese inventory in December was also at a record level for the month. Is it any wonder that milk prices are low and could potentially remain at these levels for a period of time or even decline farther. I certainly hope they do not go lower and that demand will absorb production.
There is a significant volume of dairy cattle showing up at the sale barns. There are more cattle than there are willing buyers which is decreasing the value of those animals. How many might be going to another farm and how many go to slaughter is unclear. We will need to wait to see what the January Milk Production report will show for cow numbers as well as the Dairy Cattle Slaughter report. We are certainly in an interesting time with higher milk prices being the outcome. However, the duration of time before higher prices are realized is unclear. Weather, demand, and/or liquidation may shorten the duration of low milk prices. Or these factors could extend low milk prices if weather is good, demand is slow, or liquidation is low. One thing we know and that is prices are closer to the bottom that they were a few months ago. However, this does not make it any easier.
- Agricultural Price report on January 30.
- December Dairy Products report on February 1.
- January Federal Order class price on January 31.
- World Agricultural Supply and Demand report on February 8.
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