Market Reports

The short squeeze continues. Someone – or several someones – desperately need milk powder and they need it now. USDA’s Dairy Market News reports that prices are high enough that most milk powder users “are only buying loads to meet their immediate needs.” But for those that can’t do without, “it is difficult to find loads.” They bid the spot nonfat dry milk (NDM) market all the way up to $2.26 per pound this week, up 6ȼ from last Friday to a fresh all-time high.

The milk powder market is sprinting straight uphill. Nonfat dry milk (NDM) rallied another 8.5ȼ this week and reached $2.20 per pound, the highest-ever price in the product’s 18-year tenure at the CME spot market. The short squeeze continues. USDA’s Dairy Market News reports that spot loads are tight from coast to coast, and they’re “particularly difficult to find in the Central region” where the expansion in cheese processing capacity has reduced the need for balancing. Even as milk production ramps up for spring, dryers in the region are running somewhat light.

Lifted by strong international prices and low domestic output, the milk powder market soared to a 12-year high. CME spot nonfat dry milk (NDM) leapt 5.25ȼ this week to $1.9225 per pound, its loftiest perch since April 2014, when China was stocking up on milk powder ahead of an anticipated baby boom. Milk powder prices took a small step back at Tuesday’s GDT Pulse auction, but other indications of international prices continued to climb.

All eyes have been on the milk powder markets, especially in the U.S. where nonfat dry milk (NDM) prices continue to climb to new heights. After the initial price bump seen earlier this year, NDM spot prices continued advancing this week, with prices rising each day. On Tuesday prices hit the $1.80/lb. threshold and on Wednesday, another 2¢ increase lifted the NDM price above the butter price for the first time since April 2014.

The dairy markets are contending with an abundance of milk and a fresh infusion of global turmoil. That amped up the volatility on LaSalle Street. CME spot Cheddar blocks came out strong on Monday and rallied to a four-month high at $1.63 per pound. But as the week wore on, blocks’ enthusiasm waned. They settled today at $1.53, down 8.75ȼ for the week. “Export cheese demand is strong, but some contacts are concerned that rising shipping costs will negatively impact international interest.” American cheese remains the least expensive option, but with both the dollar index and cheese prices up sharply from where they stood a few weeks ago, some international buyers may no longer view it as a bargain.

It has been a dramatic and volatile week, both in and out of the dairy markets. All eyes have been on the developing conflict in the Middle East and analysts have been scrambling to deduce the impact for the dairy market. Outside of drastically reduced dairy demand in the Gulf States, concerns are circulating around two key issues.

Butter futures jumped this week on the heels of a bullish Cold Storage report. USDA pegged January 31 butter inventories at 215.4 million pounds, down 17.4% from the year before. Domestic butter demand was robust and exports were strong enough to offset the significant growth in U.S. butterfat output. More recently, though, USDA’s Dairy Market News reported that butter churns are running “seven days a week… at or near max capacity.” And manufacturers tell Dairy Market News they are “building inventories to prepare for upcoming slower production periods.”

On Thursday, USDA announced that it would spend $263 million buying food to donate to food banks and nutrition assistance programs under Section 32 of the Depression-era Agricultural Act of 1935. USDA will spend nearly half of the $148 million allocated for dairy products on butter, with another $42.5 million for Swiss and Cheddar cheese, and $30.5 million on conventional and ultra-high temperature milk.

It was another dramatic week on LaSalle. Seemingly inspired by the Olympians in Milan-Cortina, the markets underwent their own fits of athletic prowess as they jumped, twirled, and in some cases tumbled. The market tone is unsettled as buyers and sellers are going head-to-head. By the conclusion of Friday’s spot session, every commodity sat at a lower price than a week prior. However, that simple conclusion belies the volatile activity that occurred over the course of the week.

Product scarcity seems to be driving the gains in the milk powder market as buyers seeking product are coming up empty-handed. According to USDA’s Dairy Products report, combined output of NDM and skim milk powder (SMP) was just 170.3 million pounds in December, down 6.2% compared to the same month last year. NDM prices have been climbing since January, but the trajectory accelerated meaningfully this week. After taking a brief respite on Monday, the spot price for NDM rose every day between Tuesday and Friday, delivering an 18¢ increase, and qualifying as the commodity’s strongest week since May 2007.