Even though the near-term outlook does not look positive, we are closer to increasing prices now than we were at the beginning of the year.
Recent cheese trading activity has shown a break from the pattern of the past few months. Instead of a bounce of prices after a few days of price declines, prices continued to fall with block cheese price breaking below the bottom of the sideways trading range it had been in since the beginning of the year. Price then moved to the lowest level since May 25, 2016, only to bounce back up again as buyers became more aggressive at lower levels.
The block/barrel spread quickly moved closer together where it had not been for quite some time. There had been some anticipation that a block/barrel spread moving back to near normal again would be positive to the market and provide support. This provided some psychological support to prices as traders wanted to bottom pick in order to capture the impact of this idea. In essence, the block/barrel spread moving back together does not provide any increase in buyer activity or immediately increase the desire to purchase cheese.
Market prices run by supply and demand and not necessarily by an idea or a technical support or resistance level on a daily price chart. Futures are not a price discovery mechanism and technical analysis of milk futures is virtually meaningless due to the price discovery being within the daily spot markets. Traders will use technical analysis to accomplish short-term trades due to a number of traders following the same indicators. But chart technical points will not determine whether cheese traders will either buy or sell physical product.
There is real potential milk prices will not see much support through the end of the year as a good portion of physical product is already in the holiday pipeline with inventory sufficient to satisfy any extra demand. Milk production has remained strong despite declining cow numbers which has kept milk production above year-earlier levels. The increase of inventory during the month of September was both unusual and concerning. This indicates little potential for any significant upside potential for milk prices unless something major takes place that would reduce milk production, and there is nothing on the horizon.
Inventory seasonally increases the first half of the year which leaves little time for supplies to decline by the end of the year. More milk continues to move into production rather than bottling due to sales of packaged fluid milk continuing to decline. September sales fell 5.6% around one of the largest declines seen in quite some time with year-to-date sales down 2.6% compared to the same period a year ago. This may be some of the reason Dean Foods closed seven processing facilities over the past two months with processing being distributed to 23 other plants. Their third quarter fluid milk sales fell 2% from last year with their ice cream sales showing virtually no change.
Sales of other dairy products is positive which is keeping milk moving into both domestic and international markets. Overall exports are running above year-earlier levels, but cheese and dry whey exports have weakened due to the tariff situation. Even if some concessions and agreements are made to reduce or eliminate tariffs, it will not be an overnight fix. It will take months to move exports back to pre-tariff levels.
Original article sourced from https://www.milkbusiness.com
For the latest update on all dairy commodities, watch our latest dairy market update video now.