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GDT Index Rises, Class III Milk Prices get Walloped

Published on Tuesday, September 17, 2019

September 17, 2019

GDT Index Rises, Class III Milk Prices get Walloped

The rise in Class III milk prices has been nothing short of impressive!  Starting September 5th and extending until Monday, September 16th's close, which encompassed eight trading sessions, the October contract gained $2.11/cwt.  See October chart below.  Over those same eight sessions, November added $1.39/cwt and December jumped $0.91/cwt, respectively.  While the rally was primarily experienced in the months of 2019, first half 2020 began to tag along for the ride and traded $0.34/cwt higher.

The story behind this massive move in milk price has been cheese, particularly fresh cheese that's less than 30 days old and traded on the CME Dairy Spot Call Auction platform.  While CME spot cheddar blocks have experienced a steady incline in price throughout 2019, it wasn't until August 29th (my birthday - it was my birthday present to dairymen everywhere!) that we began our volatile move higher.  The block price has risen roughly $0.29/lb.  Barrels are up $0.21/lb in that particular time period as well.

Today, Global Dairy Trade (GDT) Event 244 took place and resulted in the overall index settling 2% higher.  Rennet Casein was the lone product to fall in value softening just 0.1%.  Products to note included butter gaining 2.7% to $1.8275/lb, skim milk powder was up 3.4% to $1.1785/lb, and whole milk powder added 1.9% of value to $1.42/lb.  The GDT cheddar price grew by 0.4% to $1.745/lb, but this ended up being the precursor to today's product and Class III selloff.  See below for full results. 

Disappointment in GDT cheddar trade was very apparent.  Cheese traders in the U.S. market were looking for a significant advancement in the Oceania cheddar value to support the higher prices currently trading domestically.  As a result, traders reacted in a negative fashion as they came to grips with how far the United States has out-priced itself to the world market in the export space.  Cheddar blocks ended Tuesday's session $0.0675/lb lower on eight trades, barrels lost $0.05/lb, and fourth quarter 2019 milk fell 52-75 cents/cwt.       

While Tuesday's trade in dairy is going to go down as a tough pill to swallow after witnessing prices that we haven't seen since 2014, opportunity is still available.  October is trading near $19/cwt, November is north of $18.00, December at $17.30, and the first half 2020 average is above $16.50/cwt - less than $0.50/cwt from the peak established in July.  Give us a call to talk through strategies best suited for your operation.