In your December 2020 issue . . .

CHEESE MARKETS TOOK A TUMBLE during November trading on the CME. Spot Cheddar blocks slid from $2.78 to $1.57-3/4 per pound during a 30-day window beginning on November 2. During those same sessions, spot Cheddar barrels fell from $2.53 per pound to settle at $1.40-1/2.

OUTSIDE OF DECEMBER, FUTURES MARKETS had largely accounted for a potential adjustment to cheese prices. Throughout November, Class III futures slowly adjusted from a $17 average to $16.40 per hundredweight (cwt.) for January to March contracts. On the flip side, the same bundle of Class IV contracts improved from $14 to $14.75 per cwt.

AS CLASS III AND IV PRICES more closely align, negative producer price differentials (PPDs) should begin to evaporate from milk checks.

STRONG DEMAND FOR CHEESE during the coronavirus pandemic helped prop up cheese prices in recent months. Nate Donnay of StoneX estimated that the federal government purchases likely added 64 cents (+28.6%) to the CME block price from May through November. As for butter, government purchases added 31 cents (+20.1%) to prices.

LONG-TERM CLASS III FUTURES actually gained ground throughout November. At the beginning of the month, April to October Class III contracts averaged $16.50 and slowly gained strength moving to $17. Class IV also improved, climbing from $15.60 to $15.90 over the 30 days.

THE SUNSET OF USDA’S FOOD BOX PROGRAM isn’t the only reason cheese prices recalibrated in November. Milk production continued to show unquestioned strength. Nationally, October milk grew 2.5% when compared to the same time last year. That was on top of 2% growth in July, a 1.9% gain in August, and a 2.4% jump in September.

PROTEIN CONTINUED TO CARRY MILK CHECKS in November at $5.62 per pound. That figure matched the July 2020 record for protein priced under the federal order system. Butterfat drew $1.55 per pound, and that figure was off 9 cents from October.

DESPITE THE MARKET VOLATILITY, Class III futures for the first half of 2021 are better than any outcome witnessed since the big run of 2014, Mike North points out in the article on page 698. Although the Dairy Margin Coverage program may be closed for 2021, a number of opportunities remain via Dairy Revenue Protection (DRP).

DECEMBER 1 TRADING AT GLOBAL DAIRY TRADE (GDT) showed the biggest improvement since early July. The seven-dairy-product bundle traded 4.3% higher than two weeks earlier. GDT is based in New Zealand, the world’s largest dairy product exporting country, and activity on that platform is a harbinger for dairy product sales throughout Asia.

CHINA CONTINUED TO STEP UP its dairy product purchases as nearly every category showed gains over the previous year. As countries emerge from the pandemic, the Organization for Economic Cooperation and Development (OECD) predicted China could be the biggest economic winner with a 9.7% improvement in fourth quarter GDP in 2021.

MEXICO, AMERICA’S TOP DAIRY CUSTOMER, may struggle economically in the coming year, predicted OECD. Only Argentina and the United Kingdom could have longer economic roads to recovery.

BRIEFLY: Canada stepped up compensation to dairy farmers hurt by recent trade pacts. Instead of releasing $1.1 billion over eight years, the Ministry of Agriculture and Agri-Food consolidated that time line to a three-year window. Milk, not soda, will become the default beverage in kid’s meals at restaurants in Maryland’s Prince George’s County.