April 4, 2014 — The Global Dairy Trade (GDT) auction has dropped three sessions in a row and product prices have plummeted. GDT Cheddar, for example, on Tuesday finished at
$2.0130 per pound, while the CME price, Thursday, jumped 3.75 cents, to $2.4225, almost 41 cents above the GDT price and remains the highest priced cheese in the world. Was this a delayed April Fool’s? FC Stone dairy broker Dave Kurzawski, speaking in Friday’s DairyLine, said it certainly seems that way. The CME block market is a “fresh block market, a young cheese between 4 and 30 days old” Kurzawski explained. “It’s a small sliver of what’s really going on and that market still seems to be very tight.” That said, Kurzawski expects to see some pushback, both domestically and internationally, plus, he warned that having the world’s highest priced cheese has “put a target on our back” and could potentially attract cheese imports. He adds that barrels are “sluggish” but “a bid could come along just to tighten up the spread,” which is now at 19.25 cents.
When asked how significant the GDT auction is, as some suggest it’s too thinly traded to give much credence to, Kurzawski shot back, “We don’t have a global price index outside of the GDT. That’s our best guess for what’s happening globally.” “You can say what you want about the liquidity on it but, at the end of the day we are looking at the best price discovery mechanism that we have for a global dairy price.”
When asked about butter and powder, Kurzawski pointed out that “powder led the Class III up and powder led the whole dairy complex up but you’re starting to see real weakness on the GDT which was down in both those areas.” Butter was down 11%, he said, skim milk powder was down 9.6%, and whole milk powder was off 8.6%.
“These are some big numbers and the GDT was down 4%, two events ago, then 5.2% in the next event, and down 8.9% on Tuesday. The market is trending lower,” he said. “That doesn’t mean it will always trend lower but it does mean that we have to find a price where buyers are willing to come back in.”
He views the GDT as “the canary in the coal mine” for U.S. prices and he believes U.S. prices will ultimately follow “to some degree.” However, he does not see block cheese plunging to $1.70 but suggests “They’ll come down at some point, perhaps $2, $1.90, or $1.95.”