Market report suggests Dairy producers seeing light in tunnel

Market report suggests Dairy producers seeing light in tunnel

Even as the U.S. House of Representatives was poised to vote May 15 on a $3 trillion coronavirus relief bill termed the HEROES Act — the fifth such bill. Dairy prices got another shot in the arm Mother’s Day week due in large part to Uncle Sam’s surprise buying spree announced on May 8.

FC Stone dairy broker Dave Kurzawski wrote, “Initially, the USDA had signaled they would be buying $100 million per month, so we were only expecting $150 million of dairy purchases in round one instead of the $317 that was announced.”

“The program can only award new contracts as long as the national emergency declaration remains in effect,” Kurzawski said. “When the Trump administration declares that the emergency is over, USDA won’t be able to run any further rounds of this program; so USDA appears to be front-loading the program.”

The Dairy and Food Market Analyst reported, with the U.S. Department of Agriculture’s ‘Blue Apron’-style Coronavirus Relief program, “In total, the government bought $1.2 billion worth of food products. Included in that is $317 million of dairy products for delivery between May 15 and June 30.” But the Analyst warned if this purchase rate is sustained, USDA will deplete the $3 billion in corona funds by September.

“USDA allocated approximately 31 percent of the announced food purchases to dairy products, including about 749 million pounds for fluid milk, 31 million pounds for cheese, and 7.4 million pounds for butter.”

Analyst and editor Matt Gould estimates, “Uncle Sam is buying dairy products equal to approximately 5 percent of U.S. milk production between May 15 and June 30, one in 20 loads, for four and a half months.”

He added, “The government must have money burning a hole in its pocket because USDA also announced a $120 million ‘Section 32’ purchase for cheese and butter to take place in July and August.”

Gould estimates that Section 32 purchase will total about 23 million pounds of cheese and 3.6 million pounds of butter per month. Combining those two programs (Blue-Apron-style and Section 32), USDA could end up procuring as much as 4 percent of the cheese produced per month and 6.5 percent of the butter.”

A down side concern is cannibalization of retail sales, warns Kurzawski. “When USDA was only handing out 2-5 million pounds of cheese per month, the reduction in retail sales because of the free cheese was pretty small. But if the government is handing out 50 million pounds of free cheese every month, how much will that reduce retail sales? 10 million pounds? 20 million pounds? There is going to be an impact there. Same for fluid milk and butter.”

Food service sales improved by 2 percentage points in the most recent week of data, according to FC Stone, but they were still down 45 percent from a year ago. Dine-in restaurants in Texas saw an 11-point improvement in sales as their stay-at-home order was lifted; but quick service restaurants only saw a 3.4-point improvement.

Meanwhile, HighGround Dairy’s Director of Dairy Market Intelligence, Lucas Fuess, questioned USDA’s increased estimate on 2020 milk production in this week’s World Agricultural Supply and Demand Estimates report.

Speaking on the May 18 Dairy Radio Now broadcast, Fuess said milk output was reduced 5 to 10 percent the last few weeks. In many cases those reductions were mandated by milk handlers due to concern over rising spring flush output.

Fuess credited the recovering dairy prices to restaurant and food service increases, along with government dairy purchases, but warned that he’s not sure if those prices will hold after the USDA steps out of the market in June and July. The key factor then, he said, will be restaurants reopening and or customers being comfortable enough to return to them.

Cash cheese prices soared Mother’s Day week, pulling Class III futures higher. The cheddar blocks closed May 15 at $1.78 per pound, up 47.5 cents on the week, the highest since March 25, and 10.75 cents above a year ago.

The barrels finished at $1.72, 45 cents higher on the week and 9.5 cents above a year ago. Five carloads of block exchanged hands on the week at the Chicago Mercantile Exchange and 15 of barrel.

Cheese market tones were “resolutely more positive this week,” according to Dairy Market News. Midwest cheese manufacturing is busy and plant managers have increased output as food service orders have shifted much higher in recent weeks. Retail orders remain steady to stronger. Milk availability has begun to reflect upward production trends and spot milk Class plus price overages have been reported for only the second time this year, but are expected to continue, says Dairy Market News, while contacts say “discounts may be nowhere to be found.”

Western cheese sales were a bit more active this week. U.S. prices have indeed strengthened, but are below usual levels and competitive (when compared to the rest of the world), so that has motivated international purchases. The market continues to recuperate from the effect of Covid-19. Cheese intakes from restaurants and food services were more active this week as a few of them reopened after being closed for a couple of months. Retail demand was steady compared to the previous week, but higher than normal. Cheese supplies are plentiful and storage continues to tighten. Production was unchanged to lower.

Butter also shot higher this week with a May 15 close at $1.6450 per pound. This is up 35.5 cents on the week, but 69.5 cents below a year ago, with 39 cars sold.

Butter market tones are strengthening, according to Dairy Market News, but butter producers report more changes are afoot. Cream availability has tightened, notably. Cream prices currently remain within reach for churning but that is changing. Retail butter demand is strong and while food service demand is lighter when compared to previous years, it has definitely grown, in some cases multiplied, when compared to previous weeks. Butter plant managers are concerned about fourth quarter supplies, says Dairy Market News, and are preparing to manage production and inventories.

Grade A Nonfat dry milk closed May 15 at 93.50 cents per pound. This is up 11 cents on the week, but 11.25 cents below a year ago, on 27 sales.

Whey inched up to 40.25 cents per pound on May 11 (the highest since January 2019), but closed at the end of the week at 39 cents. This is down 0.75 cents on the week, but 5 cents above a year ago on 11 sales for the week.

As mentioned earlier, the USDA raised its 2020 milk production estimate in its latest WASDE report — based primarily on higher-than-expected cow numbers. The report also gave us our first look at what the Department sees in 2021.

2020 production and marketings were estimated at 222.4 and 221.3 billion pounds respectively, up 200 million pounds on production and 100 million pounds on marketings. If realized, 2020 production would be up 4 billion pounds or 1.8 percent from 2019.

2021 production and marketings were estimated at 224.1 and 223.1 billion pounds respectively. If realized, 2021 production would be up 1.7 billion pounds or 0.8 percent from 2019.

Cheese and whey price forecasts were raised from the previous month resulting in a higher Class III milk price forecast. Look for a 2020 average of $13.35 per hundredweight. This would be up 60 cents from last month’s even bleaker estimate, and compares to $16.96 in 2019 and $14.61 in 2018. The 2021 average was projected at $14.20.

Butter and nonfat dry milk price forecasts were lowered, resulting in a lower Class IV price estimate, now put at $11.90. This is down 25 cents from last month’s projection, and compares to $16.30 in 2019 and $14.23 in 2018. The 2021 Class IV average was estimated at $12.20.

Dairy farmers and dairy processors around the world took aim this week at the European Union which is poised to begin government-financed intervention purchases of skim milk powder and butter.

They called on the EU to “avoid the market-distorting practices that significantly harmed them and the broader global dairy market in the past,” according to a joint press release from National Milk and the International Dairy Foods Association.

“A coalition of dairy organizations from Argentina, Brazil, Chile, Costa Rica, Ecuador, Guatemala, Mexico, Paraguay, Uruguay and the United States warned, “Exporting large quantities of government-purchased SMP and butter at below-market rates onto the world market will prolong the deeply challenging environment under which dairy sectors are operating worldwide.”

They stated, “The EU intervention program would artificially distort prices for an extended period and displace commercial competition just as the world begins to recover from the immediate impacts of the Covid pandemic. The groups urged the EU to adopt measures to spur consumption within the EU and encourage its producers to implement appropriate production practices to survive during this difficult time.”

Cooperatives Working Together member cooperatives accepted 11 offers of export assistance this week from CWT to help capture sales of 1.27 million pounds of cheddar and Monterey Jack cheese, 1.118 million pounds of butter, and 546,747 pounds of whole milk powder.

The product is going to customers in Asia, the Middle East and South America through September and raised CWT’s 2020 exports to 17.346 million pounds of American-type cheeses, 5.758 million pounds of butter (82 percent milkfat), 1.96 million pounds of anhydrous milkfat, 2.477 million pounds of cream cheese, and 18.428 million pounds of whole milk powder. The product is going to 24 countries and is the equivalent of 497 million pounds of milk on a milkfat basis, according to CWT.

The dairy markets will plenty to feed on next week, starting with the Global Dairy Trade auction on May 19, April Milk Production report on May 20, plus the April Cold Storage and Slaughter reports on May 21.

 

Source: The Land/Mielke Market

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