February 15, 2021 at 2:28 p.m.
Tight margins return to U.S. dairy farms
Late Friday morning futures portended a February Class III at $15.62; March, $16.60; April, $17.10; May, $17.46; June, $17.59; July, $17.69; August, $17.75; September, $17.75; October, $17.63; November, $17.54; and December $17.29.
The January Class IV price is $13.75, up 39 cents from December but $2.90 below a year ago.
You’ll recall December milk output totaled 18.94 billion pounds, up 3.1% from December 2019. The latest Dairy Products report shows where that milk went.
Cheese output totaled 1.13 billion pounds, up 2.6% from November and 0.5% above December 2019. Output for 2020 totaled 13.2 billion, up 0.4% from 2019.
Wisconsin produced 279.3 million pounds of that December total, up 0.9% from November and 1.2% above a year ago. California output, at 208.5 million pounds, was up 3.8% from November but 4.1% below a year ago. Idaho, with 85.5 million pounds, was up 2.7% from November but 3.8% below a year ago.
Italian type cheese totaled 484.7 million pounds, up 5.9% from November and 0.3% above a year ago. YTD Italian was at 5.6 billion pounds, down 1.2%.
American type cheese totaled 461.1 million pounds, up 2.9% from November and 1.0% above a year ago. YTD American hit 5.3 billion pounds, up 2.1%.
Mozzarella output, at 373.1 million pounds, was down 2.8% from a year ago, indicative perhaps of lagging pizza sales. YTD mozzarella, at 4.4 billion pounds, was down 1.7% from 2019.
Cheddar, the cheese traded at the CME, climbed to 334.2 million pounds, up 14 million pounds or 4.4% from November and 3.8 million or 1.2% above a year ago. Cheddar for the year totaled 3.84 billion pounds, up 2.7% from 2019.
Churns produced a December record of 205.5 million pounds of butter, up 32.3 million pounds or 18.7% from November’s total, which was revised up 4.9 million pounds, and was a bearish 21.7 million pounds or 11.8% above a year ago. Butter output for the year totaled 2.1 billion pounds, up 6.6% from 2019, and the first time butter production ever topped 2 billion pounds in a year.
Yogurt production totaled 355.5 million pounds, up 1.9% from a year ago, with the YTD total at 4.5 billion pounds, up 2.4%
Dry whey totaled 81.7 million pounds, up 12.3 million or 17.7% from November and 1.9 million or 2.3% above a year ago, with YTD at 956.2 million pounds, down 2.2%. Dry whey stocks fell to 65.7 million pounds, down 2.2% from November and 8.0% below those a year ago.
Nonfat dry milk output jumped to a December high 204.5 million pounds, up 45.3 million pounds or 28.5% from November and 39.6 million or 24.1% above a year ago. Powder production for the year hit 1.94 billion pounds, up 5.0% from 2019. Stocks, at 283.3 million pounds, were up 34.3 million pounds or 13.8% from November, and a bin bulging 35.9 million pounds or 14.5% above a year ago.
Skim milk powder production fell to 40.9 million pounds, down 11.5 million pounds or 21.8% from November and 24 million pounds or 36.9% below a year ago. YTD skim milk powder hit 603.5 million pounds, up 5.4% from 2019.
Global dairy prices remain firm. Tuesday’s Global Dairy Trade auction saw its weighted average rise for the sixth consecutive session, though the gain was smaller, at 1.8%. That’s down from 4.8% on January 19 and compares to a 3.9% rise on January 5, and a 4.7% drop on February 4, 2020.
The gains were led by buttermilk powder, up 10.7%. It did not trade in the last event. Butter was next, up 6.2%, following a 4.6% rise last time, but anhydrous milkfat was only up 1.3%, after leading the gains January 19, with a 17.2% jump. Lactose was up 3.8%, followed by GDT Cheddar, up 2.3%, after slipping 0.3% last time. Whole milk powder was also up 2.3%, following a 2.2% uptick, but skim milk powder was down 1.5%, only loss on the day, after jumping 7% last time.
StoneX Group equated the GDT 80% butterfat butter price to $2.2249 per pound U.S., up 13 cents from the last event, which saw a 9.2 cent rise. CME butter closed Friday at a huge bargain $1.2675. GDT Cheddar cheese equated to $1.8950 per pound, up 4.3 cents, and compares to Friday’s CME block Cheddar at $1.64. GDT skim milk powder averaged $1.4506 per pound, down from $1.4709, but whole milk powder averaged $1.5685, up from $1.5333. CME Grade A nonfat dry milk closed Friday at $1.12 per pound.
Cooperatives Working Together members accepted 32 offers of export assistance this week to help capture sales of 1.155 million pounds of cheese, 216,053 pounds of butter, 870,826 pounds of anhydrous milkfat, 1.812 million pounds of whole milk powder, and 1.351 million pounds of cream cheese. The product will go to customers in Asia, Central and South America, the Middle East, and Oceania through June.
Dairy prices were mixed in the first week of February, or mixed up, as traders weighed Tuesday’s GDT and the December Dairy Products report. The Cheddar blocks fell to $1.5350 per pound Thursday, lowest since May 12, but jumped 10.50 cents Friday to close at $1.64, up 6.50 cents on the week, reversing three weeks of decline, but were 29 cents below that week a year ago.
The barrels finished Friday at $1.50 per pound, up 11 cents on the week, 2.25 cents above a year ago, and reduced the spread to 14 cents. 19 cars of block were traded on the week at the CME and 14 of barrel.
StoneX Dairy’s Feb. 5 Early Morning Update stated; “With uncertain government purchases and the potential for increased food service business in the coming months, it seems 0.5% cheese production growth (Dairy Products report) is not enough to give cheese buyers peace of mind.”
Cheese contacts tell Dairy Market News that spot milk offers were quieter than in recent weeks but far from tight. Prices for spot milk remain at strong discounts. Cheese production is busy as managers keep ahead of the milk by producing cheeses that require aging. Winter weather hit the Northeast and added stress for Midwestern cheese producers who provide restaurants that will not be able to offer outdoor dining for the near term. DMN says “There are myriad questions regarding near and long term market conditions, as contacts’ outlooks are foggy.”
Western cheese is widely available and inventories are growing for most varieties as cheese output also tries to keep pace with the available milk. Cheese supplies are outpacing demand as retail sales decreased following the holidays and pizza cheese demand has eased some, with the football season ending. Super Bowl is characteristically the biggest cheese selling time of the year and hopefully that’s still the case. Food service demand has yet to see much improvement even as some areas relax COVID restrictions on restaurants. DMN says “Government purchases can help clean up some of the cheese stocks but market observers are also wary of the impact that additional purchases can have on price volatility.”
Butter dropped 3.50 cents Monday to $1.21 per pound, lowest since May 5, but jumped 8.25 cents Tuesday, spurred by the GDT, and ended Friday at $1.2675, up 2.25 cents on the week, but 56.50 cents below a year ago, on 23 sales.
Cream prices remain within reach for butter makers in the Central region, says DMN, but steadily growing ice cream production has some contacts reporting slight upticks on the multiples. Plant managers have said they are using primarily internally sourced cream, which is abundant. Butter production remains busy, although food service demand is “a shell of its pre-COVID-19 self,” says DMN, but retail demand has covered some of the lost ground. A few producers report that February has picked up some steam regarding bulk butter sales. DMN stated; “There are only a few weeks of old crop butter trading left on the CME, which typically offers at least a short term bullish shift.”
Western cream supplies are increasing seasonally and churns are on full schedules in many cases. Butter inventories are adequate for some, but heavier than anticipated for others, though domestic butter demand is described as good.
Grade A nonfat dry milk fell to $1.09 per pound Thursday, lowest since Nov. 24, but saw a Friday finish at $1.12, down 5.25 cents on the week and 13 cents below a year ago. A whopping 60 carloads exchanged hands on the week, including a single day record of 33 on Wednesday.
StoneX says “The conventional wisdom this year is that the slack in domestic powder demand was balanced by strong global markets. That dynamic likely still exists, but we do wonder if price weakness, even modest price weakness, on NFDM will increase domestic usage. With plenty of fluid milk available we don’t expect to hear about fortifying the cheese vats now, but maybe there is an attraction to the storability of powder.”
Dry whey held all week at 53.50 cents per pound, 14.50 cents above a year ago, with just 1 sale reported on the week at the CME.
Tight margins are returning to U.S. dairy farms as falling milk prices and rising feed costs take their toll. The USDA’s latest Ag Prices report shows the December milk feed ratio at 2.18, down from 2.58 in November and the lowest since May 2020, and compares to 2.57 in December 2019.
The index is based on the milk price in relationship to feed prices for a dairy ration consisting of 51% corn, 8% soybeans and 41% alfalfa hay. One pound of milk could purchase 2.18 pounds of dairy feed of that blend in December.
The US All-Milk price averaged $18.50 per hundredweight (cwt.), down $2.80 from November and $2.20 below the December 2019 average.
California’s All Milk price fell to $19.20, down $3.80 from November and 60 cents below a year ago. Wisconsin’s, at $18.10, was down $4.60 from November and $3.30 below a year ago.
The national average corn price averaged $3.97 per bushel, up 18 cents per bushel from November, which followed an 18 cent rise the month before, and a 21 cent rise in October. It was priced 26 cents per bushel above December 2019.
Soybeans averaged $10.50 per bushel, up 20 cents from November which followed a 67 cent rise from October, and $1.80 per bushel above a year ago.
Alfalfa hay averaged $169 per ton, up $2.00 from October but $3.00 per ton below a year ago.
The December cull price for beef and dairy combined averaged $58.10 per cwt., down $1.20 from November, after dropping 70 cents in November from October, and is $1.20 below December 2019 and $13.50 below the 2011 base average of $71.60 per cwt.
Milk cow replacements averaged $1,360 per head in January, up $20.00 per head from October and $60 above January 2020. They averaged $1350 per head in California, unchanged from October but $50 per head below a year ago. Wisconsin cows averaged $1,470 per head, up $50 per head from October and $210 per head above January 2020.
In the week ending January 23, 2021, 67,900 dairy cows were sent to slaughter, up 500 from the previous week and 100 head or 0.15% above a year ago.
StoneX says “This may be a sign that the bearish market pressure is encouraging cows to be culled, but given that cull prices are still at a discount to 2020 levels we’re inclined to believe that this slaughter is from cows that were held back to add production when prices were higher last year.”
The February 1 Early Morning Update says “January marked the first month in the last six that dairy cows were being killed faster than replacements were being put into the herd. As both production and components have been stronger than anticipated recently, it is likely that if slaughter does not maintain this pace then supply will continue to outpace demand by a larger margin.”
Clouds hang on dairy’s horizon. U.S. milk output is gushing and several cooperatives have instituted supply management programs, even as milk is being dumped in some regions. Feed prices are rising rapidly. Dairy demand is uncertain, even with the arrival of COVID vaccines, and we don’t know how the new administration will operate government feeding programs and assistance.
Matt Gould, editor and analyst of the Dairy and Food Market Analyst newsletter, added one in the February 8 Dairy Radio Now broadcast, namely a shortage of shipping containers on the West Coast which, he said, is backing up inventories and hampering dairy exports.
This all has brought volatility and tension, he said. We saw extremes in 2020, cheese as low as $1 per pound and months later at $3, but he believes 2021 will be less extreme with milk prices “in the middle.” “We’re seeing craziness in the first half of the year,” he concluded, “If we can get through it, we’ll see a reverse pandemic in the second half, with solid dairy demand and dairy farmers should be just fine.”