January 18, 2021 at 9:05 p.m.

USDA approves $1.5 billion for food box program

By Lee Mielke- | Comments: 0 | Leave a comment

    U.S. Agriculture Secretary Sonny Perdue announced January 4 that USDA will purchase an additional $1.5 billion worth of food for nationwide distribution through the Farmers to Families Food Box Program. The Department has distributed over 132 million food boxes, according to a USDA press release.
    Funding for the program was included in the just-passed COVID-19 relief package as part of the Consolidated Appropriations Act and HighGround Dairy says “In this fifth round of purchases, USDA will again purchase combination boxes to ensure all involved recipient organizations have access to fresh produce, dairy products, fluid milk and meat products, and seafood products.”
    StoneX Dairy says “With food box and Section 32 purchases we should be looking at the government buying 2% of milk production February through April, and maybe as much as 3% in April if the dairy donation program ramps up with moderate participation.”
    But, StoneX warned: “We’re encroaching on a place where market participants feel as though there may be little to no downside to milk and cheese markets because of the USDA. Forget about setting a floor price, thus the CME put options or Dairy Revenue Protection Insurance, the USDA is again providing pandemic put options. Eventually, and this may be a year down the road, USDA bids will likely go away and the market will have to trade its own merits.”
    HighGround Dairy’s (HGD) Lucas Fuess reminded us, in the January 11 “Dairy Radio Now” broadcast that this is the program that drove intense volatility in 2020 and HGD believes CME block Cheddar could get as high as $2.25 per pound in the near term as vendors scramble to procure dairy products to fill these boxes.
    Fuess said as many as 40 million boxes may be sent to families in need across the country and they will keep dairy prices supported, with the caveat that strong U.S. milk production may temper the price gains to farmers.
    HGD also warned that “While this food box spending is significant, it is important to remember there are some bearish factors in this announcement. The pandemic remains worrisome, with the vaccine rollout proceeding slower than expected, and this is negative for anticipated foodservice demand, especially in Northern cities like New York and Chicago where indoor dining is closed and outdoor dining is not ideal during the winter.”
    HGD predicts cheese exports will be lower in the coming months, as U.S. prices become less competitive, and milk and cheese production will be strong through the Spring Flush, coupled with lower foodservice demand.
    Meanwhile farmers face rising feed costs as seen in last week’s Ag Prices report. Much of the increase is from strong demand from China, according to the Daily Dairy Report (DDR), and “concerns about empty grain bins and dry weather in South America,” which banned corn exports until new supplies arrive in March.
    You’ll recall November U.S. milk output totaled 18.0 billion pounds, up 3.0% from November 2019. The latest Dairy Products report shows where the milk went.
    Cheese output totaled 1.1 billion pounds, down 2.7% from October and just 0.6% above November 2019. Year to date cheese output was at 12.1 billion pounds, up just 0.4% from a year ago.
    Wisconsin produced 275.5 million pounds of that November total, down 5.1% from October and 1.4% below a year ago. California output, at 200.7 million pounds, was up 0.2% from October and 7.7% below a year ago. Idaho, with 83 million pounds, was down 3.3% from October but 7.6% above a year ago.
    Italian type cheese fell to 457.5 million pounds, down 2.4% from October and 3.1% below a year ago. YTD Italian was at 5.1 billion pounds, down 1.4%.
    American type cheese totaled 449.2 million pounds, down 2.8% from October but 3.9% above a year ago. YTD American hit 4.9 billion pounds, up 2.2%.
    Mozzarella output was at 362.8 million pounds, down 3.3% from a year ago, and signals that pizza sales have not kept pace with prior-year levels, according to the DDR. YTD mozzarella was at 4.0 billion pounds, down 1.6% from 2019.
    Cheddar, the daily traded cheese at the CME, slipped to 320.7 million pounds, down 8.3 million pounds or 2.5% from October but was 11.5 million or 3.7% above a year ago. YTD Cheddar was at 3.5 billion pounds, up 2.8%.
    U.S. churns gave us 168.3 million pounds of butter, up 2.9 million pounds or 1.8% from October, highest November total ever, and 6.4 million or 4.0% above a year ago. YTD butter was at 1.91 billion pounds, up a hefty 5.8% from 2019.
    Yogurt totaled 317.7 million pounds, down 0.6% from a year ago, with the YTD total at 4.1 billion pounds, up 2.2%
    Dry whey output totaled 70.6 million pounds, down 4.2 million pounds or 5.5% from October and 4.5 million or 5.9% below a year ago, with YTD at 875.8 million pounds, down 2.4% from 2019.
    Dry whey stocks totaled 67.3 million pounds, down 1.2% from October and 14.9% below those a year ago.
    On a more bearish note, nonfat dry milk output shot up to 151.7 million pounds, up 13 million pounds or 9.3% from October and 12.8 million or 9.2% above a year ago. YTD powder was at 1.73 billion pounds, up 2.7% from 2019.
    Stocks, at 250.3 million pounds, were up 15.1 million pounds or 6.4% from October and an eye catching 27.7 million pounds or 12.4% above a year ago.
    Skim milk powder production slipped to 54.4 million pounds, down 2.8 million pounds or 4.8% from October, but 3.4 million pounds or 6.8% above a year ago. YTD skim milk powder was at 510.2 million pounds, up a hefty 11.7% from 2019.
    The first Global Dairy Trade auction of 2021 shot higher with the overall weighted average up 3.9%, following a 1.3% gain on December 15 and 4.3% December 1.
    The average winning price was $3,400.00 U.S., highest since January 21, 2020. Traders brought 66.8 million pounds of product to market, down from 69.9 million on December 15.
    All products offered saw gains, with some prices the highest in years, led by lactose, up 7.4%, after a 1.5% rise on December 15. Butter was up 7.2%, following a 6.0% jump, the seventh consecutive session of gain, and anhydrous milkfat was up 5.5%, after climbing 1.9%. GDT Cheddar was up 5.0%, following a 4.2% boost. Skim milk powder was up 4.1%, following a 1.2% rise, and whole milk powder was up 3.1%, after inching 0.5% higher last time.
    StoneX equated the GDT 80% butterfat butter price to $2.0030 per pound U.S., up 13.5 cents from the last event, which saw a 10.4 cent gain. CME butter closed Friday at a huge bargain $1.38. GDT Cheddar cheese equated to $1.8498 per pound, up 8.4 cents, which followed a 7.2 cent gain, and compares to Friday’s CME block Cheddar at $1.9175. GDT skim milk powder averaged $1.3805 per pound, up from $1.3290, and whole milk powder averaged $1.4996, up from $1.4560. CME Grade A nonfat dry milk closed Friday at $1.19 per pound.
    In other trade news; November U.S. dairy exports didn’t give us a lot to cheer about. Cheese exports totaled 52.8 million pounds, down 15.8% from November 2019, and saw the lowest volumes recorded since January 2017, according to HGD, dragged lower by weak demand from Mexico, down 38%.
    HGD says total dairy exports to Mexico had been below a year ago in every month in 2020. The exception was nonfat dry milk in November, which was actually stronger following four months of losses.
    Nonfat dry milk/skim milk powder exports totaled 137.1 million pounds, down 7.7%, while whole milk powder exports, at 8.0 million pounds, were up 8.9%.
    Dry whey totaled 37.0 million pounds, up 35.7% from a year ago, much of that due to China’s rebuilding its hog population.
    Cash cheese prices started the first week of 2021 with the blocks losing 3.25 cents on Monday and the barrels were down 6 cents. Then came Tuesday’s GDT and the USDA food box program announcement and presto, the reversal was on.
    The blocks shot up 6 cents Tuesday and closed the week at $1.9175 per pound, up a whopping 26.75 cents on the week, highest CME price since November 12, 2020, and 4.75 cents above a year ago.
    The barrels gained 7.25 cents Tuesday, 8.50 cents Wednesday, and closed at $1.6525, 11 cents higher on the week, 13 cents above a year ago, but 26.5 cents below the blocks. There were 36 cars of each that traded hands on the week.
    Class III futures moved sharply higher as well. The January contract settled Thursday at $16.85; February, $19.46; and March at $19.13 per hundredweight.
    Central cheese producers are very busy, says Dairy Market News, with some plants reporting staff shortages, particularly those in more rural areas. The shortages were not solely due to COVID-19. Contacts pointed to running six and seven day workweeks over the holidays as a hurdle, but there were few options, considering the surplus of milk. Spot milk prices were at or near holiday levels.
    There was good news regarding demand. Although some cheesemakers reported some softening from Eastern customers due to COVID-19 related restrictions, others said interest levels have shifted higher. Cheese market tones are positive following news of the continuation of food box programs, says DMN.
    Manufacturers say sales for western cheese going into pizza have been strong throughout the fall and winter and many think that will continue for the near term. Retail orders are firm as grocers restock shelves following the holidays and, while food service demand is still sluggish, some think the food box resumption will help clear cheese stocks. Inventories are balanced to heavy. Some contacts think market speculators are making purchases and putting cheese into storage within a cash and carry strategy. Manufacturers say production is active with plenty of milk for the cheese vats.
    Spot butter was caught in the updraft after dropping Monday to $1.3950 per pound. It gained 5.25 cents Tuesday but then fell Wednesday, and finished Friday at $1.38, down 4 cents on the week, lowest since November 30, 2020, and 54 cents below a year ago, with 14 carloads trading places.
    The USDA issued Section 32 solicitations for butter to be delivered in February and March, according to StoneX, but the volume was about half of what they were expecting; 5.2 million pounds, versus the 12.5 million they expected.
    Butter markets also got a boost from the food box news, says DMN. Central churning resumed following the holidays, as there’s lots of cream available, locally and from the west. Some managers said cream trucks were lined up in some cases outside their plants. Food service butter sales are well below last year but plants are waiting for customers to settle in following the holidays.
    Western butter sales have since quieted. Retailers are restocking shelves but orders are coming in sporadically. Food service demand is weak. Butter production is active and manufacturers have ample supplies of cream. Western butter stocks are heavy, especially for bulk butter, says DMN.
    Grade A nonfat dry milk closed Friday at $1.19, up 4.75 cents on the week but 8.25 cents below a year ago, with 27 cars exchanging hands.
    StoneX says powder stocks were higher than expected and exports were lower than expected and thus question the price strength but add; “The price action is keeping pace with the global strength.”
    CME dry whey marched to a Friday close at 50 cents per pound, 3.75 cents higher on the week, highest since January 18, 2019, and 15.25 cents above a year ago. Only 2 sales were reported on the week at the CME.
    Dairy cow culling was down, as is typical during the holidays. In the week ending December 26, 44,100 dairy cows were sent to slaughter, according to the USDA, down 18,900 head from the previous week and 3,200 or 6.8% below a year ago.
    The rolling four-week average hit 58,775, up 3,675 head from the previous four weeks, but 2,125 head or 3.5% less than a year ago.
    Last of all, U.S. milk production is steady to higher across much of the United States, according to DMN’s weekly update. Spot milk loads were heavily discounted in the first week of 2021.
    Midwest contacts reported spot milk at $10 to $5 under Class III. Bottling demand had increased ahead of the winter holidays but slowed during New Year’s Week. Some contacts expected Class I sales to pick up by the end of the week as some schools prepare to reopen. Cream supplies are plentiful and surpassing the immediate demand of buyers, according to DMN.


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