May 10, 2021 at 6:37 p.m.

Average feed costs rise more than $5 from 2020

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

U.S. dairy farmers are feeling the squeeze. Average feed costs are up more than $5.00 per hundredweight compared to a year earlier, according to the April 23 Dairy and Food Market Analyst (DFMA). “A low-cost dairy farmer that broke-even at $15.00 per cwt milk in 2020 will now need $20.00 to make money,” the DFMA stated. “That means many milk producers, especially those that are buying spot feed and are receiving a milk price that is close to Class IV, are deep in the red.”
We talked about it in the May 3 Dairy Radio Now broadcast with StoneX dairy broker Dave Kurzawski who said the Class III milk price was keeping up so far and butter, and nonfat dry milk particularly, are helping the Class IV market.
 “Milk is liquid corn at some point,” he said. “And it’s going to matter that corn prices, as we speak, are over $7 on the old crop May contract and we haven’t even gotten into the growing season yet. We have weather ahead of us as well as other demand issues, anything can come out of the woodwork and change the market tempo and tenor at any given time. It’s going to be a challenging year for dairy producers on the feed side and I think that’s going to mean less milk in the second half of the year.”
The other unknown is dairy dem”nd and, while demand looks good as COVID restrictions allow more restaurants to return to normal, there’s a lot of uncertainty as to what government purchases will be.
Kurzawski said that’s “the dark cloud in the market right now,” with the Food Box program ending May 31. Those purchases will end in Mid-May, he said, and will leave a bit of a hole in the market, but he sees continued strong growth in restaurant demand. The Administration however is looking at increases in the SNAP and WICK programs and that could mean a weakening for dairy product demand as we enter the second half, according to Kurzawski.
“Just because corn prices are going up, doesn’t necessarily mean that the dairy market is going to deliver you an excellent price,” he concluded. “It will happen at some point but there’s going to be challenges over the next six to nine months.”
CME cash dairy prices ended April stronger for the most part. The Cheddar blocks finished at $1.80 per pound, up 0.75 cents on the week, 2.50 cents above their April 1 posting, and 59.50 cents above that week a year ago.
The barrels closed Friday at $1.8350, up 3 cents on the week, 32.25 cents above the April 1 perch, 64.50 cents above a year ago, and 3.5 cents above the blocks. Sales totaled 24 of block on the week and 87 for the month, up from 31 in March. Barrels totaled 12 for the week, with 85 for the month, up from 28 in March.
Cheese market tones are remaining solid, according to Dairy Market News, and Midwestern producers are running active schedules. The spot milk price range ticked higher the previous week and seemed to hold this week, though most contacts suggest there’s enough milk to go around. Demand remains strong but buyers are more hesitant regarding how much cheese they take. Customers are buying on a necessity basis and don’t want to get caught holding extra loads if markets shift, although inventories are “generally moving out the door.”
Western retail cheese demand held steady this week. Food service demand is still shifting higher, though some contacts report sales are beginning to level off. Asian export demands have shifted higher in recent weeks. Plenty of milk is available in the region, as producers continue to run full schedules.
The StoneX Group wrote in the April 26 Early Morning Update; “It was surprising to see the spot strength following the bearish milk production and cold storage reports but looking at how well food service sales performed in March, a solid 10% above 2019 levels, it seems as though cheese makers lean on the side of optimism on their cheese sales and are no longer afraid to restrict production.”
Cash butter closed Friday at $1.7525, down 1.75 cents on the week, 9.25 cents lower on the month, but 56.50 cents above a year ago. There were 21 CME sales on the week and 108 for the month, up from 73 in March.
Food service butter demand has ebbed somewhat from a few weeks ago when upticks due to easing of COVID-19 restrictions were boosting demand. Retail demand is lackluster. Butter inventories are generally balanced. Plant managers report that cream was a little tighter but butter market tones are “uncertain.”
Cream abounds in the West but availability may be tightening slightly as ice cream makers pull increasing large volumes of cream. Butter inventories are fairly stable. DMN says food service butter orders remain on an upward trajectory overall as dine-in restrictions have been relaxing however some contacts expect bulk butter demand to waver a little as some counties are now heightening public activity restrictions in response to rising COVID cases and hospitalizations. Retail butter demand is termed steady, says DMN.
Grade A nonfat dry milk climbed to the highest level it has seen since Oct. 17, 2014, up 7.25 cents on the week and 53.25 cents above a year ago. There were 16 sales on the week, 62 for the month, down from 72 in March.
CME dry whey, after setting the highest price ever the week before, fell back to 64.50 cents per pound Monday, then pushed higher. It ended the week and the month at 66 cents per pound, up 4 cents on the week and 26.50 cents above a year ago. There were 6 sales on the week and 17 on the month, up from 14 in March.
African Swine Fever in China is still a concern many market participants have and what that will mean for feed demand, according to StoneX, “but the Chinese government continues to not acknowledge it.”
Speaking of China, the April 23 Daily Dairy Report delved into its growing dairy demand, pointing out that, with 1.4 billion people, it is the world’s most populous country. But China has been a minimal consumer of dairy products because many Chinese people are lactose intolerant.
The DDR stated that China consumed 77 billion pounds of milk in 2020, which equates to about four month’s worth of U.S. milk production, according to a recent USDA Global Agricultural Information Network report. Last year, China’s consumption increased 3% over 2019, with a similar gain expected in 2021.
“Government initiatives helped drive this remarkable jump in demand,” according to the DDR. “The government promoted milk as a healthy food necessary for growth as well as an excellent source of protein,” but China will have to rely on imports. The DDR says “China’s land base is limited, and most of its milk is produced in the northern part of the country, also home to the Gobi Desert, the fastest growing desert in the world. Domestically grown feedstocks are also limited, with grains and alfalfa imported, which increases the cost of production.”
Writing in the April 23rd Milk Producers Council newsletter, the DDR’s Sarina Sharp, stated; “China’s aggressive purchases have largely cleaned up New Zealand’s dairy product stockpile. In Europe, slower milk output has tightened their exportable inventories, particularly for milk powders. January and February European SMP production was 7% lower than the prior year, adjusted for leap day. As long as we can secure the containers and ships needed to send product abroad, the U.S. is well-positioned to capture a greater share of the burgeoning market, welcome news because we have a lot of milk to move,” says Sharp.
Back on the home front; U.S. milk production totaled 223.2 billion pounds in 2020, up a hefty 2.2% from 2019, or 1.9% factoring the extra Leap Day. This week’s annual Dairy Products Summary shows where the milk went.
Cheese output totaled a record 13.3 billion pounds in 2020, 0.9% above 2019. Wisconsin remained the biggest cheese producer, accounting for 25.6% of total cheese production.
Italian varieties totaled 5.63 billion pounds, down 0.8% from 2019, and accounted for 42.4% of the total cheese output in 2020.
Mozzarella cheese accounted for 79.1% of the Italian group, followed by Parmesan at 7.4%, and Provolone at 6.5%. Again, Wisconsin was the leading producer of Italian type cheeses, at 29.3% share.
American type cheese output amounted to 5.34 billion pounds, 2.0% above 22019 output, and accounted for 40.3% of 2020 cheese. Wisconsin was the leading State again, with 19.9%. Cheddar totaled 3.8 billion pounds, up 2.4%.
U.S. butter production totaled 2.15 billion pounds, up 7.6% from 2019 and topped 2 billion pounds for the first time. California was the Number 1 butter producer, with 31.1% of total output.
Nonfat dry milk for human consumption totaled 1.99 billion pounds, up 7.6%, while skim milk powder amounted to 695 million pounds, up 21.4% from 2019. And dry whey totaled 951 million pounds, down 2.7% from 2019.
In dairy politics, the National Milk Producers Federation requested an emergency USDA hearing on a Federal Milk Marketing Order proposal to “restore fairness for farmers in the Class I fluid milk price mover.”
An NMPF press release stated “The plan would ensure that farmers recover lost revenue and establish more equitable distribution of risk among farmers and processors. The current mover was adopted in the 2018 farm bill and intended to be revenue neutral while facilitating increased price risk management by fluid milk bottlers. But the new Class I mover contributed to disorderly marketing conditions last year during the height of the pandemic and cost dairy farmers over $725 million in lost income. NMPF’s proposal would help recoup the lost revenue and ensure that neither farmers nor processors are disproportionately harmed by future significant price disruptions,” NMPF says.
“While the current Class I mover was designed to improve the ability of fluid milk handlers to hedge milk prices using the futures market, it was also expected to be revenue-neutral compared to the formula it replaced,” NMPF charged. “That has not been the case. The significant gaps between Class III and IV prices that developed during the pandemic exposed dairy farmers to losses that were not experienced by processors, showing the need for a formula that better accounts for disorderly market conditions.”
NMPF’s proposal would modify the current Class I mover, which adds 74 cents per cwt. to the monthly average of Classes III and IV, by adjusting this amount every two years based on conditions over the prior 24 months, with the current mover remaining the floor.
Meanwhile, four Midwestern dairy groups have joined in support of a proposal, of their own and include the Dairy Business Association (DBA), Edge Dairy Farmer Cooperative, Minnesota Milk, and Nebraska State Dairy Association.
A joint press release states that their plan is “aimed at creating long-term stability in fluid milk pricing and reducing the likelihood of negative producer price differentials that cut into farmers’ revenue last year during the pandemic,” and came about after they studied options early this year.
Referred to as “Class III Plus,” the plan “aims to build upon the current pricing system, recent proposals by dairy cooperatives, and dairy farmer petitions to define a better Class I pricing system,” the group stated.
“Our proposal looks to the future. It would make lasting changes to the milk pricing system that will limit negative PPDs in the future and the possible negative effects from future crises,” DBA President Amy Penterman, a Wisconsin dairy farmer, said.
“The Class III Plus proposal would, among other things, tie the Class I (fluid) skim milk price to the Class III (cheese) skim milk price plus an adjuster and do away with advanced pricing, a cause of the negative PPDs last year. The proposal is also revenue-neutral, therefore more equitable among farmers, processors and customers.”
“The recent call by cooperatives within the National Milk Producers Federation for an emergency FMMO hearing includes a proposal that improves a few components of the current pricing structure, but largely focuses on the short term and revenue that farmers did not earn in 2020,” the four groups said.
In the week ending April 17, 60,400 dairy cows were sent to slaughter, down 100 from the previous week and 7,400 or 10.9% less than that week a year ago.
The Agriculture Department’s latest Crop Progress report shows that 17% of the U.S. corn crop has been planted, as of the week ending April 25. That’s 7% behind a year ago and 3% behind the five-year average. The report shows 3% is emerged, unchanged from a year ago.
The data shows 8% of the soybeans are in the ground, up 1% from a year ago and 3% ahead of the five year average, and 12% of the cotton crop has been planted, 1% below a year ago but 1% ahead of the five year average.
Cooperatives Working Together (CWT) members accepted ten offers of export assistance this week from CWT that helped capture sales of 524,700 pounds of cheese and 826,734 pounds of butter. The product is going to customers in Asia, Central America, North Africa, and South Africa from May through August 2021.
CWT’s 2021 sales total 14.2 million pounds of American-type cheeses, 9.9 million pounds of butter (82% milkfat), 5.8 million pounds of Anhydrous Milk Fat, 15.8 million pounds of whole milk powder, and 4.7 million of cream cheese. The products are going to 26 countries and the equivalent of 664.6 million pounds of milk on a milkfat basis.


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