Much of the USA and world remains virtually paralyzed under the unseen enemy, COVID-19, and there is no person or industry not affected. The only “normal” ahead may be a setting on a dryer. US dairy prices have been decimated with CME cheese falling to levels not seen in 20 years. As I outlined last week, the National Milk Producers Federation and the International Dairy Foods Association have joined to propose steps Uncle Sam should take to save America’s dairy farmers and dairy processors.
    Chicago-based HighGround Dairy (HGD) stated in its April 13 Morning Huddle: “There is plenty of speculation in the marketplace for USDA-government intervention for US farmers but there has not been confirmation on the actions USDA will take,” however “The market is lacking directional fervor until confirmation is received.”
    “There is little upside to this market as long as most restaurants across the country remain closed to dine-in service, with social distancing measures likely to persist for another few weeks,” HGD warned. “While details on government intervention remain unclear, cooperatives in regions across the country are taking steps to implement base programs that reduce the milk price on additional milk volumes produced throughout the flush; cooperatives are trying to encourage farmers to reduce production to limit milk dumping as processing capacity remains stressed.”
    HGD also points out that the National Restaurant Association says its industry has lost three million jobs and $25 billion in sales since March 1. Spokeswoman Vanessa Sink said 3% of restaurants have closed permanently and another 11% are expect to do so by the end of the month.
    Considering the sharp declines of the past three to four weeks, one would think dairy prices had nowhere to go but up the week after Easter but most didn’t, though there were signs of hope.
    Cheddar cheese fell to $1 per pound on Wednesday, lowest since February 2003, but closed Friday at $1.0125, down 4.25 cents on the week, fifth week of decline, and 65.5 cents below a year ago.
    The barrels climbed to $1.0325 on Wednesday but relapsed and closed Friday at $1.0050, still up a half-cent on the week but 51 cents below a year ago. 7 cars of block and 34 of barrel were traded on the week at the CME.
    Looking for direction, there’s a boatload of data coming to traders the week of April 20, including the March Milk Production and Global Dairy Trade auction on Tuesday and the March Cold Storage and Slaughter reports on Wednesday.
    Midwest cheese producers continue to report that food service accounts are very slow. Retail based production is busy and some plant managers say retail ordering is busier week to week, but still lower compared to previous years. Milk remains plentiful, with many loads being dumped. Cheese production is still busy with the abundant milk supply and prices are steeply discounted. Cheese inventories continue to grow and cold storage space is becoming a concern.
    Western inventories are also growing, especially for cheeses that go to food service, while inventories of processors who primarily serve the retail sector are “tight to balanced.” Cheese sales are generally strong for retailers, but low for other channels. Transportation costs have increased since the beginning of COVID-19 as refrigerated containers were hard to find for a time.
    Butter fell to $1.14 per pound Wednesday, lowest it has been since February 2009, but rallied to close Friday at $1.1875, 6 cents lower on the week and $1.0950 below a year ago. There were 26 cars that exchanged hands this week.
    East region butter facilities are maintaining relative high output. Surplus cream is plentiful. As manufacturers move on from the much-needed holiday retail sales, struggles continue, with virtually nonexistent sales from food service. Retail orders were somewhat lower this week, with holiday support now past. Some plant managers say that half of their production is going to freezers.
    Western butter markets also remain mostly absent of food service orders. Production is active because cream is plentiful and inventories growing. Retail demand, while higher than normal, has receded according to DMN.
    Grade A nonfat dry milk fell to 85 cents per pound Tuesday, lowest CME price since Aug. 16, 2018, but closed Friday at 85.50, down 4.25 cents on the week and 14.5 cents below a year ago, with 17 sales reported for the week.
    Dry whey closed the week at 39 cents per pound, up 4 cents and a nickel above a year ago, with 8 cars exchanging hands.
    The latest commercial disappearance data doesn’t give much to cheer about and that was before the pandemic. Total cheese disappearance hit 978.5 million pounds, up 0.8% from January and just 0.4% above February 2019. Cheese exports hit 68.2 million pounds, up 18.2% from January but 8.0% below a year ago, with year to date exports down 4.4% from 2019.
    HighGround Dairy points out American-style cheese disappearance is “struggling and weighing on cheese prices. February demand was stronger versus January’s dismal performance, but American-style disappearance was down versus the prior year for the worst start to a year since 2017.”
    Butter disappearance amounted to 125.0 million pounds, down 1.2% from January and 8.9% below a year ago, and HGD says “Year to date volumes are down versus both 2018 and 2019 levels, a poor start to the year from a demand perspective, and especially bearish for prices as butter production and inventory levels are burdensome.”
    Butter exports, at 3.6 million pounds, were up 13.2% from January but 27.6% below a year ago, the 12th consecutive month they lagged the year ago level, and add to an already large amount of butter on hand and not being consumed in America’s restaurants and schools.
    Nonfat dry milk and skim milk powder disappearance totaled 39 million pounds, up 41.8% from January but 14.2% below a year ago, with year to date disappearance down 50.1%.
    Combined exports totaled 120.1 million pounds, down 16.3% from January and down 4.6% from a year ago. HGD stated that “Exports ended their five-month streak of strong performance and declined into February,” and warned; “The export outlook is bleak as global demand sinks due to COVID-19 concerns.”
    Matt Gould, editor and analyst with the Dairy and Food Market Analyst newsletter, talked about it in the April 20 Dairy Radio Now broadcast, and addressed the negative media reports of farmers dumping milk.
    The simple explanation is we eat more dairy when we eat at restaurants than when we eat at home, he said. The shutting down of cities and restaurants has resulted in a drop in total cheese consumption of around 21%, with a similar drop in butter consumption, according to Gould’s estimates.
    The “silver lining,” he said, is the solid pizza sales, “as people are ordering in, plus we are close to reopening at least parts of the country. As those restaurants turn back on, those pipelines will have to be refilled.”
    The April 15 Daily Dairy Report echoed that sentiment, stating that pizza delivery restaurants appear to be most unaffected by Covid-19. “Pizza Hut, Papa John’s, and Dominos have all announced they will increase their workforce this year, creating 60,000 new jobs.”
    But, it’s not as if COVID-19 hasn’t given us enough to be concerned about, another threat is appearing in the US meat supply, due to shortages of help. The issue comes just as dairy farmers are or will be incentivized to reduce their milk production the fastest and most efficient way by culling cows.
    The April 16 Daily Dairy Report says “The livestock slaughter industry is straining to process the nation’s cattle, hogs, and poultry due to waves of COVID-19 infections in their workforces. Even in plants that have not confirmed presence of the virus, many employees are staying home rather than risking infection,” thus several major meatpacking facilities in the US and Canada are idled or below capacity according to the DDR.
    Heading off another threat, the US Dairy Export Council (USDEC) reports how it avoided a shutdown of dairy exports to Mexico when the Mexican Ministry of Health (COFEPRIS) issued a decree on March 26 halting all administrative action, including the issuance of about 6,000 import permits for dairy products.
    The action was taken in an effort to prevent the spread of COVID-19 in Mexico, and the impact on dairy imports was an unintended side effect, says USDEC, but would have meant about $120 million US in lost US dairy export sales. The issue was resolved and details are posted at USDEC’s website.
    Meanwhile, Rabobank reports that “The onset of the coronavirus in China and the permeation across the globe have buyers and sellers scrambling to assess the market impact,” according to the latest RaboResearch Dairy Quarterly titled “The Corona Hangover.” RaboResearch Senior Dairy Analyst Michael Harvey writes; “Global dairy commodity prices have already priced-in the uncertainty but a less-than-favorable expected finish to the New Zealand production season is providing some price support.”
    “Rabobank anticipates China’s consumer buying patterns to normalize by second half 2020, with evidence of improvement in some supply chains already visible,” says Harvey, but he warned “The risk of a setback or a delayed economic recovery in China presents a major downward price risk to Rabobank’s current forecasts. Against this backdrop, global milk production from the Big 7 is rising.”
    “The combination of reduced Chinese imports, significant supply chain disruptions, including extreme competition for shipping containers across the globe, and rising dairy surpluses in export regions will keep downward pressure on global markets through much of 2020.”
    The rate of growth in surplus milk will be restrained, says Rabobank, and lower commodity prices in the face of weaker economic growth will support buyers in price-sensitive regions that are not dependent on oil revenue. Based on the forecast fundamentals through 2020, this should lead to a down cycle in global dairy markets, Rabobank warned.
    The Agriculture Department’s latest Livestock, Dairy, and Poultry Outlook, issued April 15, mirrored milk price and production projections in the April 9 World Agricultural Supply and Demand Estimates and stated “It is clear that the COVID-19 pandemic has brought about disorderly market conditions in dairy markets.”
    The Outlook said “The extent of the problems is highly uncertain and the situation continues to evolve. Although price data for milk and dairy products are available for March and April, supply and use data are not yet available. Domestic demand for dairy products has declined due to the crisis. Americans facing financial hardship have likely scaled back consumption of some dairy products.”
    The Outlook confirmed what others are saying, “Americans typically consume high proportions of cheese, butter, and other dairy products through food service establishments,” but “With the shift to a greater proportion of at-home food consumption, people are eating less of these products.”
    “Demand for fluid milk had been very strong a few weeks ago due to the retail rush related to COVID-19, but demand has since slowed drastically and the overwhelming imbalance between supply and demand has caused considerable handling problems,” the Outlook stated. “For milk that would usually be pooled on a FMMO but currently has no market, USDA is providing flexibility at the request of the farmers” cooperative or non-cooperative milk handler. This milk may remain pooled on the FMMO, though the handler still bears the loss of the manufacturing value of that milk. If that handler is a farmer cooperative, as is most common, that loss is borne by its farmer-owners together.
    Dairy Forecasts for 2020 Milk cow number estimates reported by NASS for January and February were higher than expected. As a result, the milk cow forecast for the first quarter of 2020 has been revised upward to 9.365 million head, 15,000 higher than last month’s forecast. Due to the downturn in prices, milk cow numbers are expected to contract through the rest of the year. The annual average for the 2020 is 9.35 million head, 5,000 higher than last month’s forecast. Lower expected prices will likely affect yields. Average milk per cow for 2020 is forecast at 23,765 pounds, a decrease of 15 pounds per cow.
    The USDA’s second Crop Progress report of the season shows that, as of the week ending April 12, 3% of the US corn crop has been planted in the top 18 states, which accounts for 91% of the 2019 corn acreage. That’s dead even with a year ago and 1% behind the five-year average.
    9% of US cotton is in the ground, up from 7% the previous week, 2% ahead of a year ago, and 3% ahead of the five year average.
    Cooperatives Working Together members accepted 32 offers of export assistance from CWT this week to help capture sales contracts for 2.07 million pounds of cheese, 275,578 pounds of butter, 134,482 pounds of anhydrous milkfat, and 1.314 million pounds of whole milk powder.
    Following the release of the joint “Milk Crisis Plan” designed by National Milk and the IDFA, NMPF also developed a social-media campaign geared toward dairy farmers and their allies, #dairyneverstops, to “underscore the urgency in dairy country for a federal plan that can mitigate catastrophic economic damage that is expected to worsen for producers over the next several months.”