lee mielke

This column was written for the marketing week ending May 29.

Dairy prices ended May in far better shape than they were on May 1. In fact, cheese handily topped $2 per pound for the first time since November 2019. The 40-pound cheddar blocks closed the Memorial Day holiday-shortened week at $2.23 per pound. This is up 29.25 cents on the week, on unfilled bids, and were 51.5 cents above a year ago. They gained $1.2175 in six weeks.

The 500-pound cheddar barrels finished the week and the month at $2.0225, up 13.25 cents on the week and 48.25 cents above a year ago. No block was sold on the week, 18 for the month, down from 19 in April. There were 26 cars of barrel sold on the week, with 140 for the month of May, up from 91 in April.

Dairy Market News reports the cheese price push has Midwest cheese producers questioning how long the busy ordering stretch will last. Food service and retail demand has kept them busy, with some at six and seven-day work weeks. Milk is much less available than it was at the height of the Covid-19 effect last month when some plants were down and others were running limited schedules. Milk prices are reported at least at Class, but most are at slight overages, according to Dairy Market News. Cheese inventories are tight, particularly on blocks.

Western cheese output is also active as milk continues to be available and nonfat dry milk is being used for fortification. Many loads of cheese have cleared through export markets. Cheese continues to be available to domestic buyers; but supplies have tightened and prices are higher for uncommitted loads. The cheese market is in search of a “new balance,” says Dairy Market News, but “Uncertainty related to what will happen to market conditions in the coming months is leading industry players to be more cautious in their day-to-day decision making.”

HighGround Dairy says, "Food service demand and the uncertainty that surrounds it continues to be the theme for global trade and price behavior confusion as market sentiment seemed to have shifted overnight from concerns over supply glut of milk and dairy products from the Northern Hemisphere to a sudden shortage on some goods. Swift action from the United States and EU governments was behind the sudden support on prices as the timing around government purchases coincides with the foodservice industry refilling pipelines."

The May 27 Daily Dairy Report said, “Pizza delivery and take-out chains report strong second-quarter sales. Domino’s second quarter (through May 17) same-store sales were up 14 percent. In April, Papa John’s reported a 27 percent increase and Wingstop recorded a 33 percent rise vs. previous-year levels. Strong demand from the pizza industry — a huge consumer of Mozzarella and Italian-style cheeses — shows product has been moving, providing support to cheese prices.”

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Cash butter was not doing as well and fell to $1.5775 per pound on May 27. However it closed on May 29 at $1.66 which is up 6.75 cents on the week, after losing 5.25 cents the previous week, and is 70 cents below a year ago. Eighteen cars sold on the week, 95 for the month, down from 101 in April.

Butter makers continue to report similar demand tones week to week. Food service orders have climbed back from their depleted state in the height of the Covid-19 closures, but are still below year-ago levels. Retail has been busy and filled some gaps left by affected food service ordering. Butter production is steady, but producers are relaying concern about the upcoming fall. Inventories are moving either via a rebounding food service sector or improving retail orders.

Western contacts say retail butter sales are strong but bulk butter demand is weak. The opening of restaurants has improved food service sales, but volumes are at a fraction of normal levels. Class II processors and ice cream makers are pulling more heavily on cream stocks so less cream is moving to the churn, relieving a bit of pressure on butter makers. Slightly better demand and lighter production has cut into stocks. However, butter inventories are long. Some butter makers say they would like to store more print butter for third and fourth quarter holiday needs, but a lot of space is taken up with bulk butter supplies.

Grade A nonfat dry milk remained comfortably above $1 per pound and closed May 29 at $1.03. This is 1.75 cents higher on the week but 2.5 cents below a year ago. Fifteen carloads sold on the week, 76 for the month, up from 61 in April.

Dry whey saw a 30.5 cent per pound close, down 5.75 cents on the week after losing 2.75 cents the previous week, and 4.75 cents below a year ago. There were 32 sales on the week at the Chicago Mercantile Exchange, 59 for the month, up from 18 in April.

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You’ll recall I reported April milk output at 18.7 billion pounds, including milk that was dumped. The May 22 Dairy and Food Market Analyst reported milk dumping surged in April, based on its analysis of Federal Milk Marketing Order data.

The Northeast Federal Milk Marketing Order saw about 131 million pounds of milk dumped, up from 23 million pounds in March. The Mideast had 24 million pounds dumped, up from 1.2 million in March. The DFMA estimates about 22 million pounds were dumped in Florida and about 10 million in the Southeast.

Speaking in the June 1 Dairy Radio Now broadcast, analyst and editor Matt Gould reported that dumping from those four FMMOs totaled about 187 million pounds or 1 percent of U.S. milk output.

Gould speculates the available milk supply contracted in April, “a dramatic shift,” and this will be evidenced in the April Dairy Products report issued June 4. Milk dumping has all but stopped, he said, as cooperatives and processors have asked farmers to decrease their milk output and milk is now selling at premiums above Class, according to Dairy Market News.

“Compare that to a month ago when we were dumping milk and spot milk prices in some parts of the country were at zero,” Gould concluded. “This is a really dramatic swing and May’s Dairy Products report will be interesting as we reopened the economy and milk supplies were cut back which portends less dairy product output, but that’s to be determined and to be seen.”

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Checking the global scene, China imported some 588 million pounds of fluid milk, milk powders and finished goods in April — sparked by an increase in product from New Zealand, as well as Belarus and Uruguay, according to HighGround Dairy.

Strength was observed on whole milk powder and whey powder, says HighGround Dairy, while WMP gains were impressive from New Zealand.

WMP imports totaled 140.4 million pounds, up 40.3 percent from March and 21.9 percent above April 2019, according to China Custom Statistics, with year-to-date WMP up 1.1 percent.

Skim milk powder totaled 55.1 million pounds, up 4 percent from March, but 4.1 percent below a year ago, with year-to-date down 13.9 percent.

Whey imports totaled 86.3 million pounds, down 5.6 percent from March, but 14.9 percent above a year ago, with year-to-date up 10.7 percent.

Cheese imports amounted to 20.2 million pounds, down 19.1 percent from March and 11 percent below a year ago, with year-to-date up 15.3 percent.

Butter totaled 14.7 million pounds, down 15.9 percent from March but 5.9 percent above a year ago. Year-to-date imports were up 74.6 percent.

The 11 percent drop in April cheese imports was derived from lower imports from Australia, according to HighGround Dairy, down 57 percent and the weakest in more than two years, “as the country struggles to produce incremental milk.”

HighGround Dairy adds, “There has been heightened tensions between China and Australia this month, which is expected to hamper trade between the regions going forward.”

Dairy Market News reports of yet another victim of the Covid pandemic down under. “The sharp decline in passenger flights due to Covid-19 has hindered maintaining air freight dairy exports to meet contract obligations. The Australian government has begun a program to subsidize these exports by facilitating wider use of dedicated freight carrying planes. The logistics are still being worked out.”

The end of the dairy season in New Zealand is looming closer, according to Dairy Market News. Milk production is near the expected low point. New Zealand continues to be very dry. Hopes for more rain leading to better conditions to begin the new season are widespread. But many lenders expect struggles to continue.

Fonterra issued its 2020-21 milk price forecast at $5.40 to $6.90 per kilogram of milk solids down from the current season’s $7.10 to $7.30. The May 22 Daily Dairy Report says that is 7 percent lower than the five-year average midpoint of $6.59.

“Fonterra noted that the wide range in its 2020-21 forecast was the result of market volatility and global uncertainty amid the coronavirus pandemic,” according to the Daily Dairy Report, but “On a positive note, the co-op reported that sales to China improved in March and April and that the Chinese foodservice sector appears to be on the rebound.”

In other trade news, Cooperatives Working Together member cooperatives accepted 22 offers of export assistance in the Memorial Day week from CWT that helped capture sales of 1.371 million pounds of cheddar, Gouda and Monterey Jack cheese; 252,980 pounds of butter; and 456,357 pounds of cream cheese.

The product is going to customers in Europe and Asia, delivered through August, and raised CWT’s 2020 exports to 19.58 million pounds of American-type cheeses, 6.056 million pounds of butter (82 percent milkfat), 1.96 million pounds of anhydrous milkfat, 2.93 million pounds of cream cheese and 16.797 million pounds of whole milk powder. The product is going to 28 countries in seven regions and are the equivalent of 516 million pounds of milk on a milkfat basis.

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The USDA’s latest Crop Progress report shows 88 percent of the U.S. corn crop is in the ground as of the week ending May 24. This is up from 80 percent the previous week, 33 percent ahead of a year ago, and 6 percent ahead of the five-year average. Sixty-four percent is emerged, up from 43 percent the previous week, 36 percent ahead of a year ago, and 6 percent ahead of the five-year average.

Sixty-five percent of the soybeans are planted, up from 53 percent the previous week, 39 percent ahead of a year ago, and 10 percent ahead of the five-year average. Thirty-five percent are emerged, 26 percent ahead of a year ago and 8 percent ahead of the five-year average.

Fifty-three percent of U.S. cotton is planted, up from 44 percent the previous week and mirrors that of a year ago and the five-year average.

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Financial strategy was the topic of Hoards Dairyman’s Dairy Livestream the week before Memorial Day and Managing Editor Corey Geiger talked about it in the Memorial Day Dairy Radio Now broadcast.

Geiger said the Covid-19 pandemic took financial planning on a roller coaster and they asked participants what actions they were taking to keep afloat. He reported that 68 percent looked to implement cost control measures while 35 percent reevaluated lines of credit. He said 23 percent chose to make no financial changes at this time while readjusting amortization schedules and requesting a deferral in principle payments garnered the fewest responses at 19 percent and 17 percent respectively.

Guest speaker Sam Miller of BMO Harris Bank said they looked at cost of production on a client-by-client basis and asked what price risk management plans their clients had in place: Dairy Margin Coverage, Dairy Revenue Protection, contracts, futures, and options positions. They looked where their milk was being shipped and what that particular processor was doing among many other items on their list. Miller cited the rising Class III futures markets and said, “There are some opportunities out there.”

Roger Murray of Farm Credit East stated, “Our keys that we’ve been talking to customers about for success is utilizing and leaning on trusted advisors whether that’s your veterinarian, nutritionist, loan officer, or others. Work on developing Plan A, Plan B, and even Plan C and utilize all those tools available whether it’s USDA’s Coronavirus Food Assistance Program, Small Business Association loans, and so forth.”

Geiger said there were participants from over 40 states coast to coast, but none of the respondents stated they would shut down their operations. “People are optimistic,” Geiger concluded, “and have a strong desire to be persistent through this.”

 Lee Mielke is a syndicated columnist who resides in Everson, Wash. His weekly column is featured in newspapers across the country and he may be reached at lkmielke@juno.com.