This column was written for the marketing week ending Aug. 20.
U.S. milk output was somewhat held in check in July by heat, humidity and drought — especially in the west. The U.S. Department of Agriculture’s preliminary data pegs July output at 19.14 billion pounds. This is up 1 percent from June, and just 2 percent above July 2020; though it is the 14th consecutive month to top year ago output. The 24-state total hit 18.3 billion pounds, up 2.1 percent.
Revisions lowered June’s 50-state estimate by 1 million pounds from last month’s report to 19.95 billion pounds, up 2.9 percent from 2020. The report wasn’t expected to excite traders either way.
Interestingly, July cow numbers totaled 9.50 million head, down 3,000 from June, the second month in a row they fell from the previous month; but were 128,000 above a year ago. June cow numbers were revised down 5,000 head.
July output per cow averaged 2,015 pounds, up 14 pounds or 0.7 percent from 2020.
California cows put 0.7 percent less milk in the tank in July as hot weather dropped output per cow by 15 pounds. Cow numbers mirrored those a year ago. Wisconsin was up 4.6 percent on a 60-pound gain per cow and 21,000 more cows.
Idaho was up 0.8 percent on 9,000 more cows; but output per cow was down 15 pounds. Michigan was up 4.3 percent on 17,000 more cows and a 10-pound gain per cow. Minnesota was up 4.2 percent on 17,000 more cows and five pounds more per cow. New Mexico was down 2.3 percent on a 15-pound loss per cow and 5,000 fewer cows.
New York was up 2.8 percent, thanks to a 45-pound gain per cow and 4,000 more cows. Oregon was up 0.9 percent on 2,000 more cows; but output per cow was down 10 pounds. Pennsylvania was down 1.2 percent on a loss of 7,000 cows and a five-pound drop per cow.
South Dakota unmistakably had the biggest gain, up 17 percent, on 21,000 more cows and a 25-pound increase per cow. Texas had the next biggest gain, up 7.2 percent, driven by 35,000 more cows and a 25-pound gain per cow.
Vermont was up 1.4 percent on a 55-pound gain per cow; but cow numbers were down 2,000. Washington State had the biggest decline of the six states showing a loss, down 6.7 percent, as soaring temperatures put stress on cows and farmers alike. Output per cow was down 85 pounds and cow numbers were down 8,000 head.
Dairy cow culling remained strong in July and again topped that of a year ago as margins remain tight. The latest Livestock Slaughter report shows an estimated 247,900 head were sent to slaughter under federal inspection, up 10,400 from June and 14,200 or 6.1 percent above July 2020.
Culling in the first seven month of 2021 totaled 1.81 million, down 14,900 or 0.8 percent from the same period a year ago.
In the week ending Aug. 7, 59,500 dairy cows were sent to slaughter, up 1,000 from the previous week, and 6,600 or 12.5 percent above that week a year ago.
The USDA announced details of the Pandemic Market Volatility Assistance Program to help dairy producers. USDA will provide $350 million in payments to farmers who received a lower value for their products due to market abnormalities caused by the pandemic. The assistance is part of a larger package including improvements to the Dairy Margin Coverage safety net which will update the feed cost formula to better reflect actual costs for high quality alfalfa. The change will be retroactive to January 2020 and is expected to provide additional retroactive payments of about $100 million for 2020 and 2021.
PMVA payments will reimburse qualified farmers for 80 percent of the revenue difference per month based on an annual production of up to 5 million pounds of milk marketed and on sales from July through December 2020. The payment rate will vary by region based on the actual losses on pooled milk related to price volatility and be made through independent handlers and cooperatives.
Speaking in the Aug. 23 “Dairy Radio Now” program, HighGround Dairy’s Lucas Fuess said while details have not been finalized, the program was clearly designed to focus on smaller dairies. He said he doesn’t see it significantly impacting markets; but will likely boost milk output the rest of 2021 and into 2022.
The Biden Administration also announced a re-evaluation of the Thrifty Food Plan used to calculate Supplemental Nutrition Assistance Program benefits. The average SNAP benefit, excluding additional funds provided as part of pandemic relief, will increase 25 percent for Fiscal Year 2022 beginning Oct. 1.
The Aug. 17 Daily Dairy Report says the increase in benefits could mean an additional $2 billion in dairy products purchased with SNAP funds. The increase provides each of the 42 million recipients an additional $1.19 per day.
Dairy producers can surely use the help. Dairy margins were unchanged in the first half of August as increases in both milk prices and feed costs were largely offsetting since the end of July, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC. Strength in cash cheese prices were supportive of Chicago Mercantile Exchange Class III futures which bounced about $1.50 per cwt. from recent lows, the Margin Watch stated.
The Margin Watch cautioned, however, “The overall tone of the market remains bearish with spot futures still down around $2.50 from their May highs. Milk production remains strong for this time of the year. Demand uncertainty lingers from the advancing Delta variant of Covid-19 and indications from Open Table that U.S. restaurants are no longer showing growth in demand, with some significant slowing evident in states more heavily impacted by the current Covid-19 surge. Mobility data similarly suggests a modest slowdown in travel.”
The August World Agricultural Supply and Demand Estimates lowered its milk production estimate 100 million pounds from July, the Margin Watch said, “But the bigger surprise was on the feed side where USDA cut the corn yield projection by 4.9 bushels from July to 174.6 bushels per acre, down 2 million from the average industry estimate. The soybean yield was similarly trimmed to 50 bushels per acre from 50.8 and was below the average pre-report estimate of 50.3 bushels. Both corn and soybean meal pushed higher following the report, and high feed costs continue to raise breakeven prices for most dairy operations which now generally need at least $18.00 per cwt. to cover all costs.”
Checking demand, June cheese disappearance was up 3.8 percent from May, unchanged from June 2020, and up 5.1 percent year-to-date, according to the USDA’s latest data. Total disappearance was driven by stronger American-style cheese demand, says HighGround Dairy, but negatively impacted by weaker non-American usage.
Butter was also up 3.8 percent from May, but down 3.5 percent from a year ago, and the third consecutive month disappearance was below a year ago. HighGround Dairy says robust demand in first quarter kept year-to-date disappearance (up 2 percent) higher in the first half of 2021.
Nonfat dry milk domestic disappearance was up 6.4 percent from May, but down 20.7 percent from a year ago, and up 0.3 percent year-to-date. HighGround Dairy says it was the weakest June domestic disappearance on record.
Looking globally, the Aug. 17 Global Dairy Trade auction ended eight consecutive declines but not by much. The weighted average inched up 0.3 percent following the 1 percent drop Aug. 3; 2.9 percent drop on July 20; and 3.6 percent on July 6.
Butter led the gains, up 4 percent, following a 3.8 percent rise in the last event. Anhydrous milkfat was up 1.5 percent following a 1.3 percent gain. Cheddar was up 2.8 percent after inching 0.7 percent higher, and skim milk powder was up 1.1 percent after it rose 1.5 percent last time. Whole milk powder was down 1.5 percent after dropping 3.8 percent last time.
StoneX Dairy Group says the GDT 80 percent butterfat butter price equates to $2.1111 per pound U.S., up 8 cents, after advancing 7.5 cents last time, and compares to CME butter which closed Aug. 20 at a huge bargain $1.6625. GDT cheddar, at 1.8990, was up 5.4 cents, and compares to Aug. 20’s CME block cheddar at $1.6925. GDT skim milk powder averaged $1.3845 per pound, up from $1.37.
Whole milk powder averaged $1.6112 per pound, down from $1.6322. CME Grade A nonfat dry milk closed Aug. 20 at $1.25 per pound.
StoneX’s Dustin Winston says, “North Asia (which includes China) purchases were in line with their market share last event but below year ago levels. The smaller purchasing regions: Africa, South/Central America, and North America, were the only regions to increase their market share from both last event and year-ago levels.” China is buying lots of product outside of the GDT as well.
Looking ahead, HighGround Dairy points out, “Despite a solid milk production season in 2020-21 and a flat outlook for this year, Fonterra’s 12-month offer volumes are now the lowest in a little more than three years (May 2018).”
Following double digit gains the previous week, the CME cheddar blocks saw daily loses the third week of August while the barrels moved higher temporarily narrowing the spread, and then fell back. The blocks closed Aug. 20 at $1.6925 per pound, down 12 cents on the week but 4.25 cents above a year ago.
The barrels climbed to $1.5125 per pound on Aug. 18 (the highest since July 14), but saw their Aug. 20 finish at $1.4775. This is still up 2.75 cents on the week, 14.75 cents above a year ago, and 21.5 cents below the blocks. Six cars of block exchanged hands on the week at the CME and 21 of barrel.
The 640 block packaging issues continue to be a threat, according to StoneX. Talk at the recent Idaho Milk Processors Association conference was that production of the boxes could catch up by mid-September. Cheese makers dealing with the issue either dump the milk or move it into barrel production.
Meanwhile, Midwestern cheesemakers report strong sales, according to Dairy Market News. Plant managers reported turning down new orders because they can’t keep up. Nonfat dry milk is increasingly being used to fortify, as milk supplies are tight. Production schedules were steadily busy and market tones were still in flux as the block barrel spread remains well above the norm.
Retail and food service cheese demand remains steady in the West. Concern is growing over the surge in Covid and its impact on demand. Global demand also remains strong however loads intended for overseas continue to face delays due to port congestion. Cheese markets are mixed. Milk supplies are sufficient to keep vats busy despite the seasonal decline in milk but some plants are running under capacity due to labor shortages, says Dairy Market News.
Spot butter closed Aug. 20 at $1.6625 per pound, down three-quarter cents on the week, but 14.75 cents above a year ago. There were 32 sales reported on the week.
Grade A nonfat dry milk closed at $1.25 per pound, down 2 cents on the week but 25.25 cents above a year ago, with seven cars finding new homes on the week.
CME dry whey finished 1.25 cents higher, closing Aug. 20 at 53 cents per pound, 19.5 cents above a year ago, with two sales reported on the week at the CME.
The September Federal order Class I base milk price was announced at $16.59 per hundredweight, down 31 cents from August, $1.85 below September 2020, and the lowest Class I since April. It equates to $1.43 per gallon, down 2 cents from August, and compares to $1.59 per gallon a year ago. The nine month Class I average is $16.41, down from $16.65 a year ago and $16.51 in 2019.
Speaking of Class I; June sales of packaged fluid products fell to 3.4 billion pounds, down 6.7 percent from June 2020, after dropping 4.3 percent in May. Conventional product sales totaled 3.2 billion pounds, down 6.9 percent. Organic products, at 228 million, were down 3.7 percent, and represented 6.7 percent of total sales for the month.
Whole milk sales totaled 1.2 billion pounds, down 6 percent from a year ago, with year-to-date consumption down 7.9 percent. Whole milk represented 32.8 percent of total milk sales for the six month period.
June skim milk sales, at 196 million pounds, were down 12.7 percent from a year ago and down 14.4 percent year-to-date.
Total packaged fluid milk sales for the first half of 2021 amounted to 22.1 billion pounds, down 5.4 percent from 2020. Conventional product sales totaled 20.7 billion pounds, down 5.4 percent. Organic products, at 1.4 billion, were down 0.9 percent, and represented 6.5 percent of total milk sales for the period.
The Aug. 13 Daily Dairy Report states, “USDA data shows nearly 7.5 billion breakfasts and lunches were served pre-pandemic, from March 2019 to February 2020, through the National School Lunch Program and School Breakfast Program. However, from March 2020 to February 2021, the month stay at home orders began, and the subsequent year, meal output declined by 2.2 billion, a 30 percent drop. If each meal contained a half-pint of milk, this loss equates to 137.5 million gallons of milk or about 1.183 billion pounds, roughly 100 million pounds less than Texas’ June milk production.”
The USDA’s latest Crop Progress report showed 73 percent of U.S. corn at the dough stage, as of the week ending Aug.15, up from 56 percent the previous week, 1 percent behind a year ago, but 5 percent ahead of the five-year average. Twenty-two percent was dented, 1 percent ahead of a year ago, and matched the five-year average. Sixty-two percent was rated good to excellent, down 2 percent from the previous week, and 7 percent below a year ago.
The soybean crop shows 94 percent blooming, up 3 percent from the previous week, 1 percent behind a year ago, and mirrored the five-year average. Eighty-one percent were setting pods, up from 72 percent the previous week, 2 percent below a year ago, but 2 percent ahead of the five-year average. Fifty-seven percent were rated good to excellent, down 3 percent from the previous week, and 15 percent below a year ago.
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 email@example.com.