This column was written for the marketing week ending Oct. 2.
The U.S. Department of Agriculture announced the September Federal order Class III benchmark milk price at $16.43 per hundredweight, which is down $3.34 from August and $1.88 below September 2019. The 2020 Class III average stands at $17.48, up from $16.11 a year ago and $14.62 in 2018. Futures as of late morning Oct. 2 portend an October price at $20.16; November, $19.32; and December at $17.87.
The Class IV price is $12.75, up 22 cents from August but $3.60 below a year ago. That is the lowest September Class IV price since 2009. Its 2020 average stands at $13.53, down from $16.21 a year ago and $13.95 in 2018.
Unfortunately, through the quirks of Federal milk pricing, falling fluid milk sales and a punitive producer price differential are expected to “water down many dairy producers’ milk checks once again next month,” says the Sept. 30 Daily Dairy Report.
The Daily Dairy Report states, “A setback in spot cheese in August and perpetually low Class IV values weighed on the Class I price. USDA announced the October Class I mover at $15.20 per hundredweight — much lower than October Class III futures which settled Sept. 30 at $19.53. The $4.23 difference indicates that processors in many federal milk marketing orders will once again de-pool as much milk as possible.”
A small consolation, the Daily Dairy Report adds, “The negative PPD will not be as severe as in June and July, when Class I values lagged Class III by $9.62 and $7.98, respectively, but it will take a bite out of many dairy producers’ revenue.”
U.S. milk prices will likely remain relatively good for a while. StoneX Dairy points out in its Sept. 29 Early Morning Update that Food Box deliveries continue and the first Round 3 boxes showed up in Sept. 24 statistics. The program has delivered over 100 million boxes, according to broker Dave Kurzawski in the Oct. 5 Dairy Radio Now broadcast, but he said the program is slowing.
“That is a lot of food going to a lot of people over four months,” wrote Kurzawski; but he asks, “Are we going to see a positive bump in retail dairy sales when this program tapers off in late October? Will the government shut down buying programs cold-turkey following the third round? We don’t know yet, but we surmise retail sales will get a bump ahead of the holidays.”
The market on block cheese is still “relatively snug,” according to Kurzawski, who is also bullish on butter and nonfat dry milk. He predicted a surge on butter ahead and reports that a lot of cream is now going into other uses than butter, explaining, “Over the summer, retailers who had really strong butter demand early in the pandemic (March, April and May), had built tremendous inventories — private inventories which we don’t get data on — and they worked off those inventories the past few months. Now, as we get into colder weather and the holiday season, we’re trying to get into a more normal environment.”
Kurzawski believes retailers will have to “come back to the trough and start buying butter again,” and says $1.50-$1.60 per pound butter is “a really good price for buyers to be owning butter.”
The story on powder is international demand, Kurzawski said, demand from Mexico and Asia in particular, which is being an aggressive buyer on all proteins. So he believes “There’s a good amount of support under the dairy complex right now.”
Chicago Mercantile Exchange block cheddar closed the first Friday of October at $2.61 per pound. This is up 5.5 cents on the week, after dipping 7.25 cents the previous week, and 61.75 cents above a year ago.
The barrels narrowed the spread, finishing at $1.9550 after jumping 29.5 cents on the week (highest since Aug. 3), 16.5 cents above a year ago, but a still too high 65.5 cents below the blocks. Nine cars of block sold this week and 12 of barrel.
Cheese sales are mixed but generally healthy, according to Dairy Market News. Some cheesemakers say the higher prices are creating buying hesitancy but, when inventories get low, buyers order heavily. Barrel producers continue to report inventories are available but not overly concerned. Contractual milk supplies are fulfilling the needs of most cheese plants. Market tones are mostly bullish, says Dairy Market News, but the bearish factor is the large barrel and block price rift.
The western cheese market is struggling to maintain a good balance. Overall sales are good, but the market still faces uncertainties related to the pandemic and its impact on customers/sellers' behaviors. Block inventories are tighter than the barrels and that has translated into higher block prices. Government purchases are impacting prices and availabilities, according to contacts, and U.S. prices are not as competitive internationally as they were a few weeks ago. Cheese output is active in the west with most plants running at full capacity.
Cash butter saw little change, inching up three-quarter cents on the week to a $1.51 per pound close Oct. 2, 67.50 cents below a year ago, on 10 sales for the week.
Butter production remains steady at Midwestern plants. Cream supplies have begun to tighten in the East, but regional butter makers are still finding it locally or from the West. Plant managers expect cream to tighten in the near term. Retail and food service demand is stronger week to week. Retail customers, in some cases, have been given notice that butter quarters may be short in the final quarter of the year. Current retail loss leader promotions may be short lived.
Western retail butter demand is showing signs of a seasonal bump and buyers are asking manufacturers about available supplies. Grocers have let processors know they plan to run instore specials and want to make sure of coverage. The steady pull on print supplies through the summer has some shoppers wondering if warehouse stocks are ready for fall and winter holiday baking. Bulk inventories are heavy, but print stocks are a bit thin for this time of year. Food service sales are weak, according to manufacturers, and while there is a wide range of school activity, from in person to fully virtual, food service needs are hard to read. Restaurants recognize that as weather changes, having to move indoors may put an end to some businesses unless regulators allow more indoor capacity.
Grade A nonfat dry milk shot up to $1.14 per pound on Sept. 30 (highest since Febr. 21), but closed two days later at $1.1225. This was up 2.25 cents on the week and the eighth consecutive week of gain, but was 2.25 cents below a year ago, on 21 sales.
Dry whey finished Oct. 2 at 39 cents per pound, 1.25 cents higher on the week on unfilled bids, and 6.25 cents above a year ago.
U.S. dairy prices depend a lot on what’s happening globally and the elephant in the global room is China. August imports of whole milk and skim milk powder in China only amounted to 126.8 million pounds, down 15.2 percent from August 2019, and are down 4.2 percent year-to-date from the record highs of a year ago.
Cheese imports totaled 23 million pounds, down 20.5 percent, but butter imports, at 11.1 million pounds, were up 17.8 percent.
HighGround Dairy points out whey product imports amounted to 122.4 million pounds, down 12.8 percent from July’s record total, but were up 23.5 percent from a year ago. This is the strongest August on record as China continues to rebuild its hog herd, devastated by African swine fever.
Fluid milk and cream imports also achieved record levels for any month yet again after July, says HighGround Dairy. “Buyers increased purchases to build inventories ahead of the upcoming holidays, Mid-Autumn Festival and Golden Week. Imported milk remains more affordable but a recent study by the China Skinny warns that foreign brand market share is shrinking and a big reason is that domestic brands offer smaller, single-serve packaging.”
The Sept. 28 Daily Dairy Report warned Chinese milk production has grown more than expected this year and is poised to continue expanding. That may affect future imports, the Daily Dairy Report said. “The evolution of China’s economy will influence global dairy prices in coming months. A sustained resurgence in demand could pull imports back on to the strong trajectory witnessed earlier this year. However, if recovery stalls and domestic production and stocks prove sufficient for Chinas needs, prices could weaken,” the Daily Dairy Report stated.
In other global news, August skim milk powder imports in Japan were up 2.1 percent from a year ago, totaling 7.2 million pounds. Cheese imports, at 51.2 million, were down 10.5 percent. Butter imports totaled 3.7 million pounds, down 39.2 percent from August 2019, and Japan’s whey imports, at 7.4 million pounds, were off 10.8 percent.
Back home, a large drop in the latest All-Milk price and a higher soybean price served to lower the August milk feed price ratio — reversing two months of gains. The USDA’s latest Ag Prices report showed the ratio slipped to 2.50, down from 2.69 in July, but compares to 2.26 in August 2019.
The index is based on the current milk price in relationship to feed prices for a dairy ration consisting of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. One pound of milk could purchase 2.5 pounds of dairy feed of that blend in August.
The U.S. All-Milk price averaged $18.80 per cwt., down $1.70 from July and 10 cents below August 2019.
California’s All-Milk price slipped to $20.00, down 90 cents from July, but $1.30 above a year ago. Wisconsin, at $19.40, was down $2.90 from July but was 30 cents above a year ago.
The national average corn price averaged $3.12 per bushel, down 9 cents per bushel from July and 81 cents per bushel below August 2019. Soybeans averaged $8.66 per bushel, up 16 cents from July after jumping 17 cents the previous month, and were 44 cents per bushel above a year ago. Alfalfa hay averaged $172 per ton, down $2 from July and $7 per ton below a year ago.
Looking at the cow side of the ledger, the August cull price for beef and dairy combined averaged $70.70 per cwt., up 20 cents from July, $2.40 above August 2019, but was 90 cents below the 2011 base average of $71.60 per cwt.
In the week ending Sept. 19, 59,800 dairy cows were sent to slaughter, up 5,100 from the week before, but 4,700 head or 7.3 percent below a year ago.
The latest Crop Progress report showed 75 percent of U.S. corn is at the mature stage, as of the week ending Sept. 27, up from 39 percent a year ago and 10 percent ahead of the five-year average. Sixty-one percent is rated good to excellent, up from 57 percent a year ago. Fifteen percent is harvested, up 5 percent from a year ago, but 1 percent behind the five-year average.
The report shows 74 percent of U.S. soybeans are dropping leaves, up from 49 percent a year ago and 5 percent ahead of the five-year average. Sixty-four percent were rated good to excellent, up from 55 percent a year ago, with 20 percent now harvested, up from 6 percent a year ago, and 5 percent ahead of the five-year average.
The cotton crop has a 43 percent good to excellent rating, up from 40 percent a year ago, with 13 percent harvested, 2 percent behind a year ago and 1 percent behind the five-year average.
In politics, skipping past “the debate” and Covid-19 afflicting the President, the House passed a revised $2.2 trillion stimulus bill on Oct. 1. You’ll recall House Democrats crafted a $3.4 trillion bill in May, but Republicans opposed both.
HighGround Dairy reports the Democrats’ bill includes similar provisions to the CARES Act, including another round of $1,200 cash payments to many Americans and additional unemployment aid. The bill includes aid to state and local governments, airline assistance, support to schools and restaurants, money for Covid-19 testing and tracing, and other provisions for the broader economy. HighGround Dairy adds there are four provisions specific to the dairy industry and are the same as the proposals in the May bill.
Bob Gray points out in his Northeast Dairy Farmers Cooperatives newsletter, “The sticking point with the Senate will be the $436 billion for state and local governments. The Senate has consistently balked on providing additional financial assistance to states they believe have not managed their budgets well. The House feels that states have been hurt financially by the Covid shutdown. So at this point, the standoff between the House and Senate continues.”
Meanwhile, farmers remain in the good graces of American consumers, according to the Wisconsin-based American Dairy Coalition. An ADC press release stated Gallup’s latest “Americans views of U.S. Business and Industry Sectors 2020” showed consumers’ view of farming and agriculture has improved over the past year, jumping 11 percent. It topped the list, beating 25 other business and industry sectors including retail, internet and travel industries. The sports industry has taken the biggest hit, says the ADC, falling 15 percentage points from last year and came in 23rd out of 25 sectors.
The ADC suggests, “Rewind back to the beginning of 2020: Joaquin Phoenix was using his Oscar acceptance speech to denounce dairy farmers. Suddenly, it seemed dairy farmers were Public Enemy No. 1 as Starbucks and other major retailers encouraged plant-based alternatives in the name of ‘Veganuary,’ a campaign that aims to get people to adopt a plant-based diets.”
“In reality, dairy’s role in greenhouse gas emissions is today, and has always been, part of a natural cycle that occurs when cows methane emissions are reabsorbed by plants entirely unlike the emissions from cars, factories, or even the planes like that Mr. Joaquin himself undoubtedly takes to travel around the globe. Direct emissions from the dairy industry accounts for only 2 percent of the total greenhouse gas contribution, emitting mainly from rumen digestion and manure, and based largely on a variety of natural processes.”
“Despite many people’s efforts to go vegan to help the environment, Dr. Frank Mitloehner — a professor at the University of California-Davis — said, ‘It does not have a huge result. The dairy industry does not only talk big about making improvements.’”
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.