This column was written for the marketing week ending Aug. 14.
The U.S. Department of Agriculture raised its 2020 milk production forecast from last month’s estimate in the latest World Agriculture Supply and Demand Estimates report — citing higher expected growth in milk per cow more than offsetting a slightly lower dairy cow number. The 2021 forecast was lowered, based on a slower growth in cow numbers.
2020 production and marketings were estimated at 221.8 and 220.7 billion pounds respectively. This is an increase of 300 million pounds on production from their July estimate and up 200 million pounds on marketings. If realized, 2020 production would be up 3.4 billion pounds or 1.6 percent from 2019.
2021 production and marketings were estimated at 225.3 and 224.3 billion pounds respectively, down 300 million pounds on both. If realized, 2021 production would be up 3.5 billion pounds or 1.6 percent from 2020.
Cheese, butter, and nonfat dry milk price forecasts were reduced from last month, while the whey price forecast was unchanged. The Class III milk price forecast was reduced, based on lower cheese prices, while the Class IV milk price forecast was reduced on lower butter and nonfat dry milk price forecasts.
Price forecasts for 2021 cheese and butter were lowered, the whey forecast was increased, and the nonfat dry milk price forecast was unchanged.
Look for a 2020 Class III average at around $17.40, says USDA, down 60 cents from what was forecast a month ago, and compares to the 2019 average of $16.96 and $14.61 in 2018. The 2021 Class III average is now put at $16.10, down a dime from what was projected last month.
The Class IV price is expected to average around $13.55, down 40 cents from last month’s estimate, and compares to the 2019 average of $16.30 and $14.23 in 2018. The 2021 Class IV average was projected at $13.65, down 15 cents from last month’s projection.
This month’s U.S. corn outlook is for larger supplies, greater feed and residual use, increased exports, and higher ending stocks, according to the WASDE. Corn production was forecast at a record 15.3 billion bushels. This is up 278 million bushels from the July projection and up 12 percent from 2019.
The season’s first survey-based corn yield forecast was a record 181.8 bushels per acre, 3.3 bushels higher than last month’s trend-based projection. Area harvested was forecast at 84 million acres, unchanged from the June forecast, but up 3 percent from the previous year.
The USDA’s Crop Production report stated Illinois, Indiana, Iowa, Missouri, Nebraska and Ohio are forecast to have yields above a year ago, with record-high yields for Minnesota and South Dakota.
Meanwhile, the latest Crop Progress report showed that 71 percent of U.S. corn was rated good to excellent, as of the week ending Aug. 9, up from 57 percent a year ago. Ninety-seven percent was silking, up from 87 percent a year ago and 2 percent ahead of the five-year average. Fifty-nine percent was in the dough stage, up from 34 percent a year ago.
However, a severe thunderstorm in central Iowa and into Illinois prompted StoneX to state, “It’s going to be a near impossible job for the market to figure out what the overall impact of the high winds were.”
Plenty of pictures were circulating of the damage, but StoneX warned, “With all the buying that China has been doing of late, a little damage to the crop in any case likely raises the floor and starts to make it difficult to see a lot of additional downside.”
Exports are higher, reflecting U.S. competitiveness and relatively low world prices, according to the WASDE, and “With supply rising more than use, ending stocks were raised 108 million bushels to 2.8 billion, and the season-average corn price was lowered 25 cents to $3.10 per bushel.”
U.S. soybean production was forecast at a record 4.425 billion bushels. This is up 290 million or 25 percent, based on higher yields from 2019. Harvested area was forecast at 83 million acres, unchanged from the July projection but up 11 percent from 2019. The first survey-based soybean yield forecast of 53.3 bushels per acre was raised 3.5 bushels from last month, and is 5.9 bushels above last year’s level.
Soybean supplies were projected at a record 5.1 billion bushels, up 13 percent from last year. U.S. exports were raised 75 million bushels to 2.13 billion on increased global import demand, increased supplies, and lower prices.
The season-average soybean price was forecast at $8.35 per bushel, down 15 cents from last month, and the soybean meal price was forecast at $290 per short ton, down $10.
Cotton production was forecast at 18.1 million 480-pound bales, down 9 percent from 2019. Yields are expected to average a record high 938 pounds per acre, up 115 pounds from 2019.
The Crop Progress report shows 92 percent of U.S. soybeans are blooming, up from 79 percent a year ago and 3 percent ahead of the five- year average. Seventy-five percent were setting pods, up from 49 percent a year ago and 7 percent ahead of the five-year average. Seventy-four percent were rated good to excellent, up from 54 percent a year ago. The cotton crop had a 42 percent good to excellent rating, down from 56 percent a year ago.
Looking ahead, it’s a little hard to be optimistic as we see markets falling. HighGround Dairy’s Aug. 10 “Morning Huddle” echoed that sentiment. “Given that demand for Class I milk is questionable as schools will not fully open across the nation, there is more milk available for cheesemakers as U.S. milk production is steady-to-higher in the Midwest, Idaho and California. The rise in milk and cheese availability has been paired with a rise in Covid cases in select regions and foodservice demand has declined as states stop their reopening processes.”
Another factor is that, over the past six months, the Food At Home price index rose 5.5 percent, according to HighGround Dairy, “the sort of gain that has not been reported over a six-month period since January 1981. Food Away From Home continues to see a steady rise as well. As of June, grocery costs (At Home Index) were up 5.6 percent from prior year, the largest year-on-year gain since December 2011 after experiencing an average gain over prior year of around 0.4 percent throughout 2017 to 2019. Given all that we know in the dairy industry about supply chain hiccups this year, as well as the volatility at the CME, this is not surprising but concerning as economic uncertainty ensues.”
StoneX cautioned if school milk usage is down 50 percent, we would need about a 9 percent increase in retail sales to oﬀset it. “Not impossible,” they said, “but recent retail sales have been closer to 2 percent growth.”
The Chicago brokerage also says the market “overshot the mark to the upside; expect we overshoot to the downside and then find equilibrium somewhere in between.”
The declines in prices may have set some records; however, “All we have done over the last few weeks is get cheese prices down to ‘normal’ values.”
Chicago Mercantile Exchange block cheddar traded down to $1.58 per pound on Aug. 11 (the lowest since May 13), but then rallied and the next day saw its first gain in 22 sessions. Cheddar closed Aug. 14 at $1.82, up 11.5 cents on the week, but 6 cents below a year ago.
The Cheddar barrels fell to $1.4450 on Aug. 11, also rallied, and closed Aug. 14 at $1. 50. The price was still 1.75 cents lower on the week, 26.5 cents below a year ago, and 32 cents below the blocks. Twenty-two cars of block traded hands this week and 35 of barrel.
Midwest cheese production is “active with plenty of milk,” says Dairy Market News, and milk prices early in the week were in a somewhat similar range to the previous week. A number of plant managers said they are at the onset of holiday season preparations. Cheese market tones are notably weaker, though a number of contacts believe prices are at “more reasonable levels — both domestically, and importantly, on international markets.”
Western cheesemakers report international buyers are showing a little more interest now that cheese prices have fallen, says Dairy Market News. “But as cheese supply and demand pitch and yaw, market participants are hesitant to make any sudden moves. Buyers seem willing to wait for a better deal, unsure if the market bottom has been reached.”
“Cheese availability has improved, but export deals inked when cheese prices were at the lowest are getting finished. Restaurants may face tighter restrictions while the states and nation grapple with heavy Covid caseloads,” Dairy Market News warned, “releasing more cheese to the market. Manufacturers want to control production and not get swamped by supply.”
Spot butter whipsawed some, but closed the week at $1.4850 per pound. This is down 4.5 cents and 85.5 cents below a year ago, with 49 cars exchanging hands.
Midwest butter makers tell Dairy Market News that cream is slightly tighter, but still sufficient enough to keep plants at or near capacity. Retail butter demand has slid and food service numbers lag previous years' numbers. Market tones are unsteady; but some participants expect $1.50 to $2.00 prices until year's end.
Covid-19-induced uncertainties in the west continue to affect the butter market. Prices may have decreased but sales have not changed much in the domestic and international markets. Retail sales are stronger compared to the past year but not enough to make up for the market share lost in the food service industry.
While the USDA’s latest dairy export data was encouraging, it also showed June butter imports totaled 12.5 million pounds, up 50.7 percent from June 2019. World high U.S. prices were a magnet to imports, even though they were below a year ago.
Grade A nonfat dry milk also had its ups and downs but closed at 96.50 cents per pound, up a penny on the week, but 6.5 cents below a year ago, with 26 sales.
StoneX says nonfat dry milk was running way below global prices, trading under $1.00 per pound “with no real story to push it higher.”
“We are using some powder to fortify domestic cheese vats, but demand is sluggish,” StoneX warned, “and a weakening global economy isn’t going to help.”
Whey slipped to 31 cents per pound on Aug. 11, but closed Aug. 14 at 32.5 cents. This is a half-cent higher on the week, but 4 cents below a year ago on eight sales reported.
Round 3 of the food box program will include a dairy box. StoneX says, “This could be a combo box or dairy box; but nothing specific was given for other commodities. There were also two fluid milk solicitations — both for delivery October through December. The first was 1.4 million pounds, the second was 26 million, so a total of 27.4 million pounds for fourth quarter. The USDA bought 30.6 million in third quarter. The numbers sound big, says StoneX, “but 30 million pounds is roughly 0.2 percent of total fluid milk consumption for the quarter.”
Many wonder what will happen when the government ends these food purchases. Hard times on the farm are taking a toll. The Aug. 6 Wall Street Journal reported about 580 farmers filed for chapter 12 bankruptcy protection in the 12-month period ending June 30 — up 8 percent from a year earlier. The market volatility of the Covid pandemic forced many farmers to take a closer look at their financial statements, according to Hoards Dairyman editor Corey Geiger in the Aug. 17 Dairy Radio Now broadcast.
Geiger reported in a recent “DairyLivestream” program where it was pointed out that utilizing futures contracts and insurance programs can be a regular way to provide more stability to the milk check.
One of the participants, Gordie Jones (partner and manager of Central Sands Dairy in Wisconsin) said, “We have always been locking in feed prices and locking in milk prices to assure ourselves at least a margin.”
Jones worked 22 years as a veterinarian and then as a consultant before starting Central Sands and Geiger said Jones admitted, “Committing to those programs is not always easy, particularly at the end of 2019 when milk prices were projected to be much better than they had been. I was probably voting not to lock in milk prices in January. We locked them in, and suddenly in February and March, we looked like geniuses.”
But, limiting risk encompasses many strategies other than just protecting milk price, according to Cornell ag economist Chris Wolf. “Dairy farms face a lot of different types of risk,” says Wolf. “Risk management is proactively recognizing the potential for adverse outcomes and taking steps to minimize the likelihood of those outcomes or minimize the effects if they do occur.” Forward contracting feed, like Jones does, is another example.
Another participant, John Mueller of Willow Bend Farm in New York, takes more of an offensive approach to managing risk, Geiger said, by zeroing in on farm budgets and evaluating financial benchmarks to limit the operation’s susceptibility to risk. “Our philosophy has always been if you have a strong balance sheet, that’s your risk management,” he stated. “If you focus on something, it traditionally gets better,” Mueller said.
Cooperatives Working Together members accepted 12 offers of assistance this week to help capture sales of 544,542 pounds of cheddar and Gouda cheese, 534,842 pounds of butter, and 2.1 million pounds of whole milk powder.
The product will go to customers in Asia, the Middle East, Oceania, and South America through December and raised CWT’s 2020 exports to 22.75 million pounds of American-type cheeses, 6.82 million pounds of butter (82 percent milkfat), 3.12 million pounds of anhydrous milkfat, 4.38 million pounds of cream cheese, and 33.44 million pounds of whole milk powder. The product is going to 28 countries and are the equivalent of 726.6 million pounds of milk on a milkfat basis.
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.