Dairy Market: Uncle Sam gets prices rising
Dairy prices got another shot in the arm this week due in large part to Uncle Sam’s surprise buying spree announced Friday.
FC Stone stated, “Initially the USDA had signaled they would be buying $100 million per month, so we were only expecting $150 million of dairy purchases in round 1 instead of the $317 million that was announced.”
The program can only award new contracts as long as the official national emergency declaration remains in effect. When the Trump administration declares that the emergency is over, the USDA won’t be able to run any further rounds of this program so the USDA appears to be front-loading the program,” said FC Stone.
The Dairy and Food Market Analyst reported that, with the USDA’s “Blue Apron”-style coronavirus relief program, “In total, the government bought $1.2 billion worth of food products. Included in that figure is $317 million of dairy products for delivery between May 15 and June 30,” but the Analyst warned, “If this purchase rate is sustained, USDA will deplete the $3.0 billion coronavirus funds by September.”
“USDA allocated approximately 31% of the announced food purchases to dairy products, including about 749 million pounds for fluid milk, 31 million pounds for cheese, and 7.4 million pounds for butter.”
Analyst and editor, Matt Gould, estimates that Uncle Sam is buying dairy products equal to approximately 5.0% of U.S. milk production between May 15 and June 30, 1 in 20 loads, for 4 1/2 months.
He added: “The government must have money burning a hole in its pocket because USDA also announced a $120 million ‘Section 32’ purchase for cheese and butter to take place in July and August.”
Gould estimates that Section 32 purchase will total about 23 million pounds of cheese and 3.6 million pounds of butter per month. Combining those two separate programs (Blue-Apron-style and Section 32), USDA could end up procuring as much as 4.0% of the cheese produced per month and 6.5% of the butter.
Cash dairy prices continued their upward trajectory the first week of May. The Cheddar blocks closed Friday at $1.3050 per pound, up 10 cents on the week but still 37.5 cents below a year ago.
The barrels finished Friday at $1.27, up 8 cents on the week and 44 cents below a year ago. 8 cars of block traded hands on the week at the CME and 50 of barrel.
The blocks shot up 8.25 cents Monday and pole vaulted 10.5 cents Tuesday, to $1.4925, up 48.5 cents in just over three weeks, and the highest they’ve been since March 27.
The barrels were up 3 cents Monday and gained 11 cents Tuesday, shooting to $1.41.
Cheese producers are busier, says Dairy Market News, as “food service pipelines, which in some cases had gone completely dry during COVID-19 slowdowns, are being refilled. ... Buyers have reacted to the increase in market prices, as continued bullishness is expected, at least in the short term.”
Milk remains widely available with spot prices similar to previous weeks but contacts have relayed that milk dumping has ceased.
Western cheesemakers say demand is stable to slightly higher and the lower market prices have spurred buyer interest. Contacts speculate that foodservice distributors, after using up their cheese stocks, are placing new orders, taking advantage of lower prices. Retail sales have slowed from the peak but are still above normal. Cheese output has been active and inventories are growing, says DMN.
Spot butter also moved higher, gaining 10.25 cents last week, with a $1.29 per pound Friday close, $1.05 below a year ago.
Monday’s butter gained 6.25 cents but was unchanged Tuesday, holding at $1.3525, highest since March 30.
Cream remains available, according to Central churners, but multiples are stronger. Food service has perked up but the numbers remain well below previous years. Retail is quite a bit stronger and inventories have been moving well, as unexpected market prices and grocery store demand have spurred buyers. Market tones are “resolutely positive when compared to the past month,” says DMN.
Western markets are steady to firming a bit, as some states are slowly going back to normal activities post-quarantine. Retail demand is mostly stable compared to the previous week and the foodservice and ingredient industries continue to see limited movements; however, sales have increased a bit. Many processors are churning butter to clear the abundant supplies of cream but butter inventories are growing and storage space has tightened.
Grade A nonfat dry milk finished Friday at 82.50 cents per pound, 3.25 cents higher on the week, but 24.25 cents below a year ago.
Monday’s powder was up 3.25 cents and it inched a quarter-cent higher Tuesday, to 86 cents per pound, the highest since April 13.
Dry whey hit 40 cents per pound last Tuesday but closed Friday at 39.75 cents, a quarter-cent higher on the week and 5 cents above a year ago.
The whey inched a half-cent higher Monday and stayed there Tuesday at 40.25 cents per pound, highest CME price since January 2019.
More butter, powder
You’ll recall the March U.S. milk output hit 19.3 billion pounds, up 2.2% from March 2019. The March Dairy Products report shows where that milk ended up.
March total cheese output jumped to 1.12 billion pounds, up 9.0% from February and 0.2% above March 2019. The year-to-date cheese total stands at 3.3 billion pounds, up 0.7% from a year ago. Keep in mind the comparisons to February will be skewed due to the extra “Leap Day” this year.
Wisconsin produced 288.4 million pounds of the March total, up 10.4% from February but 1.7% below a year ago. California output, at 211.0 million pounds, was up 5.9% from February but down 2.1% from a year ago. Idaho contributed 88.8 million pounds, up 20.9% from February but 1.0% below a year ago.
Italian type cheese totaled 487.6 million pounds, up 8.8% from February but 1.1% below a year ago. YTD output came to 1.4 billion pounds, up 0.3%.
American cheese totaled 448.9 million pounds, up 7.2% from February and 1.4% above a year ago. YTD American was at 1.3 billion pounds, up 0.9%.
Mozzarella hit 389.5 million pounds, down 0.4%, with YTD at 1.1 billion pounds, up 0.5%.
Cheddar output, the cheese traded at the CME, climbed to 318.7 million pounds, up 16.3 million pounds or 5.4% from February and 3.5 million or 1.1% above March 2019. Year-to-date Cheddar stood at 940.4 million pounds, down 0.1%.
Butter production shot up to 194.3 million pounds, up 6.3 million pounds or 3.4% from February and 13.6 million pounds or 7.5% above a year ago, the eighth consecutive month it topped a year ago. Revisions added 8.8 million pounds to the February total. YTD butter was at 575.7 million pounds, up 4.3% from 2019.
Dry whey totaled 81.6 million pounds, up 6.7% from February and 5.4% above a year ago, with YTD at 242.3 million pounds, up 2.5%. Stocks totaled 73.3 million pounds, down 1.6% from February and 12.7% below a year ago.
Nonfat dry milk totaled 172.7 million pounds, up 13.6 million pounds or 8.5% from February and 10.9 million or 6.7% above a year ago. YTD powder is at 508.1 million pounds, up 3.2% from 2019. Stocks swelled to 349.2 million pounds, up 30.9 million or 9.7% from February and 59.3 million or 20.4% above 2019.
Skim milk powder output was at 40.8 million pounds, up 2.4 million pounds or 6.3% from February, but 7.5 million pounds or 15.5% below a year ago. YTD skim hit 40.8 million pounds, down 15.4% from a year ago.
Milk projection up
Just as dairy farmers are being called upon by their cooperatives and milk handlers to reduce milk output, the Agriculture Department raised its 2020 milk production estimate in this morning’s World Agricultural Supply and Demand Estimates report, based primarily on higher-than expected cow numbers. It also gave us our first look of what the Department sees in 2021.
2020 production and marketings were estimated at 222.4 billion and 221.3 billion pounds, respectively, up 200 million pounds on production and 100 million pounds on marketings. If realized, 2020 production would be up 4 billion pounds or 1.8% from 2019.
2021 production and marketings were estimated at 224.1 and 223.1 billion pounds, respectively. If realized, 2021 production would be up 1.7 billion pounds or 0.8% from 2019.
Cheese and whey prices were raised resulting in a higher Class III milk price forecast. Look for a 2020 Class III average of $13.35 per hundredweight, up 60 cents from last month’s bleak estimate, and compares to $16.96 in 2019 and $14.61 in 2018. The 2021 average was projected at $14.20.
Butter and NDM prices were lowered from last month, resulting in a lower Class IV price forecast. It was estimated at $11.90, down 25 cents from last month’s projection and compares to $16.30 in 2019 and $14.23 in 2018. The 2021 Class IV average was estimated at $12.20.