U.S. lawmakers cobbled together another COVID relief package
Just as a Brexit deal appeared to have come together on Christmas Eve, U.S. lawmakers cobbled together another COVID relief package that promises much for the dairy industry. Unfortunately it was combined with a monstrous Omnibus Appropriations bill that became a very expensive Christmas tree laden with insane spending, both home and abroad.
The measure prompted harsh criticism from President Trump who vetoed a $740.5 billion annual defense spending bill on Wednesday. Lists were appearing everywhere of what the two combined bills had funded, with many constituents terming the legislation as “wasteful spending,” while only allocating $600 per person in COVID relief. The President wants $2,000.
The Covid-19 relief and government funding bill carries a price tag of $2.3 trillion and passed the House 359 to 53 and the Senate 92 to 6, making the package “veto proof” but the uncertainty was creating anxiety in the market.
The Daily Dairy Report says the bill allocates $400 million for dairy donations and directs USDA to purchase “not less than” $1.5 billion in seafood, produce, meat, and dairy products for those in need. But the DDR warned; “The pending transition to a new administration could slow implementation, which requires a review of previous donation programs.”
“The bill includes $473 million for small dairy farms to increase coverage levels in the Dairy Margin Coverage program,” says the DDR, and “directs the secretary to ‘make additional payments to ensure that’ Coronavirus Food Assistance Program aid ‘more closely aligns with the calculated gross payment or revenue losses of any person or entity.’ That, says the DDR, “suggests more aid could be forthcoming for producers with medium and large herds who received far less in aid intended to cover 80% of pandemic-related losses due to the $250,000 payment cap.”
Meanwhile, U.S. butter stocks fell again in November but were still well above those a year ago. The Agriculture Department’s latest Cold Storage report shows the November 30 inventory at 251.8 million pounds, down 47.9 million pounds or 16% from October, but a whopping 71.2 million pounds or 39.4% above November 2019, 17th consecutive month they topped the year ago level.
HighGround Dairy (HGD) points out that this was the steepest butter drawdown of the year, as is usual in the month, but was less than the five-year average.
American type cheese climbed to 760.2 million pounds, up 4 million pounds or 0.5% from October and 19.8 million pounds or 2.7% above a year ago.
The “other” cheese inventory slipped to 564.5 million pounds, down 600,000 pounds or 0.1% from October, but 6.9 million pounds or 1.2% above a year ago.
The total cheese inventory inched up to 1.34 billion pounds, up 3.4 million pounds or 0.3% from October but 22.3 million pounds or 1.7% above a year ago.
Dairy cow culling fell in November, according to the latest Livestock Slaughter report, and was well below a year ago. An estimated 229,400 head were sent to slaughter under federal inspection, down 29,600 head or 11.4% from October and 26,700 or 10.4% below November 2019.
A total 2.79 million head have been culled in the first 11 months of 2020, down 168,800 head or 5.7% from the same period in 2019.
In the week ending December 12, 62,100 dairy cows were sent to slaughter, down 3,800 from the previous week, and 3,400 or 5.2% below a year ago.
As reported last week, dairy farm margins strengthened over the first half of December following higher milk prices with feed costs holding mostly steady, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.
The MW stated that Class III Milk prices were drawing support from expectations for another round of government buying to extend into first quarter. It speculated that “Any new Dairy Donation program will be different from past programs in that it will encourage donations of surplus products such as butter. In addition, the USDA must conduct a study of programs administered thus far before any new funds can be dispersed, which will likely limit a repeat of running the cheese market up to $3 per pound again.”
Reporting on the latest Global Dairy Trade (GDT) auction, the MW stated that “The GDT index rose 1.3% to $3,317 per metric ton which was paced by strong advances in butter, Cheddar, whole milk powder and skim milk powder. This has continued to help lift Class IV milk prices which have been trading at significant discounts relative to Class III.”
Switching to the feed side of the ledger, the MW reported that “Feed costs have traded mostly sideways although both corn and soybean meal are holding support at the higher end of a recent trading range following a significant price increase that has added to breakeven levels for most dairy producers in forward margin projections. Concerns over South American crop availability have caused Chinese buyers to shift late-winter cargoes to U.S. origin with strong export demand expected to continue through first quarter,” the MW concluded.
Cash dairy prices were confused in the Christmas-Holiday shortened week. The 40-pound Cheddar block cheese started the week losing 4 cents, then jumped 9.75 cents Tuesday on news that a COVID-relief bill had been agreed upon. The veto talk likely turned things around and the blocks closed Thursday at $1.5975 per pound, down 2 cents on the week and 23.25 cents below a year ago.
The 500-pound Cheddar barrels pole vaulted 15.25 cents Tuesday to $1.6250, highest since November 12 and just 5 cents below the blocks, only to give back 7 cents Wednesday and 9 cents Thursday and close at $1.4650, a penny lower on the week, 13.5 cents below a year a year ago, and 13.25 cents below the blocks. 27 cars of block exchanged hands in the four days at the CME and 7 of barrel.
Spot milk was widely available in the Midwest Christmas Week at even bigger discounts than in recent weeks, according to Dairy Market News, and cheesemakers were shifting production to aging-friendly varieties when possible.
“They foresee the writing on the wall with food service demand, which has taken the brunt of the COVID-19 impact,” says DMN. “On the other hand, some pizza cheese producers have reported strong remaining sales. Some producers are granting more days off than usual to staff in light of COVID-19 issues, while others were using the ample milk to run steadily through the weekend.
Western cheese makers are running at capacity. Milk collections are adequate and there are some discounted loads of milk floating around the region, according to DMN, which says that industry contacts are “studying the lessons learned from the 2020 cheese markets. Some customers are taking regular shipments, but also reflecting on how buying patterns may have changed. In general, retail demand is stable and stronger than previous years. However, snack cheese items are not selling as well,” says DMN.
Cheese demand for institutional and sit-down dining is still weak, but pizza, fast food and other take-out options have helped move cheese. Manufacturers and end users are watching inventories closely. Some expect cheese stocks to grow in the near term as market participants sort out strategies for the coming year.
Spot butter saw a Christmas Eve close at $1.5250 per pound, 7 cents higher on the week but 51 cents below a year ago, with 20 cars trading places on the week.
The price uptick is a bit surprising in view of the Cold Storage data showing a build in inventory at the wrong time of the year. DMN reported that butter plants were closed anywhere from one to four days for the Christmas weekend which perplexed cream suppliers trying to find homes for loads which were heavily discounted this week.
Food service demand continues to find low points and, with long cream supplies, plant managers are producing bulk butter at growing rates though they are concerned about inventories coming into the new year.
Western butter output is gradually climbing and manufacturers are challenged to find room for the extra cream from suppliers. Pre-holiday week sales of butter were better than anticipated but sources indicated that orders dropped off considerably Christmas Week. Restaurant closings continue to occur and remain a stumbling block for food service, says DMN. Frozen butter stocks are “fully adequate,” but demand for 1st quarter bulk butter is “heavy.”
Grade A nonfat dry milk finished the week at $1.1475 per pound, down 0.25 cents and 8.50 cents below a year ago, with 4 sales reported on the week.
Dry whey climbed to 46.75 cents per pound Tuesday and that’s were it stayed, up 1.25 cents on the week and 15.25 cents above a year ago, with no sales.
The Agriculture Department announced the first Federal order milk price of 2021. The January Class I base is $15.14 per hundredweight, down $4.73 from December and $3.87 below January 2020. It is the lowest Class I price since June’s $11.42 and equates to $1.30 per gallon, down from $1.71 in December and $1.63 in January 2020.
Dairy Market News reports that “Farm level milk production is steady to increasing across the regions as cows respond to somewhat cooler and favorable temperatures. Bottling shipments across the country are mixed. Class I milk demand was up some in the South Central area and Midwest.
California bottled milk demand was starting to slow as schools prepared to close for the winter break. Class I sales were stable to declining in Arizona but, as the winter snowstorm developed in the Northeast, the region was experiencing a spike in Class I sales. Florida operations, meanwhile were importing milk from other regions to supply Class I needs. U.S. cream sales were down a bit, ahead of the Christmas holiday, according to DMN, and suppliers were trying to ensure that all loads have a destination over the next few weeks.
Cooperatives Working Together (CWT) member cooperatives accepted 11 offers of export assistance this week from CWT that helped them capture sales contracts for 1.133 million pounds of Cheddar, and Monterey Jack cheese, and 628,318 pounds of butter. The product is going to customers in Asia, the Middle East, North Africa, Oceania, and Central America and will be delivered from January through April 2021.
CWT’s 2020 export sales now total 116 million pounds of product made up of 36.7 million pounds of American-type cheeses, 14.8 million pounds of butter (82% milkfat), 2.8 million pounds of anhydrous milkfat, 7.3 million pounds of cream cheese, and 55.4 million pounds of whole milk powder. The product is going to 30 countries in seven regions and are the equivalent of 1.198 billion pounds of milk on a milkfat basis, according to the CWT.
In other global news, HighGround Dairy (HGD) reports that New Zealand’s November dairy exports “recorded the largest gains over prior year by volume since May 2019 with incredible growth recorded to China on whole milk powder, and Southeast Asia, offsetting lower shipments into the Middle East and North Africa.”
Whole milk powder exports were the second highest of any month on record, according to HGD, and second only to December 2018. “It was the highest monthly volume on record to ever ship to China in a single month.”
There were notable losses on key commodities from the Middle East/North Africa region however, says HGD, “due to a combination of weaker oil prices and New Zealand milk powder premiums limiting export opportunities. But, oil prices are on the rise and vaccine optimism will stem economic disruption.”
HGD concludes that “Fulfilling China’s needs remains the primary focus for New Zealand and demand is not expected to slow substantially into the first few months of 2021, keeping prices supported in the near term. Downside risk comes in the form of stronger global milk powder production into 2021 as infant formula demand from China backs down and product mix focuses on whole milk powder and skim milk powder and fat. However, global demand may be understated into the back half of 2021 following widespread vaccine distribution, bringing another year of volatility to the marketplace.”
And, as we all anticipate the end of a very challenging year in many ways, I would like to offer my wish and prayer for a better 2021 for you my readers. I look forward to serving you in the months ahead.
Lee Mielke is a graduate of Brown Institute in Minneapolis, MN. He’s formerly the voice of the radio show “DairyLine,” and his column appears in agricultural papers across the U.S. Contact him at firstname.lastname@example.org.