Mielke Market Weekly: USDA will authorize up to $12 billion in programs
Media reports were abundant Monday regarding the U.S. and Mexico reaching agreement on a re-tooled North American Free Trade Agreement. Next stop is Canada to keep the trio intact. Word was that Canada may give some concessions even on dairy issues. Meanwhile; U.S. Agriculture Secretary Sonny Perdue announced steps the Agriculture Department will take to “assist farmers in response to trade damage from unjustified retaliation by foreign nations.”
As announced last month, USDA will authorize up to $12 billion in programs, consistent with World Trade Organization obligations, to “assist agricultural producers to meet the costs of disrupted markets.”
USDA’s Farm Service Agency will administer the Market Facilitation Program to provide payments to corn, cotton, dairy, hog, sorghum, soybean, and wheat producers starting September 4, 2018.
The plan directs $3.6 billion of the $4.7 billion in direct payments to soybean growers, at $1.65 per bushel paid out to 50 percent of 2018 production. Smaller reimbursements will also go for corn, wheat, and cotton, as well as hog farmers.
USDA’s Agricultural Marketing Service will administer a Food Purchase and Distribution Program to purchase up to $1.2 billion in commodities unfairly targeted by unjustified retaliation. USDA’s Food and Nutrition Service will distribute these commodities through nutrition assistance programs such as The Emergency Food Assistance Program and child nutrition programs.
Through the Foreign Agricultural Service’s Agricultural Trade Promotion Program $200 million will be made available to develop foreign markets for U.S. agricultural products.
FC Stone calculates the payout to dairy producers will be about 12 cents per cwt. or about $127.4 million. Another $84.9 million will go to commodity purchases, which FC Stone says will likely raise cheese prices about 3 cents per pound or 26 cents per cwt. for Class III milk.
“This is truly unlike other farm aid packages” says FC Stone. “The program seems significantly limited by the stipulations and conditions that need to be met in order to spark both direct payments and purchase programs. Additionally, the whole thing remains fairly vague as if the government is leaving themselves an ‘out.’ Mr. Perdue literally said that the aid package could ‘go away tomorrow’ if we can work out deals with major trade partners.”
“The farmer aid package is generally supportive of dairy markets currently,” FC Stone concludes. “We say ‘generally’ because there is a farmer payment plan here, we just don’t see that as a material enough payment to make any meaningful difference to milk production going forward. We await word on how any cheese and butter purchases may happen within the scope of this program. Depending on how they buy product and what it’s used for, the impact could be more or less bullish. So net bullish, but a new trade deal with Mexico is still likely a more supportive feature,” according to FC Stone.
The National Milk Producers Federation says the plan “falls far short of addressing the losses dairy producers are experiencing due to trade retaliation resulting from the Administration’s imposition of steel and aluminum tariffs. The dairy-specific financial assistance package centered on an estimated $127 million in direct payments, represents less than 10 percent of American dairy farmers’ losses caused by the retaliatory tariffs imposed by Mexico and China.”
“The price drop resulting from these tariffs has not been gradual, it’s hurting U.S. dairy producers right now and will continue to do so. Since the retaliatory tariffs were announced in late May, milk futures prices have lost over $1.2 billion through December 2018. Milk prices for the balance of the year are now expected to be $1.10 per-hundredweight lower than were estimated just prior to the imposition of the tariffs on U.S. dairy exports,” NMPF says.
NMPF adds that a study by Informa Economics on the impact of the retaliatory dairy tariffs “projects dairy farmer income will take a hit of $1.5 billion this year if the tariffs remain in place through the end of 2018. This loss compounds to $16.6 billion if the tariffs are left in place long term over the next five years, through 2023. The impact of lost sales to China account for most of that harm, accounting for 73 percent of the total. That sizable decline in farmer incomes will compound the low prices and financial losses that dairies have already felt,” NMPF warned.
The International Dairy Foods Association and the Milk Processor Education Program stated that they “support USDA’s efforts to provide additional benefits to people across the country who don’t have regular access to nutritious milk and dairy products, while helping to alleviate some of the financial difficulties facing dairy farmers and companies that stem from lost export sales.”
The USDA’s Economic Research Service reports in its August Farm Income Forecast that Net farm income is forecast to decrease $9.8 billion (13.0 percent) from 2017 to $65.7 billion in 2018, after increasing $13.9 billion (22.5 percent) in 2017. In inflation-adjusted 2018 dollars, net farm income is forecast to decline $11.4 billion (14.8 percent) from 2017 after increasing $13.0 billion (20.3 percent) in 2017. If realized, inflation-adjusted net farm income would be just slightly above its level in 2016, which was its lowest level since 2002.” It adds that “Receipts for milk are expected to decline $2.8 billion (7.4 percent) in 2018.”
The August Federal order Class III milk price is $14.95 per hundredweight (cwt.), up 85 cents from July, $1.62 below August 2017 and the lowest August Class III price since 2009 when it was at $11.20. It equates to $1.29 per gallon, up 8 cents from July and compares to $1.21 a year ago. The eight month average stands at $14.44, down from $16.09 a year ago and compares to $14.13 in 2016.
Class III futures late Friday morning portended a September Class III at $16.47; October, $16.64; November, $16.58; and December at $16.37 per cwt.
The August Class IV price is $14.63, up 49 cents from July, $1.98 below a year ago, and the second highest Class IV price this year. Its eight month average is at $13.85, down from $15.46 a year ago and compares to $13.57 in 2016.
The roller coaster took most dairy prices higher as it entered the Labor Day weekend. Block Cheddar closed the week and the month at $1.6950 per pound, up 2 1/2-cents on the week, up 15 1/2-cents on the month, and 15 1/2-cents above a year ago when they tumbled 11 cents. The barrels finished at $1.6450, up 4 1/2-cents on the week, up 21 1/2-cents on the month, and 12 1/2-cents above a year ago. 6 cars of block traded hands on the week at the CME (33 on the month) and 34 of barrel (180 on the month).
Milk availability has markedly tightened for cheese production in the Central U.S., according to Dairy Market News, with the range from Class to $2.00 over. Some cheesemakers report spot milk is unavailable. As a result, mozzarella producers are increasing usage of nonfat dry milk to fortify. Production activity in most varieties is picking up, as demand is steady to stronger. Some cheesemakers report a growing and new customer base which is bullish for the market
Western cheese producers have no trouble finding milk and cheese output is generally steady. Sales continue to improve, but a number of suppliers report that buyers are sensitive to offer prices. Barrels are in stronger demand than blocks, but the prices of both are firm. Food chains continue to demand more cheese for pizza. Some contacts say the USDA purchase of cheese is impacting inventory levels. Stocks tightened a little, but continue to be widely accessible.
CME butter closed the month at $2.2150 per pound, down 4 1/2-cents on the week, down 10 1/2-cents on the month, and 29 1/4-cents below a year ago when it lost 12-cents. 12 cars were sold on the week and 73 on the month.
Cream availability for churning saw little change and remained plentiful the last week of August, says DMN. Supplies are available but market tones are steady
The Western butter market is somewhat bearish but participants see lower prices as an opportunity to attract more international buyers. Butter output dropped slightly in recent weeks as more milk went into Class I utilization. Several vendors report abundant stocks and are looking for additional sales outlets.
Grade A nonfat dry milk saw a Friday close at 88 1/2-cents per pound, 1 1/2-cents higher on the week, 2 1/4-cents above a year ago, and up 4 1/2-cents from August 1. 15 cars were sold at the CME this week, with 89 loads for the month.
Dry whey was bid 2 cents higher on the week to a new record 50 cents per pound, 6 3/4-cents higher than where it was on August 1.
In global headlines; Irish Farm Journal reported that 31,493 metric tons of skimmed milk powder were sold through the European Commission's Intervention tender this month, up sharply from the 2,408 MT sold last month.
HighGround Dairy reports that Fonterra Co-operative Group revised its 2018/19 forecast farmgate milk price from $7.00 per kgMS to $6.75 per kgMS. Fonterra Chairman, John Monaghan, said the change was in response to “stronger milk supply signals coming from some of the world’s key dairy producing regions.”
A 90 cent drop in the July U.S. All Milk price average could not be offset by lower feed prices and pulled the July milk feed price ratio down after it rose in June for the first time in six months. The USDA’s latest Ag Prices report puts the July ratio at 1.91, down from 1.98 in June and down from 2.27 in July 2017.
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 today purchases 1.91 pounds of dairy feed containing that blend.
The U.S. All-Milk price averaged $15.40 per cwt., down 90 cents from June and $1.80 below July 2017. The price ranged from $14.10 in New Mexico and $14.20 in Michigan to Florida’s $20.10. California was at $15.05, down 58 cents from June; and Wisconsin was at $15.30, down $1.20 from June.
July corn averaged $3.47 per bushel, down 11 cents from June and 2 cents per bushel below July 2017. Soybeans averaged $9.10 per bushel, down 45 cents from June and 32 cents per bushel below a year ago. Alfalfa hay averaged $179 per ton, down $2 from June but $26 per ton above a year ago.
The Daily Dairy Report points out that “the U.S. milk over-feed margin fell 61 cents from June to just under $6.76 per cwt. based on the dairy Margin Protection Program calculation, making it the second lowest in 2018 and the third lowest since May 2016.”
Looking at the cow side of the ledger; the July cull price for beef and dairy combined averaged $66.80 per cwt., up 50 cents from June, $10.50 below July 2017 and $4.80 below the 2011 base average of $71.60 per cwt.
Milk cows for the quarter averaged $1,320 per head in July, down from $1,360 in April, and $300 per head below July 2017. They averaged $1300 in California, unchanged from April but $300 below a year ago. Wisconsin cows averaged $1250 per head, down from $1320 in April and $1650 per head in July 2017.
The DDR’s Sarina Sharp wrote in the August 24 Milk Producers Council newsletter that “Heifer supplies are adequate to maintain the dairy herd even at the current cull rate, but dairy producers show no inclination to keep their collective barns as full as they once were. Heifer buyers are scarce.
At auctions around the country, springer values have slumped to new lows. The combination of high slaughter volumes and cheap heifers suggests that contraction in the U.S. dairy herd continues.”
The week of August 6 saw 60,948 milk cows head to slaughter. Sharp says “That’s the largest slaughter volume for this time of year since 1986, when the industry was buying out whole herds and killing them.”
She adds that “Across the pond, scorched pastures and dwindling feedstocks are prompting a similar uptick in cull-rates. Growth in milk output in the world’s two largest dairy regions is likely to slow just as demand for dairy seems to be ramping up. At long last, the dairy industry may be able to sustain a rally that makes milking cows worthwhile,” she concludes.
Cooperatives Working Together (CWT) members accepted nine offers of export assistance this week to help capture contracts to sell 557,770 pounds of Cheddar and Monterey Jack cheese, 119,050 pounds of butter, and 1.819 million pounds of whole milk powder. The product has been contracted for delivery in Asia, the Middle East, and Oceania from August through February 2019.
Lastly; it was Labor Day 1988 that I aired my first radio broadcast of DairyLine. My former colleague Bill Baker and I discussed how things have changed in the dairy industry in those 30 years in his September 3 Dairy Radio Now broadcast.
Many of the issues remain the same, particularly the rise and fall of milk prices, though it appears the extremes have increased. I think the advent of computers and futures and options trading were two of the biggest changes I’ve witnessed.
I often told the story of the dairyman who won the $2 million lottery and when asked what he was going to do with all that money, he replied, “I think I’ll keep dairying until it’s gone.”
It would be funny if it weren’t so true. One thing for sure that hasn’t changed is my respect and admiration for dairy producers and what they have to deal with day to day, year to year. Most consumers have no idea. I’m proud to be a part of this great industry but I am grateful that I have been on this side of the barn door.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 email@example.com.