U.S. dairy farmers are indeed “milking it for all its worth"
U.S. dairy farmers are indeed “milking it for all its worth,” prompting the Agriculture Department’s first World Agricultural Supply and Demand Estimates report (WASDE) of 2021 to raise its milk production estimates for the fifth consecutive month, citing growth in milk per cow and higher dairy cow numbers.
2020 production and marketings were estimated at 222.9 and 221.9 billion pounds respectively, up 200 million pounds on both from the December estimate. If realized, 2020 production would be up 4.5 billion pounds or 2.1% from 2019. We’ll get December data on January 25.
2021 production and marketings were estimated at 226.7 and 225.7 billion pounds respectively, up 400 million pounds on both. If realized, 2021 production would be up 3.8 billion pounds or 1.7% from 2020.
Dairy product price estimates for 2020 reflected December price data. Cheese, butter, nonfat dry milk, and whey price forecasts for 2021 were raised from last month on firm domestic demand. The 2021 Class III milk price and Class IV prices were raised from the previous month on higher product prices.
Look for a 2021 Class III average of $16.90 per cwt., up $1.30 from what was projected a month ago, and compares to the 2020 average of $18.16, $16.96 in 2019, and $14.61 in 2018.
The Class IV average was estimated at $14.10, up 50 cents from last month’s projection, and compares to $13.49 in 2020, $16.30 in 2019, and $14.23 in 2018.
This month’s U.S. corn outlook is for lower production, reduced corn used for ethanol, smaller feed and residual use and exports, and decreased ending stocks, according to the WASDE. The report portends higher prices ahead.
Corn production was estimated at 14.18 billion bushels, down 324 million from the previous projection, due to a lower yield and slight reduction in harvested area. Total corn use was cut 250 million bushels to 14.575 billion. Exports are expected to be down 100 million bushels, reflecting sharply lower supplies and higher expected prices. Corn used for ethanol was also lowered and feed and residual use was reduced 50 million bushels to 5.65 billion.
Corn stocks were lowered 150 million bushels to 1.55 billion, and the season-average corn price received by producers was raised to $4.20 per bushel.
Soybean production was estimated at 4.135 billion bushels, down 35 million, led by reductions for Minnesota, Iowa, and Kansas. Harvested area was estimated at 82.3 million acres, up slightly from the previous report, but yield was estimated at 50.2 bushels per acre, down a half bushel per acre.
With higher imports and slightly higher beginning stocks, soybean supplies were lowered 14 million bushels from last month. The soybean crush forecast was raised 5 million bushels to 2.2 billion, reflecting improved prospects for soybean meal exports due to a lower export forecast for Argentina, which has experienced weeks of dry weather. The soybean export forecast was raised 30 million to a record 2.23 billion bushels. The lower supplies and increased use projected ending stocks at 140 million bushels, down 35 million from last month’s forecast.
Soybean prices were projected at $11.15 per bushel, up 60 cents as cash prices in Central Illinois reach 6-year highs. The soybean meal price was projected at $390 per short ton, up $20. The soybean oil price was forecast at 38.5 cents per pound, up 2.5 cents, according to the WASDE.
The cotton outlook shows higher exports and lower production and ending stocks. Production was lowered nearly 1 million bales to 15.0 million, led by a 500,000-bale decline in Texas. U.S. mill use was reduced 100,000 bales, but exports were raised 250,000 as rebounding world demand helps sustain a strong export pace. With lower production and higher demand, U.S. ending stocks are 1.1 million bales lower relative to last month, at 4.6 million bales or 26% of use. The upland season-average price received by U.S. farmers was projected 3 cents higher, at 68 cents per pound.
USDA’s 2020 Crop Production Summary estimates corn production at 14.2 billion bushels, up 4% from the 2019 estimate. The average yield was estimated at 172.0 bushels per acre, 4.5 bushels above the 2019 yield of 167.5 bushels. Area harvested for grain was estimated at 82.5 million acres, up 1% from 2019.
Soybean production totaled 4.14 billion bushels, up 16% from 2019. The average yield per acre was estimated at 50.2 bushels, up 2.8 bushels from 2019. Harvested area was up 10% from 2019 to 82.3 million acres.
Cotton production was estimated at 15.0 million 480-pound bales, down 25% from 2019. The U.S. yield was estimated at 825 pounds per acre, up 2 pounds from last year. Harvested area, at 8.7 million acres, was down 25% from 2019.
Meanwhile, in the week ending January 2, 2021, 108,600 dairy cows were sent to slaughter, according to the USDA, up 64,500 head from the previous week but 4,700 or 4.1% below a year ago.
Cheddar block cheese climbed to $1.9625 per pound on January 11, highest CME price since November 12, 2020, but closed the third Friday of 2021 at $1.83, 8.75 cents lower on the week and 13.25 cents below a year ago.
The barrels closed at $1.5725, down 8 cents on the week, a penny above a year ago, and 25.75 cents below the blocks. 13 cars of each were sold at the CME.
The USDA announced this week that it will purchase $40 million in Cheddar and processed cheese and another $40 million in butter for distribution to food nutrition assistance programs under the authority of Section 32. The Section authorizes USDA to support prices of commodities in surplus by purchasing them in the marketplace and authorizes USDA to distribute such commodities.
StoneX Dairy points out that “On a relative basis, $40 million of butter purchases has a bigger impact on the butter market than $40 million of Cheddar purchases will have on the cheese market, but this announcement is a departure from how we interpreted the earlier announced Section 32 purchases focused on fluid milk and butter. The legislation authorizes the funding of these activities with money collected from customs receipts, says StoneX.
Midwestern cheesemakers tell Dairy Market News that sales are ticking up for some producers, but East Coast customers are still slow as COVID restrictions continue to curb food service/restaurant business. Producers who weeks ago had some extra loads now relay that they are booked through first quarter. Cheese output has picked up since the holidays as milk is plentiful.
Western cheesemakers are also contending with plenty of milk and trying to determine the best course of action. The food box announcement propelled cheese prices upwards and prompted a few manufacturers to up production but contacts say there is hesitancy to push too far. Cheese is readily available and some have set cheese aside in anticipation of filling some government allocation.
Market demand outside program purchases is sluggish, says DMN. Retail sales are softer following the holidays and food service sales remain weak. Pizza sales and short order food service sales are clearing decent volumes of cheese but cannot overcome the decrease in other sectors so manufacturers are cautious to extend cheese production and expose themselves to price volatility.
Butter continued its meltdown, bottoming at $1.2875 per pound on Wednesday, lowest since May 7, 2020, then climbed back to a Friday close of $1.29, down 9 cents on the week, third week in a row of decline, and 59 cents below a year ago. There were 23 sales of butter on the week at the CME.
StoneX stated in their January 11 Early Morning Update; “We’ve got seven weeks to bring old crop butter to the exchange after which only butter made December 1, 2020 or later may be brought. We have plenty of milk and cream in the country, but much of the butter brought to the exchange recently was produced before December 1, 2020. If there is to be a pop on the butter market, the old crop/new crop dynamic may play a more pronounced roll this year.”
Butter producers continue to see plentiful cream supplies, says DMN. With food service demand remaining somewhat quiet, the extra cream is going to bulk production. Butter stocks are growing and some contend that market tones may show little to no improvement until the March 1st "new butter" deadline.
Western butter plants are also seeing an increase in production. Inventories are heavier than needed and cream supplies are readily available. Retail sales are soft but manufacturers point to global demand as an outlet for reducing inventory. Food service channels in the west continue to feel the heavy impact of COVID. Drive up restaurant activity is growing and inquiries for bulk butter are “budding” says DMN, as buyers hope to fill their needs through third quarter.
Grade A nonfat dry milk finished at $1.20 per pound, up a penny on the week but 9 cents below a year ago, with 43 cars sold, highest since early October 2020.
Whey was unchanged for three successive sessions, then added a penny on Wednesday and 2 cents Friday to close at 53 cents per pound, highest since October 19, 2018, and 16.25 cents above a year ago, with 4 sales reported.
The Agriculture Department’s latest commercial disappearance data shows November total cheese disappearance at 1.125 million pounds, down 1.2% from November 2019, second consecutive month of decline, according to HighGround Dairy (HGD), with exports down 15.8%.
Butter, at 219.8 million pounds, was up 0.1%, a normal seasonal trend, says HGD, and the strongest monthly disappearance of the year, but exports were down 3.2%.
Nonfat and skim milk powder disappearance hit 191.4 million pounds, up 4.2% from 2019, thanks to a 54.8% gain on domestic disappearance compensating for a 7.7% decline in exports.
Dry whey totaled 71.5 million pounds, down 5.4%, due to weak domestic sales, according to HGD, however whey exports were up 35.7%.
You’ll recall I recently raised the issue of changing the formulas by which we price milk in this country, citing the continuing frustration by many dairy farmers short-changed by large producer price differentials and de-pooling by processors.
The January 8 Dairy and Food Market Analyst (DFMA) reported that changing the Class I milk pricing formula is “gaining traction” and stated; “A new pricing formula for Class I skim milk went into effect in May 2019 and has contributed to the frequent de-pooling of milk in federal milk marketing orders. Dr. John Newton, Chief Economist at Farm Bureau, says the leading ideas are currently to change the formula back to the previous calculation, or raise the Class I skim milk price by another 94 cents, or make the formula equal to Class III plus $1.25.”
Speaking in the January 18 Dairy Radio Now broadcast, DFMA editor Matt Gould said the National Milk Producers Federation, Farm Bureau, and the International Dairy Foods Association are currently discussing the issue.
Switching to the USDA’s WASDE, Gould said corn and soybean prices shot higher following the report. As to the predicted increase in milk output, Gould said we’re already seeing that and it’s overwhelming processing capacity to the point that milk is already being dumped in California and Wisconsin, prior to the flush.
Corn and soybean prices are at the highest levels in about five years, according to Gould, and have increased dairy feed costs and cost of production. He warned that, when he estimates what 2021 feed costs and margins look like, compared to 2020, it looks like farm level feed costs will be about $2 per hundredweight more this year than last year because of the higher corn and soybean prices.
Government support “kind of saved the day in 2020 and farms had a decent financial year,” he concluded, but “2021 is going to be an uphill battle at the farm level as you fight those higher feed costs.”
Cooperatives Working Together (CWT) announced its first bid acceptances of 2021. Members accepted 27 offers of assistance from CWT to capture sales of 862,008 pounds of Cheddar and Monterey Jack cheese; 1.634 million pounds of butter, and 875,598 pounds of cream cheese. The product is going to customers in Asia, the Middle East, North Africa and South America through April.
In politics, we await huge changes in Washington DC, with a new administration and the 117th Congress now totally controlled by Democrats. Bob Gray, editor of the Northeast Dairy Farmers Cooperatives newsletter, warned that one of the first major issues lawmakers will be tackling will be climate change.
“This has been a major priority with both the House and Senate Democratic leadership as well as the incoming Biden Administration,” writes Gay. Congresswoman Kathy Castor (D-FL), who returns as Chair of the House Climate Crisis Committee, was recently quoted saying her focus would be on the “urgent task of addressing Climate Change.”
Senator Chuck Schumer of New York, incoming Senate Majority Leader, also says climate change legislation will be of the highest priority in the new Congress.
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.