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Reopening may be “a shock to the supply chain across the country and even globally”

The Agriculture Department lowered its estimate on 2021 milk production in the latest World Agricultural Supply and Demand Estimates report “as a higher expected cow inventory was more than offset by slower growth in milk per cow.”

2020 production and marketings were finalized and estimated at 223.2 and 222.2 billion pounds respectively, up 100 million pounds on production from February’s estimate. 2020 production was up 4.8 billion pounds or 2.2% from 2019. 

2021 production and marketings were estimated at 227.3 and 226.3 billion pounds respectively, down 100 million pounds on production. If realized, 2021 production would still be up 4.1 billion pounds or 1.8% from 2020. 

The annual cheese price forecast was unchanged from last month as weaker prices in the first part of 2021 were offset by expected improved demand later in the year. That resulted in the 2021 Class III milk price average being projected at $16.75 per cwt., up 15 cents from the February estimate, and compares to $18.16 in 2020 and $16.96 in 2019.  

Butter, nonfat dry milk, and whey price forecasts were raised from last month with expected improvements in both domestic and export demand. Thus the Class IV price was pegged at $14.45, up 75 cents from last month’s estimate, and compares to a $13.49 average in 2020 and $16.30 in 2019.

This month’s 2020/21 U.S. corn U.S. corn supply and use outlook was unchanged from last month. The projected season-average farm price was unchanged at $4.30 per bushel.

U.S. soybean supply and use projections were mostly unchanged. With soybean crush and exports projected at 2.2 billion bushels and 2.25 billion bushels, respectively. Ending stocks remain at 120 million bushels, down 405 million from last year’s record. The U.S. season-average soybean price was projected at $11.15 per bushel, unchanged from last month. 

The Mar. 9 Daily Dairy Report (DDR) stated; “While China failed to buy as much corn in February as it did in January, export bookings for U.S. corn and soybeans have been setting a record pace for the 2020-21 marketing year.”

The DDR warned that feed costs have climbed to their highest levels since 2014 and “continue to squeeze dairy producer margins and even record or near-record large crops this year will likely not be big enough to provide much price reprieve.”

The March 5 Dairy and Food Market Analyst adds that “Concerns about inflation are dominating our conversations. In addition to higher feed costs, which equal more than $2.00 per cwt, dairy farmers are now reporting double-digit percentage increases in the prices of fuel, parts, and fertilizer. A year ago, $15.75 per cwt Class III milk prices were close to break-even for many farmers in the country. Today that number is $18.00 per cwt and rising.”

Farmers who signed up for USDA’s Dairy Margin Coverage program can expect a payout for January if they protected a margin between milk prices and feed costs of $7.50 per cwt. of milk or above, according to the Mar. 9 Capital Press. USDA’s calculated margin above feed costs was $7.14 per cwt. for January.

Uncertainty seems to never end in the dairy industry and right now dairy farmers face some challenging contrasts. U.S. milk output is rising as we enter the spring flush, but will rising demand and exports offset that? U.S. milk prices are strengthening but will rising feed costs offset that, and what will government food purchases look like in COVID relief under the new Administration?

StoneX dairy broker Dave Kurzawski pointed out in the Mar. 15 “Dairy Radio Now” broadcast that rising demand is the key point because “Demand is primarily responsible whenever we see $2 cheese or $2 butter.” 

He said that we have seen stronger than normal retail demand for the past 12 months or so and that will come up against stronger food service demand as cities and states reduce restaurant restrictions due to COVID. But, “We don’t know what that reopening will mean,” he cautioned, though he believes it will be “a shock to the supply chain across the country and even globally.” 

Grocery stores and foodservice will be fighting for the same stomach space, he explained, and “In the fog of war you can have higher prices.” That will settle down in the next year or two, he said, “But for the next six months, you’re in the fog of war on the demand side.”

It underscores the need to lock in milk prices, he concluded. “With the higher feed costs, it’s about profit margin,” he said. “But it will be a tough year for dairy farmers on the buy side.”

Speaking of exports; January fell to an 18-month low, according to the latest data, slipping to 14% of U.S. milk solids, down from 14.1% in December and 14.9% a year ago. Volume was below prior year levels for the third consecutive month, says HGD, “even as shipments marked the second strongest January on record after 2020. Losses were notable on cheese and nonfat dry milk.

Dry whey exports showed strong gains from 2020, totaling 40.3 million pounds, up 34.4% from January 2020, mainly thanks to China. HGD reported that China's market share jumped to 56% versus 33% one year ago, with the second largest destination being Japan. 

But StoneX warned in it Mar. 5 ‘Early Morning Update’ that “While international whey demand has been strong, one thing to be cognoscente of is the new variant of African Swine Fever which is starting to hit hard on the Chinese herd. Since the start of the year about 8 million pigs have been killed and if new variants cannot be contained it could hurt overall demand for whey used for feed.”

Butter exports totaled 6.2 million pounds, up 81.9%, primarily due to demand from Canada, Egypt and Bahrain. HGD says this was the strongest January for U.S. butter shipments in seven years. 

Butter imports were up 7.7% and cheese imports were up 8.5%.

Cheese exports totaled 55.6 million pounds, down 9.9% from a year ago, though Cheddar exports were up 1.9%.

Nonfat dry milk/skim milk powder shipments, at 138.6 million pounds, were down 9.6%, as volume fell to Southeast Asia and Mexico, according to HGD. Nonfat exports to Mexico were the lowest for the month in three years.

The Mar. 5 DDR says “Exports of consumer-ready dairy products from the U.S. to Mexico limped along. The country’s struggling economy and a downturn in tourism have weighed heavily on demand from foodservice and rising milk output in Mexico has reduced the need for imported dairy products.” 

The DDR says Mexico imported just 9.6 million pounds of U.S. cheese in January, a nine-year low, and 49% less than a year ago, however, “South Korea took Mexico’s usual place as the top market for U.S. cheese exports in January. South Korean imports jumped 38.5%, year over year, to 12.5 million pounds.”

CME block Cheddar climbed to $1.7950 per pound Thursday, highest since Jan. 19, but closed Friday at $1.79, up 5.75 cents on the week, after gaining 11.5 cents the previous week, but 8.25 cents below a year ago. 

The barrels finished at $1.5525, 4.50 cents higher, 5.25 cents above a year ago, but 23.75 cents below the blocks. Only 3 cars of barrel were sold on the week at the CME.

Midwestern cheesemakers are reporting stronger cheese sales, says Dairy Market News. Positive food service demand has been rare the past twelve months, but there has been a notable shift in March. Spot milk availability varies but there were some flat Class prices reported for the first time in 2021. Cheese production rates are reflecting the increased orders and, for the most part, cheese market tones have “regained some bullish vigor recently,” says DMN, though inventories are reportedly growing, as well.

Retail cheese demand in the west remains steady, though some contacts believe it may decrease due to loosening COVID restrictions on eating out. Contacts have seen a slight uptick in food service demand. Mozzarella cheese continues to move well but cheese inventories remain heavy and buyers are receiving a lot of offers from manufacturers, especially for Cheddar-style cheeses. Milk is plentiful and cheese production is running at or near capacity, according to DMN.

Butter closed Friday at $1.7150 per pound, up 2.50 cents on the week, following its 22 cent leap the previous week, but was 9.75 cents below a year ago, with 14 sales reported on the week.

Midwestern butter producers report stronger food service demand in recent weeks and are hopeful the trend continues deeper into second quarter, as bullish food service demand tones have seldom been positive since the onset of COVID. Butter churning is at a brisk clip, as demand has strengthened and export demand reports are notably rising. Butter market tones have steadied since the unexpected surge following the "new crop" rule on the CME, says DMN.

Cream is abundant in the West but has had no problem finding a home. Butter makers have ramped up production for several weeks to meet spring holiday demand. Retailers are comfortable with price levels and are placing heavy orders but expect that to cool as prices increase. Food service demand is beginning to pull a little harder as dine-in restrictions continue to loosen. Butter makers and food service buyers are having difficulty forecasting butter needs and butter makers are getting more inquiries from international buyers so they’ve opted to make 82% butter. Sales of butter and anhydrous milkfat into export channels and domestic ice cream production are pulling more heavily at cream supplies but butter inventories are still heavy.

Grade A nonfat dry milk finished the week at $1.17 per pound, down 0.75 cents, but 11.75 cents above a year ago, on 8 sales for the week.

Spot dry whey set a new record high in its short three-year lifespan on Mar. 8, hitting 59.50 cents per pound, but closed Friday at 59.25, up 1.25 cents on the week and 24.50 cents above a year ago, with only 1 sale for the week.

In the week ending Feb.27, 71,600 dairy cows were sent to slaughter, up 12,000 from the previous week and 8,000 or 12.6% more than that week a year ago.  

Checking demand on the home front; the USDA’s January data showed a lot of positive news. Total cheese disappearance, at 1.14 billion pounds, was up from a year ago for the first time since September, topped January 2020 by 3.3%.

HGD points out that American-style cheese did the heavy lifting, with both domestic and export demand stronger versus prior year.

Butter disappearance totaled 155.2 million pounds, up 12%, and topped the year ago level for the third consecutive month, according to HGD, “an encouraging sign as production and stocks remain burdensome.”

Nonfat dry milk disappearance increased for the third consecutive month, hitting 215.6 million pounds, including skim milk powder, strongest January since 2018. 

In politics, House and Senate Democrats passed the Administration’s pork- loaded $1.9 trillion “stimulus” bill with no Republican votes, and the President signed the measure. The pricy legislation includes direct payments of up to $1,400 for hundreds of millions of Americans, jobless aid of $300 a week to last through the summer, money for distributing coronavirus vaccines, and relief for states, cities, schools, and small businesses suffering from the pandemic.

Meanwhile, the U.S. Dairy Export Council (USDEC), National Milk Producers Federation (NMPF) and International Dairy Foods Association (IDFA) issued a joint press release this week regarding Canada’s Phase II Consultations on its Comprehensive Review of the Allocation and Administration of Tariff Rate Quotas (TRQs) for Dairy, Poultry, and Egg Products. 

The three organizations have repeatedly expressed concern about Canada’s failure to align its TRQ conditions with its commitments in the United States-Mexico-Canada Agreement (USMCA), and stated that they are united in their insistence that Canada “dramatically reform its policies regarding the administration and allocation of its TRQs.”

“USMCA negotiations resulted in clear new access for the U.S. dairy industry,” the press release stated. “In contrast with virtually all other sectors of the U.S.-Canadian economies, the level of dairy access is tightly prescribed by the agreement. That makes it all the more important that our industry can benefit from the full value of those dairy commitments,” stated Krysta Harden, President and CEO of USDEC. “Canada needs to stop manipulating its dairy TRQs; its actions have not only negatively impacted U.S. dairy farmers and manufacturers, but also constrained many Canadian companies from being able to make use of these new TRQs to expand their supply options. USMCA lays out clear requirements on TRQ procedures and we urge the U.S. government to ensure full compliance by Canada with those commitments.”

Speaking of the USDEC, we join them in mourning the loss of Alan Levitt, who passed away Mar. 7 after a courageous fight with leukemia. He was 59. Alan was a talented writer and well versed in the dairy industry. He operated his own communications business and authored the Daily Dairy Report for the CME for a time. I often interviewed Alan on my DairyLine Radio program. Alan recently retired as Vice President, Communications and Market Analysis of the USDEC. Our sympathies and prayers to Alan’s wife Angie, and family. He will be sadly missed.

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