Over 100 wildfires were consuming hundreds of acres of woodland in several states
The second week of August began with a lot of uncertainty. Soaring temperatures returned to much of the country, especially the West, and over 100 wildfires were consuming hundreds of acres of woodland in several states.
The Daily Dairy Report says “The U.S. Drought Monitor shows 98.5% of the West was experiencing some type of drought as of Aug. 3, with nearly two-thirds of the area qualifying as under extreme or exceptional drought. Area reservoirs have been drained to historic lows with serious ramifications for the agricultural producers who depend on this water.”
Increasing reports of COVID and/or the Delta variant cast a shadow on the markets even as the nonexistent southern border is flooded with would be residents. State and federal authorities are weighing a return to masking and mandatory vaccines declared necessary by medical authorities who don’t seem to have many more answers now than they did when the pandemic began.
The Agriculture Department lowered its estimate for 2021 milk production in the latest World Agricultural Supply and Demand Estimates report, second month in a row, and lowered its 2022 estimate, citing lower dairy cow numbers.
2021 production and marketings were estimated at 228.1 and 227.1 billion pounds respectively, down 100 million pounds on both from last month’s estimates. If realized, 2021 production would still be up 4.9 billion pounds or 2.2% from 2020.
2022 production and marketings were estimated at 231.2 and 230.2 billion pounds respectively, down 400 million pounds on production and down 300 million on marketings. If realized, 2022 production would be up 3.1 billion pounds or 1.4% from 2021.
Butter, cheese, nonfat dry milk, and whey price forecasts for 2021 were lowered on relatively weak demand. Prices were also reduced for 2022 reflecting continued relatively soft domestic demand and higher forecast beginning stocks.
The 2021 and 2022 Class III and Class IV milk price forecasts were reduced from last month. Look for a 2021 Class III average of $16.55 per hundredweight (cwt.), down 25 cents from last month’s estimate, and compares to $18.16 in 2020 and $16.96 in 2019. The 2022 average is $16.16, down 60 cents from a month ago.
The 2021 Class IV average is now pegged at $15.15 per cwt., down 25 cents from a month ago, and compares to $13.49 in 2020 and $16.30 in 2019. The 2021 average will be $15.30, down 45 cents from the July estimate.
This month’s 2021/22 U.S. corn outlook is for lower supplies, reduced feed and residual use, increased food, seed, and industrial use, lower exports, and smaller ending stocks. Projected beginning stocks are 35 million bushels higher based on a lower use forecast for 2020/21. Reduced exports were partially offset by greater corn for ethanol and other uses.
Corn production was forecast at 14.8 billion bushels, down 415 million from the July projection but up 4% from 2020. The season’s first survey-based corn yield forecast, at 174.6 bushels per acre, is 4.9 bushels below last month’s trend-based projection, but up 2.6 bushels from last year.
Area harvested was forecast at 84.5 million acres, unchanged from the June forecast, but up 2% from 2020. Record yields are expected in Illinois, Indiana, and Ohio, while yields in Minnesota and South Dakota were forecast below a year ago. Total U.S. corn use is down 190 million bushels to 14.7 billion. Feed and residual use is down 100 million bushels based on a smaller crop and higher expected prices. StoneX says “The reduction in demand looks to be all that's keeping us from really lighting a ﬁre to this market.”
U.S. soybean supply and use changes included higher beginning stocks and lower production, crush, and exports. Beginning stocks were raised on lower 2020/21 crush and exports. Soybean production was forecast at 4.34 billion bushels, down 66 million on lower yields, but up 5% from 2020. Harvested area was forecast at 86.7 million acres, unchanged from July.
The soybean yield forecast of 50.0 bushels per acre was reduced 0.8 bushels from last month and 0.2 bushels from last year. Soybean supplies were projected at 4.5 billion bushels, down 3% from last year. Soybean crush was reduced 20 million bushels on a lower domestic soybean meal disappearance forecast which is reduced in line with the prior year, and lower soybean meal exports. With exports down 20 million bushels on lower supplies, ending stocks were forecast at 155 million bushels, unchanged from last month. Area harvested was forecast at 86.7 million acres, unchanged from the last forecast but up 5% from 2020. The season-average soybean price was forecast at $13.70 per bushel, unchanged from last month. Soybean meal, at $385 per short ton, was down $10.
USDA’s latest Crop Progress report showed 95% of U.S. corn was silking, as of the week ending Aug.8, up from 91% the previous week, 1% behind a year ago, but 1% ahead of the five year average. 56% was at the dough stage, up from 38% the previous week, even with a year ago, and 5% ahead of the average. The crop shows 64% rated good to excellent, up 2% from the previous week, but 7% below a year ago.
Looking to soybeans, 91% were blooming, up from 86% the previous week, dead even with a year ago, and 2% ahead of the five year average. 72% were setting pods, up from 58% the previous week, 1% below of a year ago, but 4% ahead of the five year average. 60% were rated good to excellent, unchanged from the previous week, but 14% below a year ago.
Getting back to the heat out west, the Aug. 6 Dairy and Food Market Analyst (DFMA) reported that “California's water board voted to end water diversions from the Sacramento-San Joaquin Delta watershed. The official shutoff will occur after Aug. 15. After that happens, many farmers will not be able to irrigate.”
The DFMA says the water board attempted a similar type of measure in 2015, but was ultimately blocked after a judge found the board failed to provide ‘some form of public hearing’ to challenge its findings. The water board believes this week’s decision is ‘on very firm legal footing,’ according to the DFMA, but “lawsuits and a judge will ultimately decide if that is in fact the case.”
The expected lawsuits have the potential to at least temporarily prevent the water shutdown, the DFMA says. “At the moment, there are many crops that are planted and need water to mature, including tomatoes and corn silage. This decision may also end up preventing a final cutting of affected hay.” Bottom line are higher feed costs for dairy farmers, the DFMA warned.
In the week ending July 31, 58,500 dairy cows were sent to slaughter, up 900 from the previous week, and 6,500 or 12.5% above that week a year ago.
StoneX stated in its Aug. 6 Early Morning Update that dairy cow slaughter is continuing to pick up and hold a premium to year ago levels but is tracking with seasonal trends. Cull prices were holding above $140 per cwt.
“Contraction in the dairy herd, seasonally declining milk yields, and increasing ﬂuid milk demand from schools returning to session shows opportunity for Class III contracts to ﬁnd renewed strength in prices,” suggests StoneX.
Fluid milk sales continued to suffer in June, down 6.7% from June 2020, after falling 4.3% in May. Conventional sales were down 6.9% and organic sales were off 3.7%. I’ll report complete details next week.
Dairy margins deteriorated in the second half of July as a sharp drop in milk prices more than offset feed price trends which were generally flat the past couple weeks, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.
“A bearish Milk Production report set the tone for milk prices as supply continues to increase faster than demand,” the MW stated. The MW also cited data from the June Cold Storage report, and pointed out that the cheese drawdown from May, although less than a year ago, was four times the five-year average decline between May and June.
“This suggests that recovering foodservice and restaurant demand from relaxed Covid-19 restrictions recently may be helping to keep cheese inventories in check,” the MW stated. By contrast butter stocks increased. Butter supplies typically decline from May to June which would indicate weaker demand.”
“Feed prices for corn and soybean meal have traded in narrow ranges as market participants await further direction from crop conditions and yield prospects.”
Most CME dairy prices strengthened the second week of August but saw some gyrations. The Cheddar blocks closed “Friday the 13th” at $1.8125 per pound, up 17.75 cents on the week, highest since May 12, but 0.75 cents below a year ago.
The barrels climbed to $1.4275 Tuesday, backed down to $1.41 Wednesday, but closed Friday at $1.45, up 14 cents on the week, highest in three weeks, but a nickel below a year ago. The spread widened to 37 cents on Wednesday but fell to 36.25 cents Friday. There were 9 sales of block and 17 of barrel on the week.
Midwest cheesemakers tell Dairy Market News that spot milk has tightened notably as milk is diverted into bottling for school reopening. Loads are also moving out of the region to the Southeast. Cheese sales are strong in the region and curd producers say outdoor events, such as fairs, have locked them up at least into September. Barrel producers say customer interest remains intact despite the lower market but availability has grown in recent months. Cheese plant managers report an uptick in nonfat dry milk fortification due to the lighter milk availability. The COVID Delta variant is also a growing concern among producers and their customers, says DMN.
Western cheese demand remains steady at both retail and food service. Export demand is also strong, with market prices favorable to international markets, especially Asian markets. The block barrels price gap is blamed on the greater availability of barrels as some producers have focused on barrel production due to a shortage of available block packaging. Producers are running busy schedules in the region, despite the seasonal decline in milk production.
CME butter hit $1.68 per pound Monday but closed Friday at $1.67, up 2.25 cents on the week and 18.50 cents above a year ago, with 13 sales on the week.
The USDA announced a $10 million solicitation for butter under Section 32. That would put 2021 purchases at just over $77 million. Meanwhile, DMN reports that cream offers are becoming fewer. Multiples are near their peak regarding fiscal sensibility for making butter and extra cream is no longer as available from the West. Butter sales are generally steady.
Plant managers are beginning to compare sales with those of 2019, as last year's figures are skewed due to the pandemic. Some relay that sales are slightly lower than 2019. Retail interest is slowly increasing but market tones are uncertain and the COVID variant has producers and their customers concerned, particularly in the food service sector.
Western cream availability is tightening though demand is lower from ice cream production. Butter output varies from steady to seasonally lower but healthy inventories are available. Retail sales are picking up and food service orders are level but, as COVID concerns climb and areas shift masking back to mandates, contacts fear it may have a deleterious effect on food service demand, says DMN
Grade A nonfat dry milk closed Friday at $1.27 per pound, up 1.50 cents on the week and 30.50 cents above a year ago. 11 sales were reported on the week.
StoneX says “Mexico is helping keep export volume alive and U.S. prices continue to oﬀer a favorable advantage in export sales. Logistical issues continue to put a damper on domestic demand as stocks back up slightly.”
Dry whey closed the week 2.25 cents lower, at 51.75 cents per pound, 19.25 cents above a year ago, on 3 sales for the week at the CME.
U.S. butter prices would likely be a lot lower if it weren’t for Canada. The Aug. 10 Daily Dairy Report says “In the first half of the year, Canada imported 25.3 million pounds of butter, 32% more than in 2020 and 13% more than 2017’s record volumes. Through June, Canada has also imported nearly 8 million pounds of cream, a sevenfold increase from last year and 31% more than in 2017.”
The DDR adds that since 2019, U.S. butter and cream exports north of the border have easily eclipsed shipments to the south. So far this year, Canada has accounted for 83% of U.S. cream exports and nearly 30% of butter shipments.
In politics; the International Dairy Foods Association reported that the European Commission will extend the implementation deadline for its new health certificate requirements to Jan. 15, 2022, “backing off threats to shut down U.S. dairy exports to EU member states as well as transshipments of U.S. dairy products through the European Union.”
Lastly; the National Milk Producers Federation and U.S. Dairy Export Council gave a thumbs up to bipartisan legislation introduced by Representatives John Garamendi (D-CA) and Dusty Johnson (R-SD), the Ocean Shipping Reform Act.
“The dairy industry, as well as other exporters, has faced substantially increased costs to ship their goods overseas, challenges obtaining containers and other equipment to deliver their goods to ports and beyond, and often incur booking cancellations or delays for vessel space,” according to a joint press release.
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.