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War between Russia and Ukraine raises havoc in every market


Volatility was the word of the day, the week, and the hour, as the war between Russia and Ukraine rages on, raising havoc in every market, not to speak of the devastation on innocent human life. StoneX Dairy Group broker Dave Kurzawski said in the March 7 ‘Dairy Radio Now’ broadcast that markets are currently focusing on the worst case scenarios and hopefully, calmer heads will prevail. 

The Agriculture Department announced the February Federal order Class III benchmark milk price at $20.91 per hundredweight, up 53 cents from January, $5.16 above February 2021, and the highest Class III price since Nov. 2020. 

Late Friday morning Class III futures had the March contract at $22.38; April, $23.43; May, $23.48; with the peak in June at $23.61 before heading down.

The Class IV price is a record $24.00 per cwt., up 91 cents from January, $10.25 above a year ago, and topped the previous record of $23.89 in Aug. 2014. 

“The wheat markets are on fire,” says StoneX and impacting other commodities. Milk prices are also climbing but they need to, says Kurzawski, in order for producers to pay the higher feed and fertilizer costs ahead. $20 dollar milk would normally portend a response of more milk, he said, “But that’s not the case right now and if corn goes to $8 or $9, $22 milk is not going to be enough.”

Markets are on edge worldwide and that was evidenced in the March 1 weighted average at the Global Dairy Trade auction, up 5.1%, biggest boost since the 15.0% pole vault on March 2, 2021, and the fifth consecutive session of gain.

Traders brought 55.6 million pounds of product to the market, down from 61.1 million on February 15, lowest since Sept. 21, 2021, but the average metric ton price climbed to a record high $5,065 U.S., highest since Feb. 14, 2014.

GDT Cheddar led the way, up 10.9%, following a 3.5% rise on Feb. 15. Butter followed, up 5.9%, after rising 5.1% last time. Buttermilk powder was up 5.8%, and whole milk powder was up 5.7%, after advancing 4.2% in the last event. Skim milk powder was up 4.7, following a 6.0% jump. Anhydrous milkfat was up 2.1%, following a 1.2% rise, and lactose was up 0.9%. 

StoneX Dairy Group says the GDT 80% butterfat butter price equates to $3.1359 per pound U.S., up 17.7 cents, after jumping 14.5 cents on Feb. 15, and compares to CME butter which closed Friday at a real steal of $2.6850.  GDT Cheddar, at $2.9002, was up 23.3 cents, after gaining 8.9 cents on Feb. 15, and compares to Friday’s CME block Cheddar at $2.15. 

GDT skim milk powder averaged $2.0328 per pound, up from $1.9482. Whole milk powder averaged $2.1578 per pound, up from $2.0424. CME Grade A nonfat dry milk closed Friday at $1.8725 per pound.

The Daily Dairy Report’s Sarina Sharp wrote in the Feb. 25 Milk Producers Council newsletter; “Global milk output is shrinking and deficits getting bigger. In December, milk production among the world’s five largest dairy exporters fell 1.3% below December 2020. That’s the steepest decline in five years, dating back to 2016 when European governments paid dairy producers to pare back production. The deficit likely got even bigger in January,” says Sharp. “Australia and Europe have yet to report January output but losses accelerated elsewhere.”

In other trade news, New Zealand milk equivalent exports were weaker than expected in January, according to StoneX, down 13.7% from last year with shipments to China down 26.6%. 

Meanwhile, the National Milk Producers Federation (NMPF) and the U.S. Dairy Export Council rejected a proposal this week by Global Affairs Canada that “outlines Canadian ‘changes’ to their current scheme for allocating U.S.-Mexico-Canada Agreement (USMCA) dairy tariff-rate-quotas (TRQ).”  Michael Dykes, D.V.M., president and CEO of the International Dairy Foods Association agrees and called the plan “a nonstarter.”

You’ll recall the U.S. Trade Representative announced last month that it had won USMCA’s first-ever dispute settlement panel by prevailing in its case against Canada regarding how Canada’s USMCA dairy TRQ allocation process violated the agreement. Ambassador Tai noted; “This historic win will help eliminate unjustified trade restrictions on American dairy products and will ensure that the U.S. dairy industry and its workers get the full benefit of the USMCA to market and sell U.S. products to Canadian consumers.”

NMPF says this a “test-case for whether or not the USMCA dispute settlement process can provide effective enforcement and deliver genuine compliance with the agreement.”

CME block Cheddar closed the first Friday of March at $2.15 per pound, up 20.50 cents on the week, highest since November 11, 2020 and 41.75 cents above a year ago. 

The barrels closed at $1.97, 7 cents higher, also the highest since Nov. 11, 2020, 46.25 cents above a year ago, and 18 cents below the blocks. 

The CME saw 10 cars of block trade hands on the week, 16 in the month of February, down from 18 in January. Barrels sales totaled 21 for the week, 39 for all of February, up from 23 in January.

Midwest cheesemakers report demand ranged from steady to very busy as March got underway. Dairy Market News says limited staffing is a recurring problem in meeting customer needs but things are improving. Milk prices remain around Class III to slightly lower. More contacts are saying milk yields are not as ample as they had previously expected in the late winter weeks, which brought milder weather. 

Cheese sellers in the west report that retail sales are steady and food service continues to improve as COVID restrictions loosen. Cheese made in the U.S. continues at a discount to other countries, prompting increased interest from international markets. A shortage of truck drivers and port congestion are still causing delays. Loads of milk and production supplies also continue to face delays due to the ongoing lack of truck drivers and plants continue to report that, combined with labor shortages, they are not able to run at capacity.

Butter hit $2.70 per pound Thursday but backtracked to a Friday finish at $2.6850, up 9.75 cents on the week and 99.50 cents above a year ago, with 27 sales on the week, 69 for the month of February, down from 111 in January. 

DMN says Central butter production is busy as cream multiples hold in the low 1.20s. There are setbacks due to employment shortness but plants are churning as close to capacity as possible. A number of contacts see a potential shortness of butter moving into late summer and fall. Butter market tones are mixed near term, but longer term expectations generally fall under the bullish category, says DMN. “Some regional butter makers are keeping an eye on the Ukrainian situation, particularly as to what global milkfat suppliers plan to ship, or not ship, into Russian ports.”

Cream is available in the West, though inventories are tightening and cream demand is steady. COVID restrictions continue to loosen in the West and restauranteurs are increasing butter purchases while retail is mixed. Butter inventories are tight in the region, though some say availability is increasing. Butter producers are running busy schedules but below capacity due to continued labor shortages and delayed deliveries of supplies.

Grade A nonfat dry milk closed Friday at $1.8725 per pound, up 1.25 cents on the week and 69.50 cents above a year ago. CME sales totaled 14 for the week, 80 for February, up from 60 in January.

Dry whey fell to a Friday close at 75.75 cents per pound, down 2.25 cents, lowest since Jan.6, but still 17.75 cents above a year ago. There were 6 sales on the week at the CME, 30 in the month of February, up from10 in January.

The January Dairy Products report is issued Friday afternoon. While U.S. milk output was down 1.6% from last year in January, the amount of fat and protein in the milk was very strong, according to StoneX, “putting component adjusted production up 0.6%. That means production of dairy products might be a little better than some people expect.” I’ll have details next week.

A higher January All Milk Price offset higher corn and soybean prices to push the January milk feed ratio higher for the fifth month in a row and top the year before for the first time since October 2020. The USDA’s latest Ag Prices report shows the ratio at 2.18, up from 1.98 in December, and compares to 2.00 in Jan. 2021.

The U.S. All Milk Price averaged $24.20 per cwt., up $2.40 from December, and $6.70 above January 2021. 

The national average corn price jumped to $5.57 per bushel, up a dime from the December price and was $1.33 per bushel above Jan. 2021. 

Soybeans averaged $12.90 per bushel, up 40 cents from December and $2 per bushel above January 2021. 

Alfalfa hay averaged $211 per ton, down $2 from December, but $43 per ton above a year ago.

Looking at the cow side of the ledger; the January cull price for beef and dairy combined averaged $71.60 per cwt., up $12.50 from December, $11.90 above January 2021, and dead even with the 2011 base average.

Bill Brooks, dairy economist with Stoneheart Consulting in Dearborn, Missouri, says; using March 3 settling futures for milk, corn, and soybean meal plus an internal forecast for premium alfalfa hay, the milk margin over dairy feed costs are expected to be $11.67 per cwt. He adds that the margin over dairy feed cost will be above the maximum coverage of $9.50 per cwt. every month in 2022, with a range of $10.59 to $12.47 and an average of $11.67.

In the week ending Feb. 19, 67,200 dairy cows were sent to slaughter, down 2,800 from the previous week, but 7,600 head or 12.8% above a year ago.

Based on grain futures, the Dairy and Food Market Analyst’s (DFMA) updated calculation of the U.S. average breakeven milk price was increased to just under $21.00 per hundredweight, adding that “In California, where hay is $350 plus per ton, the average breakeven price is more than $22.00. That’s $5.00 to $6.00 higher than two years ago when breakeven prices in the USA were sub-$16.00.”

Dairy producers are now receiving pandemic payments related to Class I milk prices as part of the Pandemic Market Volatility program and the DFMA says “The payments, which totaled $360 million, were originally scheduled for release in October 2021, but ran into administrative hurdles. Payments were capped to 50,000 hundredweights with the largest checks that we heard about from producers in high Class I utilization areas approaching $100,000.”

The DFMA also reported USDA’s latest data on farm numbers, stating that the trend continues to be fewer and larger dairies. “The industry lost 1,794 dairy farms in 2021, a decrease of 5.7% from 2020 but the rate of consolidation was slower than in each of the previous three years, which decreased 7.3% on average. The average size of an American dairy farm increased to 314 milking cows in 2021, up 15 head from 2020 and up 40% (up 90 cows) from five years ago.”

The DFMA added; “Over the last five years, several southern states have experienced huge losses. Since 2015, Alabama has lost 57% of its dairy farms, West Virginia has lost 53%, Georgia has lost 48%, and Tennessee has lost 47%. While consolidation has occurred in every state, some states have fared better. Over the past five years, Colorado has only lost 8.3% of its farms, Texas has lost 15%, and California has lost 16%.”

“Dairy margins were mixed over the second half of February as nearby milk prices traded sideways while deferred contracts rose along with projected feed costs,” according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.

“A continuation of declining milk output and tight dairy product inventories remain supportive features for the market,” the MW stated, and cited January Milk Production and Cold Storage data, which I reported last week. The MW said “The January milk decline was the largest year-over-year loss since March 2004.”

The MW also detailed the March 1 GDT, citing declining world production for supporting dairy product prices as milk output in New Zealand dropped for the sixth consecutive month in January to 2.3 MMT, down 6.1% from last year. 

Checking the rear view mirror, the USDA’s 2021 Cold Storage Summary shows the largest inventory of butter occurred in June when June 30 stocks totaled 414.7 million pounds. They peaked in May 2020 but totaled just 375.8 million. The 2021 low point was in December at 199.1 million pounds, while the low month in 2020 was January, at 247.4 million.

American cheese stocks in 2021 hit a high of 844.1 million pounds in September but peaked at 834.3 million in April 2020. The low point in 2021 was in January, with 809.1 million pounds, while the low month in 2020 was October, at 756.2 million.

The monthly total cheese inventory in 2021 peaked at 1.469 billion pounds in March, with the lowest month in January at 1.408 billion. The peak in 2020 occurred in April, at 1.479 billion pounds in the cooler. The smallest stock level in 2020 was 1.341 billion pounds on October 31, 2020.

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 lkmielke@juno.com.