The world sits on pins and needles over the war in Ukraine
The world sits on pins and needles over the war in Ukraine while hopes were dashed this week after Moscow hinted that it would cut military operations near the Ukrainian capital after negotiators met in Turkey. There was little evidence that occurred and, in fact, Russian President Putin announced that exports of natural gas would be halted April 1 unless buyers paid in rubles.
Meanwhile, President Biden announced the largest release ever of the U.S. Strategic Petroleum Reserve, providing 1 million barrels per day starting in May and lasting for six months in an effort to soften high gas prices.
U.S. farm milk prices keep heading higher, but they need to. The Agriculture Department announced the March Federal order Class III benchmark price at $22.45 per hundredweight, up $1.54 from February, $6.30 above March 2021, and the highest Class III since November 2020. The three month average stands at $21.25, up from $15.98 at this time a year ago and $16.77 in 2020.
Class III futures portend another $1.36 rise in April to $23.81; May, $24.84; June, $24.66; July, $24.38; August, $24.10; and September was at $23.84.
The March Class IV price is a record high $24.82, up 82 cents from February, the previous high, and is a whopping $10.64 above a year ago. The three month Class IV average is at $23.97, up from $13.71 a year ago and $15.91 in 2020.
A small gain in February’s All Milk price could not offset sharply higher corn, soybean, and hay prices and reversed five consecutive gains in the USDA’s milk feed price ratio, though it was still above February 2021.
The USDA’s latest Ag Prices report shows the ratio at 2.07, down from 2.18 in January, and compares to 1.80 in February 2021. The index is based on the current milk price in relationship to feed prices for a ration consisting of 51% corn, 8% soybeans and 41% alfalfa hay. In other words, one pound of milk would purchase 2.07 pounds of dairy feed of that blend.
The U.S. All Milk Price averaged $24.70 per cwt., up just 50 cents from January, but was $7.60 above February 2021.
California’s All Milk Price hit $24.90 per cwt., up 50 cents from January and $7.10 above a year ago. Wisconsin’s, at $24, was up 60 cents from January and $6.80 above a year ago.
The national average corn price shot up to $6.10 per bushel, up 53 cents from January, after gaining a dime in January, and $1.35 per bushel above February 2021.
Soybeans averaged $14.80 per bushel, up $1.90 from January, following a 40 cent jump in January, and are $2.10 per bushel above February 2021.
Alfalfa hay averaged $214 per ton, up $3 from January and $43 above a year ago.
Looking at the cow side of the ledger; the February cull price for beef and dairy combined averaged $77.90 per cwt., up $6.30 from January, $12.30 above Feb. 2021, and $6.30 above the 2011 base average.
Dairy economist Bill Brooks, of Stoneheart Consulting in Dearborn, Missouri, does not see any Dairy Margin Coverage payment for the remainder of 2022.
In the week ending March 19, 64,100 dairy cows were sent to slaughter, down 900 from the previous week, but 1,800 head or 2.9% above a year ago.
The last week of March was a bit shy on USDA reports we regularly monitor but we did get Prospective Plantings and Grain Stocks data. There was added interest considering the higher input costs, primarily fertilizer, due to the Russian invasion of Ukraine.
The higher fertilizer-demanding corn acreage was estimated at 89.5 million acres, down 3.87 million acres or 4% from last year and 2.5 million below the trade estimate, according to StoneX Dairy Group. Planted acreage is expected to be down or unchanged in 43 of the 48 estimating States, according to the USDA.
Soybean acreage was estimated at a record 91.0 million acres, up 4% from a year ago, with acreage up or unchanged in 24 of the 29 estimating States. Cotton acreage was estimated at 12.2 million acres, up 9%.
March 1 corn stocks totaled 7.85 billion bushels, up 2% from March 2021. The Dec. 2021 to Feb. 2022 quarter indicated disappearance is 3.79 billion bushels, compared with 3.60 billion during the same period last year.
Stored soybeans totaled 1.93 billion bushels, up 24%. Indicated disappearance for the quarter totaled 1.22 billion bushels, down 12%.
StoneX stated in its March 29 Early Morning Update; “Normally when we model our producer margin we have looked at the gross diﬀerence between feed costs and milk price. Given the recent increase of non-feed inputs impacting farmer margins recently, we have taken a dive into the net margin that producers may be experiencing in order to provide a clearer perspective.”
“We have been expecting that the high Class III and IV prices should be able to oﬀset the increases in input values, however given the continued growth in feed, energy, and labor costs, that may no longer be the case. The decline in Class III and IV (futures) prices will press on already tight margins,” StoneX warned.
“Given the data that we have available we expect that the average sized dairy in the U.S. is likely experiencing a negative margin at the moment and will most likely continue to do so through the next year to year and a half.”
Speaking in the April 4 Dairy Radio Now broadcast, broker Dave Kurzawski said the war in Ukraine is influencing the market because “the news cycle is hour to hour” however, while a lot of the risk premium is “baked in,” the day to day fundamentals continue. The key take away in March, he said, was that “The availability of dairy products seems to be increasing, not decreasing.”
The risks remain quite substantial as we progress beyond first quarter, he said, however, whether its cheese, butter, nonfat dry milk, or whey, “there’s more product on offer in the U.S. today than there was a month ago,” and “while that doesn’t mean a bear market is looming, it does mean that price pullbacks can happen, for different reasons.” The key of course is what happens to milk production globally as well as in the U.S. but Kurzawski warned “There may be headwinds ahead on dairy prices.”
Tough economics have already taken a toll. The March 30 Daily Dairy Report says “Relentless consolidation in the dairy industry persisted across the country last year as farms continued to get larger and cows became more productive.”
“USDA data shows the total number of licensed dairy herds in the U.S. fell by 1,794 to 29,858, a 5.7% overall decline,” according to the DDR. “At the same time, cow numbers climbed 0.6%, or 56,000 head, to 9.448 million, and milk per cow rose 0.7% to 23,948 pounds.” Wisconsin lost 340 herds, according to the DDR, followed by Pennsylvania down 230, New York off 220, and Minnesota down 135.
That plentiful volume Kurzawski referred to drove prices lower this week but another part of the blame, according to StoneX, is “Chinese demand, or rather a fear that Chinese demand will be reduced as a result of their lockdowns.”
Chinese imports are currently tracking 2.2% below last year through the ﬁrst two months of the year, StoneX warned, plus, “The U.S. dairy herd reductions that we’ve been seeing, look to be transitioning to a growth stage.
CME cheese prices saw some ups and downs the last week of March. After jumping 14.50 cents the week before, the Cheddar blocks fell to $2.17 per pound Tuesday, then rallied to close April Fool’s Day at $2.2950, up 2 cents on the week, 26.50 cents above their March 1 perch, and 52 cents above a year ago.
After gaining 22 cents the previous week, the Cheddar barrels fell to $2.16 per pound Wednesday but finished Friday at $2.2525, 0.25 cents higher on the week, 31.75 cents above where they were on March 1, 74 cents above a year ago, and 4.25 cents below the blocks.
There were 7 sales of block on the week and 38 for the month of March, up from 16 in February. Barrel sales totaled 30 for the week and 108 for the month, up from 39 in February.
Midwest cheesemakers tell Dairy Market News that demand is strong to very strong. Customers were hesitant during the variant market movements in February and earlier this month, but as prices began to climb, buyers had to refill their pipelines ahead of further increases. Milk is available though some plants continue to deal with staffing and supply shortages. Plants that are running full, or near full, were clearing spot milk at discounts as low as $4 under Class mid-week. Cheese inventories are moving well, says DMN.
Western cheese makers say export demand remains strong as U.S. prices remain at a discount to internationally produced product. Purchasers in Asia are, reportedly, interested in buying loads to ship in late fourth quarter and early first quarter 2023. Domestic cheese demand is steady in retail markets, while food service demand continues to increase. Spot cheese availability is trending higher in the region. Port congestion and the shortage of truck drivers continues to cause delays. Cheese producers are running busy schedules to work through the available milk supplies but labor shortages and delayed production supply deliveries continues to prevent running at full capacity.
CME butter got down to $2.70 per pound Thursday but saw its Friday finish at $2.71, down 8.50 cents on the week, 17.50 cents above the March 1 post, and 86.50 cents above a year ago. There were 27 cars sold on the week and 99 for the month, up from 69 in February.
StoneX reminds us that domestic butter sales were up 15% in January and it will be interesting to see how February fares, with the higher prices, given that stocks were heavier than expected.
Butter makers in the Central region say spring holiday demand has picked up a little later than expected. Production is busy however employment shortages are still being reported from multiple plants. Export demand remains but plants are pulled in two directions, says DMN, between international buying or growing stocks for seasonal fall demand in the domestic sector. Cream is “findable,” says DMN, but costs are ticking up week by week. As cream cheese and ice cream production increases, cream availability is not expected to increase near-term. Some Midwestern butter producers continue to find it from Western sources but freight costs and limitations are deterring them, according to DMN.
Western demand for cream is also strengthening as ice cream makers are increasing output and pulling heavily on cream supplies. Butter makers are internally utilizing cream loads to build inventories. Demand for butter is increasing in retail markets as grocers prepare for spring holiday demand. Food service demand is unchanged and export demand is strong, as internationally produced butter is being sold at a premium to U.S. loads. Butter makers are running busy schedules throughout the region, though some continue to cite labor shortages as preventing them from running at capacity, according to DMN.
Grade A nonfat dry milk closed the week at $1.85 per pound, 0.25 cents lower, a penny below where it was on March 1, but 66 cents above a year ago. There were 22 trades on the week and 82 for March, up 2 from February.
Dry whey closed Friday at 61 cents per pound, down 11 cents on the week, lowest since Oct. 20, 2021, 14.25 cents below its March 1 position, and 5 cents below a year ago. CME sales totaled 15 for the week and 19 for the month, down from 30 in February.
Checking those all-important restaurant sales; data from OpenTable shows reservations are hovering near pre-pandemic levels, according to the March 25 Dairy and Food Market Analyst. “In the last week, reservations were down 4% after being flat during the previous week,” the Analyst stated. “This is a significant rebound from the 30% declines that were experienced in January.”
Traveling is also increasingly approaching pre-pandemic levels, according to the DFMA. “Air travelers are down 10% from 2019 levels, according to the latest weekly TSA checkpoint data. For perspective, air travel was down 35% in the same week in 2021 and down 92% in the same week in 2020.”
But, higher dairy product prices are hitting consumers, the DFMA warned. IRI’s Inflation Tracker shows average dairy product prices were up 11% from a year ago in the latest week and “Dairy prices are now outpacing overall grocery,” the DFMA stated, as prices throughout the store are up 8%.
The DFMA reports that the Global Dairy Trade auction will launch a new auction product called GDT Pulse, which will be a weekly auction. Whole milk powder is the first planned product to more regularly auction. Additionally, the dairy auction is considering holding daily auctions,” according to the DFMA.
In politics, the International Dairy Foods Association and National Milk Producers Federation submitted joint comments this week to the USDA’s Food and Nutrition Service urging the agency to “improve nutrition security by updating school meal nutrition standards to encourage increased consumption of dairy in keeping with recommendations from the 2020-2025 Dietary Guidelines for Americans report and with leading health organizations.”
In 2020, the federal Dietary Guidelines Advisory Committee report found that a staggering 79 percent of 9- to 13-year-olds are not meeting the recommended intake of dairy foods and thereby under-consuming a variety of nutrients during childhood and adolescence, including potassium, calcium, and vitamin D.
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.