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Dairy market waiting to see how government assistance plays out

By Lee Mielke
StoneX Dairy Group says the GDT 80% butterfat butter price equates to $2.2696 per pound U.S., up 4.5 cents from the last event, which saw a 13-cent rise. CME butter closed Friday at a bargain $1.55 per pound. GDT Cheddar equated to $1.9357 per pound, up 4.1 cents, and compares to Friday’s CME block Cheddar at $1.5375. GDT skim milk powder averaged $1.4548 per pound, up from $1.4506, and whole milk powder averaged $1.64 per pound, up from $1.5685. CME Grade A nonfat dry milk closed Friday at $1.0925.
December commercial dairy product disappearance data shows total U.S. cheese disappearance was down from a year ago for the third consecutive month. Lower exports and domestic demand were blamed and HGD says it was the weakest December disappearance since 2016.
Butter was up for the second consecutive month, “a promising sign for demand,” says HGD, “but not enough to overcome bearish fundamentals in the oversupplied market.” 
Total nonfat dry milk disappearance was up for the second consecutive month, thanks to strong domestic demand. Export sales sank to the lowest monthly volume since February, according to HGD.
The GDT helped propel CME cash butter higher in the President’s Day holiday-shortened week and added to the previous week’s 12.75 cent gain. Traders jumped the butter price 6 cents Tuesday, 4 cents Thursday, and 5.50 cents Friday, hitting $1.55 per pound, up 15.50 cents on the week, highest since Sept. 22, 2020, but 26 cents below a year ago. Only 9 sales were reported on the week
Central butter production is strong due to seasonal demand and the current availability of cream, says Dairy Market News, and churning was notably active. The current weather situation in the southern U.S. had some Midwestern butter producers taking on cream that would otherwise lack a destination. Some contacts told DMN that their respective brands are moving well in the retail sector, but food service demand is generally lackluster. Butter market tones are in a short-term bullish push, says DMN, and prices have moved from $1.21 per pound on Feb. 1 to a Feb. 19 close at $1.55 per pound.
Cheese was unchanged Tuesday but headed south from there. The Cheddar blocks fell to $1.51 per pound Thursday, lowest since May 12, 2020, but regained 2.75 cents Friday to close at $1.5375, down 2 cents on the week and 23 cents below a year ago. The barrels finished 7.75 cents lower, at $1.4125, 17.75 cents below a year ago, and 12.50 cents below the blocks. 7 cars of block traded hands on the week at the CME and 26 of barrel.
Cheese market tones remain uncertain, says DMN, though demand is strong, according to a growing number of Midwestern producers. More areas are lifting dining restrictions at restaurants and bars. Spot milk prices at midweek were slightly higher than previous weeks but still below previous years. Weather throughout the country spawned hauling delays in the Midwest but cheese output was generally quite busy with ample milk available. Cheese inventories are not an overwhelming stressor for producers in the region, says DMN, “Particularly when demand seems to have received a shot in the arm in recent weeks.” 
The western cheese market appears to be in the same holding pattern that it has been in the last few months. Manufacturers report that milk is ample and are running plants at or near full capacity. The storms in the Pacific Northwest, Eastern New Mexico, and Texas had milk handlers pushing milk to facilities that could take it. Truckers found it difficult to pick up milk on farms and transport it to their usual manufacturing facilities, some of which were running with a reduced crew. Cheese inventories are heavy and while cheese is moving well, buyers are hesitant to take on more. Uncertainty regarding the impact of further government purchases and weak food service demand are putting a damper on the market, says DMN, even as retail demand is ahead of sales from last year.
Grade A nonfat dry milk was down 2 cents on the week, finishing at $1.0925 per pound, 7.75 cents below a year ago, with 17 sales for the shortened week.
CME dry whey climbed to 55 cents per pound Wednesday, highest since Oct. 19, 2018, but closed Friday at 54.75 cents per pound, up a half-cent on the week and 17.75 cents above a year ago. Only 2 sales were reported on the week.
As stated previously, uncertainty surrounds the dairy markets which are waiting to see what will happen to government assistance. StoneX Dairy broker Dave Kurzawski said in the February 22 ‘Dairy Radio Now’ broadcast that, word on the street at week’s end was that the food box program would continue in March with funding close to what was spent in February or about $350 million. Bottom line, he says, the food box program, Section 32 funds for commodity purchases, and all of the other government programs on the table combined could potentially mean Uncle Sam will spend more money on food in 2021 than it did in 2020.
As to the impact on cheese prices, Kurzawski cautioned that we have a lot more milk to deal with right now, especially as we come into the spring flush, plus cheese demand has slowed throughout the pandemic. Retail sales may be up 10-15%, he said, but hasn’t offset the loss is restaurant and foodservice demand.
The government has made up a lot of that difference, he said in closing, but U.S. cheese manufacturing has 

been somewhat constrained through the end of last year and if that changes this year, we could see additional pressure on prices.
Milk cow numbers in 2021 are projected to average 9.435 million, up 5,000 from last month’s forecast but numbers are expected to decline from the first quarter to the third quarter due to “relatively low milk prices, relatively high feed prices, and a relatively low number of replacement heifers.” Milk per cow was projected to average 24,100 pounds per head in 2021, up 5 from last month’s forecast.
In the week ending February 6, 67,600 dairy cows were sent to slaughter, down 1,900 from the previous week but 100 head more than that week a year ago. 
Dairy farm margins were mixed over the first half of February, though trending firmer on higher milk prices with feed costs largely unchanged over the past couple weeks, according to the latest Margin Watch (MW) from Chicago-based Commodity & Ingredient Hedging LLC.
The MW stated “There is growing optimism that part of the new stimulus package being put together by Congress will include another round of food box purchases which would be supportive for dairy prices while continued vaccine distribution and declining COVID caseloads are allowing restaurants to restore and expand indoor dining which should likewise help to increase dairy demand.” 
The GDT’s $3,746 per metric ton average winning price is a 6-year high, according to the MW. It also pointed out that 2020 U.S. dairy product exports totaled $6.5 billion in value, up 8.5% from 2019, and the highest since the record figure of $7.1 billion in 2014 led by strong shipments of nonfat dry milk and whey. 
The MW cited USDA’s increased projection on U.S. milk output in its latest World Agricultural Supply and Demand Estimates report, and warned that “USDA estimates that abundant production will push down cheese and butter prices.”
Whole milk sales totaled 1.3 billion pounds, up 1.4% from a year ago. Sales for the year totaled 15.5 billion pounds, up 2.6% from 2019, and made up 33.5% of total milk sales for December and 33.6% for the year.
Skim milk sales, at 234 million pounds, were down 11.0% from a year ago and down 14.6% for the year.
Total packaged fluid milk sales, January through December, amounted to 46.2 billion pounds, down just 0.1% from 2019. Conventional product sales totaled 43.3 billion pounds, down 0.7%. Organic products, at 2.9 billion pounds, were up 10.4% and represented 6.2% of total fluid milk sales in 2020.
In politics, the National Milk Producers Federation praised the immigration bill introduced Feb. 18 in Congress. 
NMPF President Jim Mulhern Stated; “We applaud President Biden, Representative Sanchez, and Senator Menendez for stepping up and leading with the U.S. Citizenship Act of 2021, making clear that immigration legislation is a significant, immediate priority. Still, reforms to our immigration system must include changes crucial for the dairy workforce. These include extending to current workers and their families the legal protections they have earned and enabling dairy farmers to use a guest worker program to supplement their domestic workforce when needed.”