By Lee Mielke

 

U.S. dairy farmers are indeed “milking it for all its worth,” prompting the USDA’s first World Agricultural Supply and Demand Estimates report (WASDE) of 2021 to raise its milk production estimates for the fifth consecutive month, citing growth in milk per cow and higher dairy cow numbers.

2020 production and marketings were estimated at 222.9 and 221.9 billion pounds respectively, up 200 million pounds on both from the December estimate. If realized, 2020 production would be up 4.5 billion pounds or 2.1 percent from 2019. We’ll get December data on January 25.

2021 production and marketings were estimated at 226.7 and 225.7 billion pounds respectively, up 400 million pounds on both. If realized, 2021 production would be up 3.8 billion pounds or 1.7 percent from 2020. 

Dairy product price estimates for 2020 reflected December price data. Cheese, butter, nonfat dry milk and whey price forecasts for 2021 were raised from last month on firm domestic demand. The 2021 Class III milk price and Class IV prices were raised from the previous month on higher product prices.

Look for a 2021 Class III average of $16.90 per cwt., up $1.30 from what was projected a month ago, and compares to the 2020 average of $18.16, $16.96 in 2019, and $14.61 in 2018.

The Class IV average was estimated at $14.10, up 50 cents from last month’s projection, and compares to $13.49 in 2020, $16.30 in 2019, and $14.23 in 2018.

In the week ending Jan. 2, 2021, 108,600 dairy cows were sent to slaughter, according to the USDA, up 64,500 head from the previous week but 4,700 or 4.1 percent below a year ago.

Cheddar block cheese climbed to $1.9625 per pound on Jan. 11, highest CME price since Nov. 12, 2020, but closed the third Friday of 2021 at $1.83, 8.75 cents lower on the week and 13.25 cents below a year ago.

The barrels closed at $1.5725, down 8 cents on the week, a penny above a year ago, and 25.75 cents below the blocks. 13 cars of each were sold at the CME.

The USDA announced this week that it will purchase $40 million in Cheddar and processed cheese and another $40 million in butter for distribution to food nutrition assistance programs under the authority of Section 32. The Section authorizes USDA to support prices of commodities in surplus by purchasing them in the marketplace and authorizes USDA to distribute such commodities.

StoneX Dairy pointed out that “On a relative basis, $40 million of butter purchases has a bigger impact on the butter market than $40 million of Cheddar purchases will have on the cheese market, but this announcement is a departure from how we interpreted the earlier announced Section 32 purchases focused on fluid milk and butter. The legislation authorizes the funding of these activities with money collected from customs receipts.”

Midwestern cheesemakers tell Dairy Market News that sales are ticking up for some producers, but East Coast customers are still slow as COVID restrictions continue to curb food service/restaurant business. Producers who weeks ago had some extra loads now relay that they are booked through first quarter. Cheese output has picked up since the holidays as milk is plentiful.

Western cheesemakers are also contending with plenty of milk and trying to determine the best course of action. The food box announcement propelled cheese prices upward and prompted a few manufacturers to up production but contacts say there is hesitancy to push too far. Cheese is readily available and some have set cheese aside in anticipation of filling some government allocation.

Market demand outside program purchases is sluggish, DMN said. Retail sales are softer following the holidays and food service sales remain weak. Pizza sales and short order food service sales are clearing decent volumes of cheese but cannot overcome the decrease in other sectors so manufacturers are cautious to extend cheese production and expose themselves to price volatility.

Butter continued its meltdown, bottoming at $1.2875 per pound on Wednesday, lowest since May 7, 2020, then climbed back to a Friday close of $1.29, down 9 cents on the week, third week in a row of decline, and 59 cents below a year ago. There were 23 sales of butter on the week at the CME.

StoneX stated in their Jan. 11 Early Morning Update, “We’ve got seven weeks to bring old crop butter to the exchange after which only butter made Dec. 1, 2020, or later may be brought. We have plenty of milk and cream in the country, but much of the butter brought to the exchange recently was produced before Dec. 1, 2020. If there is to be a pop on the butter market, the old crop/new crop dynamic may play a more pronounced roll this year.”

Butter producers continue to see plentiful cream supplies, DMN said. With food service demand remaining somewhat quiet, the extra cream is going to bulk production. Butter stocks are growing and some contend that market tones may show little to no improvement until the March 1st “new butter” deadline.

Western butter plants are also seeing an increase in production. Inventories are heavier than needed and cream supplies are readily available. Retail sales are soft but manufacturers point to global demand as an outlet for reducing inventory. Food service channels in the west continue to feel the heavy impact of COVID. Drive up restaurant activity is growing and inquiries for bulk butter are “budding” said DMN, as buyers hope to fill their needs through third quarter.

Grade A nonfat dry milk finished at $1.20 per pound, up a penny on the week but 9 cents below a year ago, with 43 cars sold, highest since early October 2020.

Whey was unchanged for three successive sessions, then added a penny on Wednesday and 2 cents Friday to close at 53 cents per pound, highest since Oct. 19, 2018, and 16.25 cents above a year ago, with 4 sales reported.

The USDA’s latest commercial disappearance data shows November total cheese disappearance at 1.125 million pounds, down 1.2 percent from November 2019, second consecutive month of decline, according to HighGround Dairy (HGD), with exports down 15.8 percent.

Butter, at 219.8 million pounds, was up 0.1 percent, a normal seasonal trend, said HGD, and the strongest monthly disappearance of the year, but exports were down 3.2 percent.

Nonfat and skim milk powder disappearance hit 191.4 million pounds, up 4.2 percent from 2019, thanks to a 54.8 percent gain on domestic disappearance compensating for a 7.7 percent decline in exports.

Dry whey totaled 71.5 million pounds, down 5.4 percent, due to weak domestic sales, according to HGD, however whey exports were up 35.7 percent.

You’ll recall I recently raised the issue of changing the formulas by which we price milk in this country, citing the continuing frustration by many dairy farmers short-changed by large producer price differentials and de-pooling by processors.