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Milk-Feed-Price Ratio Pulls Back

by Lee Mielke

Published: Friday, February 14, 2020

The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."

Dairy prices at the Chicago Mercantile Exchange came under some downward pressure the first week of February. The Cheddar blocks fell to $1.8950 per pound last Thursday but rallied to close last Friday at $1.93, up a penny on the week and 40.25 cents above a year ago.

The barrels lost 4.5 cents last Monday, falling to the lowest level since March 13, 2019, and set a new record spread of 46.5 cents. After losing 11 cents the previous week, they closed at $1.4775, down another 2.25 cents, 10.5 cents above a year ago, but at an unsustainable 45.25 cents below the blocks. Twelve cars of block traded hands on the week and 40 of barrel.

Cheese plant managers cite the drastic shift in markets since fall 2019 and how they are negatively affecting orders, according to Dairy Market News. Others suggest 2020 sales have been steady, but one certainty is the availability of milk. A growing number of contacts are pushing spot milk loads back onto the market to keep cheese production in balance with demand, says DMN. The record-breaking block over barrel CME price gap is also cited as "not being helpful to cheesemakers" and a growing number of contacts suggest it has become "the veritable ursine elephant in the room."

Heavy milk supplies are also heading to Western vats and cheese output is at or near full capacity. Inventories are relatively stable and able to cover most buyer needs, but contacts suggest demand is steady. Market participants are eager to see what fundamentals can shrink the gap between block and barrel prices.

Cash butter saw its Friday closing at $1.8325, 6.75 cents lower on the week and 46.25 cents below a year ago. Eighty-four loads exchanged hands on the week.

Central butter output has been higher this year compared to previous years, according to plant managers. With the bountiful abundance of cream from Western and Midwestern sources, churns are busy with cream trucks lined up outside. Butter stores are available and growing as producers prepare for the expected uptick in demand for springtime baking and holiday-related retail.

Western butter production is also active. Cream supplies are reportedly tighter than they have been but there is still plenty to keep the churns full. Butter inventories are growing and adequate to meet any near term need, says DMN.

Grade A nonfat dry milk fell to $1.2150 last Tuesday but closed last Friday at $1.25, up a penny on the week and 25.5 cents above a year ago, with 13 sales reported.

CME dry whey finished at 39 cents per pound, up 2.5 cents on the week, all on unfilled bids, and 2.5 cents above a year ago.

A lower All-Milk price and higher feed prices pulled the December milk-feed-price ratio down, ending five consecutive months of gain. The USDA's latest Ag Prices report put the ratio at 2.55, down from 2.61 in November and compares to 2.07 in December 2018.

The index is based on the current milk price in relationship to feed prices for a dairy ration consisting of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. Today, one pound of milk purchases 2.55 pounds of dairy feed containing that blend.

The U.S. All-Milk price averaged $20.70 per hundredweight, down 30 cents from November but $4.10 above December 2018. California's All-Milk price was $19.80, up 30 cents from November and $3.27 above a year ago. Wisconsin's, at $21.30, was down $1.10 from November but $5.10 above a year ago.

The national average corn price averaged $3.71 per bushel, up 3 cents from November and 17 cents per bushel above December 2018. Soybeans averaged $8.70 per bushel, up 11 cents from November and 14 cents per bushel above a year ago. Alfalfa hay averaged $175 per ton, up $2 from November but $4 per ton below a year ago.

Looking at the cow side of the ledger, the December cull price for beef and dairy combined averaged $59.30 per hundredweight, up $1.60 from November, $7.50 above December 2018, but is $12.30 below the 2011 base average of $71.60 per hundredweight.

National Milk adds, "The margin for December 2019 under the Dairy Margin Coverage program was $11.95 per hundredweight, 26 cents lower than the November DMC margin, with falling milk prices more than offsetting a drop in feed costs. The margin remains well above the trigger necessary for DMC assistance."

It was American author, Samuel Clemens, better known as Mark Twain, who was once asked by a reporter to comment on a rumor that he was dead, to which Twain replied, "Reports of my death have been greatly exaggerated."

You might say the same about the dairy industry, according to Hoards Dairyman managing editor Corey Geiger. Reporting in the Feb. 10 Dairy Radio Now broadcast, Geiger discussed a presentation by International Dairy Foods Assn. chief executive officer, Michael Dykes, on how the media covered the bankruptcies of Dean Foods and Borden, insinuating that the dairy industry is dead.

Dykes reported that dairy product consumption has risen sharply since 1975, according to USDA data. But, he said, reporters see the dairy industry as a glass of milk that you drink and, while fluid milk consumption is indeed down a whopping 41 percent, that milk is still being consumed via hard products like butter, cheese and yogurt. Those sales are up 71 percent from 1975, he said.

Consumer demands have changed, according to Dykes, they want "grab and go, easy convenience," Geiger stated, and "fortunately, dairy can do that."

Also adding to the "dairy is dead mentality" are the plant-based products that call themselves after dairy names and plant-based meats, which Geiger admitted has a growing market. But the founder of Chobani, Hamdi Ulukaya, was at the forum and told attendees, while his company has an oat product, it refrains from using dairy terms to describe it because, "There is a difference. All it is, is a couple nuts with a bunch of water mixed in with it," he said, "and it doesn't have the same nutrients as dairy."

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