COVID-19 Pandemic Weighs Heavily on Dairy, but Production Continues
Published: Friday, March 27, 2020
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
The latest Margin Watch (MW) from Chicago-based Commodity and Ingredient Hedging LLC stated, "Dairy margins deteriorated further over the first half of March as ongoing fallout from the COVID-19 pandemic weighed heavily on the dairy complex.
Social distancing measures enacted by both the federal and local governments to stem the spread of the virus are causing significant anxiety as they negatively impact demand. The Class 4 market in particular has come under extreme pressure with both butter and powder prices falling sharply."
The MW warned: "There are also supply concerns stemming from uncertainty over how milk processors may have to handle an outbreak of the virus among employees, with potential plant closures a distinct possibility."
National Milk Producers Federation president and CEO, Jim Mulhern, spoke to assure consumers concerning dairy products. "U.S. dairy farmers are stewards of a product that's harvested around the clock, 365 days a year, and they understand the importance of steady production as well as steady consumption," he said. "The U.S. food-supply chain is more than capable of meeting demand, and consumers should be reassured that milk and dairy products will continue to be produced and available in the coming weeks and months."
"Dairy supplies aren't experiencing production interruptions at this time, and dairy farmers and processors will continue to do what they do best: produce safe, quality products every day for consumers in the U.S. and worldwide. We will vigilantly work with all aspects of the dairy supply chain to ensure these products get to everyone who needs them and that, as has always been true, dairy will remain something consumers can count on."
Cash Cheddar block cheese closed last Friday at $1.8375, down 3.5 cents on the week but still 26.75 cents above a year ago. The barrels fell to $1.3875 last Thursday, lowest CME price since March 11, 2019, setting a new record spread of 47.5 cents, but they closed last Friday at $1.43, seven cents lower on the week, 13.5 cents below a year ago, and 40.75 cents below the blocks. Four cars of block traded hands on the week at the CME and five of barrel.
Midwestern cheese makers saw a variety of demand responses early week, according to Dairy Market News. If they were primarily a retail-based operation, orders were very active. If their focus is on food-service and government-related buying, they were slow. If they run both, orders were mixed but regardless, they are busy. Milk was at $2 to $6 under class mid-week, but some bottlers were beginning to pull from milk supplies, diverting spot milk into bottling due to what they call the "toilet paper effect," wherein alongside toiletry items, grocery store shelves are being cleared of dietary staples such as milk, eggs and bread.
Cheese demand in the West was close to that of the prior week. While food-chain orders are trending down, retailers' intakes have increased due to many end-users stocking up for later usage. Cheese processing continues on an active tone as milk is abundant in the West.
Butter sunk to $1.67 per pound last Wednesday, lowest CME price since Feb. 26, 2015, but it rallied last Thursday and Friday to close at $1.7550, 5.75 cents lower on the week and 51 cents below a year ago. There were 12 sales on the week.
Butter makers are seeing positives in retail demand, said DMN, but it's too early to tell whether it is the "toilet paper effect" or whether the retail upticks are early spring holiday demand. DMN said, "Food service accounts were not granted the luck of the Irish. Schools and universities have no need to order for upcoming weeks, with state-mandated closures ending no earlier than early April in many states. Cream is plentiful. As more milk flows from processing to bottling, also due to the grocery-shelf clearances, more cream is being churned, adding to an already heavy supply. Contacts are hopeful that bakery and ice cream needs lend some help, otherwise dumping is expected."
Western butter makers say near-term retail butter demand is strong and certain retail account orders are several times higher than typical. Consumers have been stocking up. While the swell of retail business has kept butter output active, food service accounts are diminishing and butter inventories are steady to growing.
Spot nonfat dry milk was also pummeled, falling below $1 per pound for the first time since April 17, 2019, and it closed last Friday at 98.75 cents, down 6.5 cents on the week and 3 cents below a year ago. Fifty cars traded hands on the week.
Dry whey saw a Friday close at 33 cents per pound, down 1.75 cents on the week and even with a year ago, with seven cars exchanging hands on the week.
The April federal order Class 1 base milk price is $16.64 per hundredweight, down 82 cents from March but 88 cents above April 2019 and the highest April Class 1 since 2014. That put the 2020 Class 1 average at $17.67, up from $15.54 at this time a year ago and compares to $14.29 in 2018.
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