Dairy Product Demand Rebounds as Retail Orders Regain Footing
Published: Friday, May 22, 2020
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
HighGround Dairy's Director of Dairy Market Intelligence, Lucas Fuess, questioned USDA's increased estimate on 2020 milk production in last week's World Agricultural Supply and Demand Estimates report.
Speaking on the May 18 Dairy Radio Now broadcast, Fuess said milk output was reduced 5 percent to 10 percent the last few weeks. In many cases those reductions were mandated by milk handlers due to concern over rising spring flush output.
Fuess credited the recovering dairy prices to restaurant and food service increases, along with government dairy purchases, but warned that he's not sure if those prices will hold after the USDA steps out of the market in June and July. The key factor then, he said, will be restaurants reopening and or customers being comfortable enough to return to them.
Cash cheese prices soared Mother's Day week, pulling Class 3 futures higher. The Cheddar blocks closed last Friday at $1.78 per pound, up 47.5 cents on the week, highest since March 25, and 10.75 cents above a year ago.
The barrels finished at $1.72, 45 cents higher on the week and 9.5 cents above a year ago. Five carloads of block exchanged hands on the week at the CME and 15 of barrel.
Cheese market tones were "resolutely more positive this week," according to Dairy Market News. Midwest cheese manufacturing is busy and plant managers have increased output as food service orders have shifted much higher in recent weeks. Retail orders remain steady to stronger. Milk availability has begun to reflect upward production trends and spot milk Class-plus price overages have been reported for only the second time this year but are expected to continue, says DMN, while contacts say "discounts may be nowhere to be found."
Western cheese sales were a bit more active. U.S. prices have indeed strengthened but are below usual levels and competitive, when compared to the rest of the world, so that has motivated international purchases. The market continues to recuperate from the effect of COVID-19. Cheese intakes from restaurants and food services were more active this week as a few of them reopened after being closed for a couple of months. Retail demand was steady compared to the previous week but higher than normal. Cheese supplies are plentiful and storage continues to tight up. Production was unchanged to lower.
Butter also shot higher with a Friday close at $1.6450 per pound, up 35.5 cents on the week but 69.5 cents below a year ago, with 39 cars sold.
Butter market tones are strengthening, according to DMN, but butter producers report more changes are afoot. Cream availability has tightened, notably. Cream prices currently remain within reach for churning but that's changing. Retail butter demand is strong and while food service demand is lighter when compared to previous years, it has definitely grown, in some cases multiplied, when compared to previous weeks. Butter plant managers are concerned about fourth quarter supplies, says DMN, and are preparing to manage production and inventories.
Grade A nonfat dry milk closed last Friday at 93.50 cents per pound, up 11 cents on the week but 11.25 cents below a year ago, on 27 sales.
Whey inched up to 40.25 cents per pound Monday, highest since January 2019, but closed Friday at 39 cents, down .75 cents on the week but 5 cents above a year ago on 11 sales for the week.
As mentioned earlier, the Agriculture Department raised its 2020 milk production estimate in its latest World Agricultural Supply and Demand Estimates report, based primarily on higher-than-expected cow numbers. The report also gave us our first look at what the department sees in 2021.
2020 production and marketings were estimated at 222.4 and 221.3 billion pounds, respectively, up 200 million pounds on production and 100 million pounds on marketings. If realized, 2020 production would be up 4 billion pounds, or 1.8 percent, from 2019.
2021 production and marketings were estimated at 224.1 and 223.1 billion pounds, respectively. If realized, 2021 production would be up 1.7 billion pounds, or .8 percent, from 2019.
Cheese and whey price forecasts were raised from the previous month resulting in a higher Class 3 milk price forecast. Look for a 2020 average of $13.35 per hundredweight, up 60 cents from last month's even bleaker estimate, and compares to $16.96 in 2019 and $14.61 in 2018. The 2021 average was projected at $14.20.
Butter and nonfat dry milk price forecasts were lowered, resulting in a lower Class 4 price estimate, now put at $11.90, down 25 cents from last month's projection, and compares to $16.30 in 2019 and $14.23 in 2018. The 2021 Class 4 average was estimated at $12.20.
The WASDE's feed-grain outlook for 2020-21 is for record high production and domestic use, greater exports and larger ending stocks. The corn crop is projected at a record 16 billion bushels, up from last year on increased area and a return to trend yield. The yield projection of 178.5 bushels per acre is based on a weather-adjusted trend assuming normal planting progress and summer growing season weather, estimated using the 1988-2019 time period.
While beginning stocks are down slightly from a year ago, total corn supplies were forecast at a record 18.1 billion bushels. Total U.S. corn use is forecast to rise relative to a year ago with increases for domestic use and exports. Corn used for ethanol is projected to increase from the 2019-20 COVID-19 reduced levels, based on expectations of a rebound in U.S. gasoline consumption.
With the total U.S. corn supply rising more than use, 2020-21 U.S. ending stocks are up 1.2 billion bushels from last year and, if realized, would be the highest since 1987-88. Stocks relative to use at 22.4 percent would be the highest since 1992-93. With larger stocks relative to use, the season average farm price is projected at $3.20 per bushel, down 40 cents from 2019-20 and the lowest since 2006-07.
The outlook for soybeans is for higher supplies, crush, exports and lower ending stocks compared to 2019-20. The soybean crop is projected at 4.125 billion bushels, up 568 million from last year on increased harvested area and trend yields. Soybean supplies are projected up 5 percent from 2019-20 to 4.72 billion bushels, despite lower beginning stocks. Total U.S. oilseed production was forecast at 123.2 million tons, up 16.1 million from 2019-20 mainly on higher soybean production.
The U.S. soybean crush is projected at 2.13 billion bushels, up slightly from the 2019-20 forecast with higher soybean meal disappearance partly offset by lower soybean meal exports. U.S. soybean exports were forecast at 2.05 billion bushels, up 375 million from the revised forecast for 2019-20. With higher global soybean import demand for 2020-21 led by expected gains for China, U.S. export share is expected to rise to 34 percent from the 2019-20 record low of 30 percent. U.S. ending stocks are projected at 405 million bushels, down 175 million from the revised 2019-20 forecast. The U.S. season-average soybean price is projected at $8.20 per bushel, down 30 cents from 2019-20. Soybean meal prices are forecast at $290 per short ton, down $10.
U.S. cotton forecasts include larger beginning stocks, consumption, exports and ending stocks compared with the year before. Production was forecast at 19.5 million bales, 400,000 less than the year before, based on 13.7 million planted acres. Planted area is expected to be virtually unchanged from 2019-20, but harvested area is projected 2 percent lower. The yield is projected only slightly higher.
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