Farmers' Production Cuts Key to Turnaround
Published: Friday, July 3, 2020
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
China's latest customs data shows May imports of whole milk powder (WMP) were up 13.2 percent from May 2019. HGD says those imports have not been this strong since 2014, again with most coming from New Zealand, but points out, "When China was procuring WMP for May delivery, they were two-three months into dealing with the pandemic as well as a shift in purchasing habits, but the need for milk powder remained intact." Skim milk powder imports were down 12.8 percent from a year ago.
Whey imports were up 85.3 percent and were the strongest of any month since May 2018, according to HGD. "The U.S. was the top single country supplier in the month with imports more than double prior year levels."
Back on the home front, the Agriculture Department's Cost of Production Estimates report shows that U.S. dairy farmers lost an average of $1.81 per hundredweight of milk in 2019.
The June 24 Daily Dairy Report points out, "While the gross value of production on U.S. dairy farms improved from 2018, total costs increased, too, driven by feed, labor and capital recovery. Last year's results were certainly better than 2018's," the DDR stated, "but 2019 was still a challenging year." West Coast dairy farms fared the best, according to the DDR.
Fast forward to the current situation following the COVID pandemic, National Milk's chief economist Peter Vitaliano said, "Dairy prices rebounded dramatically because farmers quickly adjusted their milk production and consumers boosted retail demand as government purchases kicked in to help offset lost food-service sales." He said, "That has resulted in a very, very rapid change in the market price outlook," adding, "The markets currently are looking like there's going to be a very strong rebound, and prices will get to a more normal level in the second half of this year." "The continued spread of the coronavirus and whether farmers quickly increase milk production remain significant questions that will affect dairy's further recovery," he concluded.
Hoards Dairyman's June 24 DairyLivestream program also examined the recovery in milk prices and managing editor, Corey Geiger reported in the June 29 Dairy Radio Now broadcast that the terms "fragile and brittle" were used to describe it, even as the block cheese price plunged that morning.
The University of Wisconsin's Mark Stevenson called the current situation "untested waters" and said COVID-19 "dragged the dairy industry to the bottom and now has given it elation when it comes to milk prices." He doesn't think we're done with the volatility but are at a "fragile high," especially when compared to Oceania cheese prices which are around $1.70 per pound.
A poll asked listeners what they thought was most responsible for the turnaround. Geiger said the government's Farmers to Families Food Box program was the pick, followed by the reduced milk supply and refilling of food service pipelines.
Cornell's Andy Novakovic said, "Our ability to not get carried away with production is going to be a lot more potent in maintaining higher milk prices."
Speaking of government programs, USDA announced further solicitations under Section 32 Authority this week, and included 11.4 million pounds of process cheese, for August through November delivery, plus 11.5 million pounds of butter, and 122,400 pounds of high protein yogurt.
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