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At 84.7 Million Pounds, Cheese Exports Set a Record in June

by Lee Mielke

Published: Friday, August 14, 2020

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

There was good news for U.S. dairy in the USDA's June export report. Cheese exports totaled a record 84.7 million pounds, up 29 percent from June 2019. High Ground Dairy credited manufacturers pushing to make sales into the global market due to the outlook for domestic consumption turning negative because of the stay-at-home orders, shuttered schools, and restaurant closures.

Butter exports were up 51.9 percent, nonfat and skim milk powder was up 77.3 percent, and dry whey was up 42.4 percent. A weakening U.S. dollar has helped U.S. competitiveness.

Unfortunately, dairy product prices entered August in shambles compared to a month ago. The Cheddar blocks fell below $2 per pound last Tuesday and closed Friday at $1.7050, 54.75 cents lower on the week, lowest since May 13, $1.2950 below its $3 peak on July 13, and 16.25 cents below a year ago.

The barrels finished at $1.5175, down 71.75 cents on the week, 20.25 cents below a year ago, and 18.75 cents below the blocks. Thirty-one cars of block traded hands on the week at the CME and 25 of barrel. Class III futures have dropped as well.

HGD reported in its Aug. 3 "Monday Morning Huddle" that "a new forecast projects that one in three U.S. restaurants may close permanently this year, showing how the pandemic is decimating an industry that employs millions."

It adds that the U.S. economy shrank 33 percent in second quarter, "steepest decline since the government started keeping records in 1947," and "this was followed by the fact that tens of millions of unemployed Americans lost $600 in additional weekly jobless benefits after the White House and Congress failed to reach an agreement to extend the supplement."

"A key wildcard over the next several months," said HGD, "is how the government plans to continue supporting the dairy industry. This injection of massive amounts of stimulus to purchase dairy products has contributed to intense volatility in recent weeks and a primary reason why block cheese prices hit a record high last month. USDA has indicated they will spend the remaining $500-$700 million in the 'Farmers to Families Food Box' program in Round 3 after the current round expires on Aug. 31."

"They have also asked for fixed pricing in this latest bid solicitation to be valid through August 2022," HGD warned. "There will be at least 10 pounds of dairy products plus one gallon of milk in each box, with HighGround estimating around $200 million on the dairy spend. While significant, cheese and milk prices are much higher versus the initial rounds of the program, meaning less volume could be acquired through USDA purchases."

Butter plunged to $1.4250 per pound last Tuesday, as 50 carloads found their way to Chicago the first two days. It rallied last Wednesday and Thursday, only to slip back some last Friday and close at $1.53, down 7.75 cents on the week and 78.5 cents below a year ago. A total of 63 cars exchanged hands on the week.

Spot Grade A nonfat dry milk saw its Friday close at 95.50 cents per pound, 2.25 cents lower on the week and 7.25 cents below a year ago, with 16 sales reported.

Dry whey closed at 32 cents per pound, down 2.25 cents and 3.5 cents below a year ago on 11 sales.

A sharply higher All-Milk price pulled the June milk feed price ratio into positive territory for the first time in seven months and the highest level so far this year. The USDA's latest Ag Prices report put the ratio at 2.36, up from 1.77 in May, and compares to 2.08 in June 2019.

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. One pound of milk could purchase 2.36 pounds of dairy feed of that blend in June.

The U.S. All-Milk price averaged $18.10 per hundredweight, up $4.50 from May and was dead even with June 2019.

The national average corn price slipped to $3.16 per bushel, down 4 cents per bushel from May and 82 cents below June 2019. Soybeans averaged $8.34 per bushel, up 6 cents from May and 3 cents above a year ago. Alfalfa hay averaged $179 per ton, unchanged from May but 14 per ton below a year ago.

Looking at the cow side of the ledger, the June cull price for beef and dairy combined averaged $71 per hundredweight, up $2.70 from May, $5.10 above June 2019, but was 60 cents below the 2011 base average of $71.60 per hundredweight.

Milk cow replacements averaged $1,310 per head in July, up $60 per head from April and $80 above July 2019. They averaged $1,350 per head in California, up $50 from April and $50 above a year ago. Wisconsin cows averaged $130 per head, up $100 from April and $50 per head above July 2019.

Meanwhile, dairy farm margins were termed "flat to slightly weaker over the second half of July," according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC, "as a sharp decline in Class III milk more than offset the savings from lower projected feed costs."

The National Milk Producers Federation says the letter requests the U.S. government "enhance common food name protections as a core policy objective in all trade-related discussions," stating that "This is a direct challenge to the European Union's misuse of protections meant for valid geographical indications to instead block American exports of common or generic food and wine terms, such as parmesan, feta, bologna or chateau. These unjustified trade barriers harm American farmers, limit choices for consumers and have put manufacturing jobs across an essential sector at risk."

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