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Rising Feed Prices Present a Risk for Dairy, Livestock Producers

by Lee Mielke

Published: Friday, November 20, 2020

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

StoneX dairy broker, Dave Kurzawski, stated in the Nov. 16 "Dairy Radio Now" broadcast that we're seeing record corn exports but smaller crops. China has been "buying like crazy," he said, but he fears dairy and livestock producers may be less covered on feed than they should be as prices are poised to rise.

Cheese prices are heading down, "probably part of a normal ebb and flow." However, "we're not out of this pandemic yet." He believes government support and retail demand will be there and, if there is a President Biden, there will mostly likely be continued government assistance ahead.

The Daily Dairy Report's Sarina Sharp echoed the export sentiment, writing in the Nov. 6 Milk Producers Council newsletter that the first week of November was "another strong week of corn and soybean exports. The weak dollar gave commodity markets a boost and made U.S. grains even more attractive to foreign buyers. And South America is in the throes of a dry spell, leading to speculation that the U.S. will remain the best market for a bit longer."

Hemorrhaging continues in the cash cheese market. The Cheddar blocks closed Friday the 13th at $1.9175 per pound, down 42.50 cents on the week, adding to the 44 cent drop the previous week, and the lowest since Sept. 2, but were still 27.50 cents above a year ago.

The barrels plunged to $1.61 per pound last Friday, following significant drops almost daily, including a record single-day loss of 29 cents on Friday. They dropped 70.75 cents on the week, to the lowest price since Sept. 15, 58.75 cents below a year ago, and 30.75 cents below the blocks. Fourteen cars of block sold on the week and 32 of barrel.

Orders for cheese for the Food Box program are slowing and there's no word of the program being extended into 2021. StoneX says, "Round 4 food boxes have started to be delivered, 61,964 thus far. Deliveries of Round 3 boxes have slowed, 16 out of 19.1 million have been delivered for Round 3, Sept. 22 to Oct. 31. Questions remain as to whether the target will be reached, but only time will tell."

Midwestern cheese producers reported a notable slowdown in orders again last week, the impetus being the drops in price, according to Dairy Market News. Customers were waiting for the bottom to begin purchasing anything more than necessary, says DMN. COVID-related staffing shortages continue to be reported, but plants continue to operate. Limiting manufacturing is keeping stocks in check in the region. Spot milk was readily available and at a discount.

Western cheese supplies are loosening as the hesitancy to hold cheese at elevated prices continued. Strong retail demand and government purchases continued to pull large volumes. End users say cheese supply pipelines are filled and starting to back up. Cheese output is active due to the heavy milk supply.

Butter climbed to $1.4375 per pound last Wednesday but finished last Friday at $1.40, down 3 cents on the week and 66.75 cents below a year ago, on 25 sales.

Cream appears to remain plentiful in the Midwest and offers have increased in recent weeks. Churning remains busy, but more contacts reported COVID testing and quarantines are leading to employee shortages, putting a crimp on scheduling and churn rates. Butter is moving strongly in holiday orders, particularly into retail grocers, but supplies are far from short, says DMN.

Western butter churns remain active. Thanksgiving orders are out the door and buyers are looking to supply needs for the remaining holidays. Orders are termed "good." Feature activity continues at retail and is expected to clear large volumes of print butter in the week. Food service orders are unchanged, however. Manufacturers are keeping a close eye on production and inventory. Cream offerings are available but producers are more cautious with purchases as they anticipate the butter price will decline, according to DMN.

Grade A nonfat dry milk climbed to $1.0975 per pound last Wednesday but closed Friday at $1.0875, 2.25 cents higher on the week but 13 cents below a year ago, with 17 sales reported.

Dry whey finished at 43 cents per pound, up .75 cents on the week, highest since Jan. 22, 2019, and 11 cents above a year ago, on one sale for the week.

Commercial disappearance of butter and American-type cheese surged in September, according to the Dairy and Food Market Analyst. "Usage of butter was up 13 percent and American-type cheese, up 9.9 percent, according to our analysis of production, stocks and trade data. For the entire third quarter, which smooths some of the monthly ups and downs, usage of butter did not show any growth while usage of American-type cheese was up 3.6 percent."

The DFMA also reported that China and Australia's trade problems have worsened and could benefit U.S. dairy. "Australia and China are battling over coronavirus. China on Nov. 6 reportedly banned Chinese traders from importing Australian sugar, lobster, copper, copper concentrates and timber. Bans or heavy tariffs are already in place for beef, coal, red wine and barley. So far, dairy has avoided any hits, but if it did, it would impact the 98 million pounds of skim milk powder and 29 million pounds of infant formula imported annually by China from Australia," according to the DFMA.

While we're "down under;" StoneX wrote in its Nov. 6 "Early Morning Update," "New Zealand pasture growth numbers has us wondering why more people aren't looking at this topic. Pasture growth has taken a hit from early impacts of the dry season leading to the index lagging way behind last season and the five-year average. The data leads us to expect less milk production than originally anticipated, meaning less product coming out of New Zealand onto the international market which could provide an opportunity for U.S. exports."

In politics, the National Milk Producers Federation blasted the European Union's imposition of retaliatory tariffs on U.S. agriculture exports, escalating the dispute over World Trade Organization-incompliant aircraft subsidies.

NMPF President Jim Mulhern charged that "Europe has long wielded restrictive and unjustified trade tactics to limit fair competition from U.S. agriculture, including dairy exports. While Europe may be authorized to retaliate, the U.S. has already taken deliberate action to address the WTO decision. Meanwhile, Europe has failed to come into compliance with their WTO obligations."

"As the U.S. works to hold Europe accountable to its WTO obligations, U.S. retaliatory tariffs against EU dairy products continue to play a key role in bringing Europe to the negotiating table and compelling them to fulfill their trade commitments," according to Mulhern.

NMPF and the U.S. Dairy Export Council also released a summary of its recent analysis of "global trade barriers hampering overseas dairy sales to better inform and guide the work of the incoming administration and other policymakers." The submission to the U.S. Trade Representative was created as part of the USTR's annual call for input to inform its National Trade Estimate Report on Foreign Trade Barriers. It outlined nearly 40 pages of challenges and opportunities facing U.S. dairy exports in more than 30 foreign markets," according to a joint press release.

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