USDA to Spend $40 Million on Cheese and $40 Million on Butter
Published: Friday, January 22, 2021
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
In the week ending Jan. 2, 108,600 dairy cows were sent to slaughter, according to the USDA, up 64,500 head from the previous week but 4,700, or 4.1 percent, below a year ago.
Cheddar block cheese climbed to $1.9625 per pound on Jan. 11, highest CME price since Nov. 12, 2020, but closed the third Friday of 2021 at $1.83, 8.75 cents lower on the week and 13.25 cents below a year ago.
The barrels closed at $1.5725, down 8 cents on the week, a penny above a year ago, and 25.75 cents below the blocks. Thirteen cars of each were sold at the CME.
The USDA announced last week that it will purchase $40 million in Cheddar and processed cheese and another $40 million in butter for distribution to food nutrition assistance programs under the authority of Section 32. The Section authorizes USDA to support prices of commodities in surplus by purchasing them in the marketplace and authorizes USDA to distribute such commodities.
StoneX Dairy points out, "On a relative basis, $40 million of butter purchases has a bigger impact on the butter market than $40 million of Cheddar purchases will have on the cheese market, but this announcement is a departure from how we interpreted the earlier announced Section 32 purchases focused on fluid milk and butter. The legislation authorizes the funding of these activities with money collected from customs receipts," said StoneX.
Midwestern cheesemakers tell Dairy Market News that sales are ticking up for some producers, but East Coast customers are still slow as COVID restrictions continue to curb food service/restaurant business. Producers who weeks ago had some extra loads now relay that they are booked through first quarter. Cheese output has picked up since the holidays as milk is plentiful.
Western cheesemakers are also contending with plenty of milk and trying to determine the best course of action. The food box announcement propelled cheese prices upwards and prompted a few manufacturers to up production but contacts say there is hesitancy to push too far. Cheese is readily available and some have set cheese aside in anticipation of filling some government allocation.
Market demand outside program purchases is sluggish, says DMN. Retail sales are softer following the holidays and food service sales remain weak. Pizza sales and short order food service sales are clearing decent volumes of cheese but cannot overcome the decrease in other sectors so manufacturers are cautious to extend cheese production and expose themselves to price volatility.
Butter continued its meltdown, bottoming at $1.2875 per pound last Wednesday, lowest since May 7, 2020, then climbed back to a Friday close of $1.29, down 9 cents on the week, third week in a row of decline, and 59 cents below a year ago. There were 23 sales of butter on the week at the CME.
StoneX stated in its Jan. 11 Early Morning Update, "We've got seven weeks to bring old crop butter to the exchange after which only butter made Dec. 1, 2020 or later may be brought. We have plenty of milk and cream in the country, but much of the butter brought to the exchange recently was produced before Dec. 1, 2020. If there is to be a pop on the butter market, the old crop/new crop dynamic may play a more pronounced roll this year."
Butter producers continue to see plentiful cream supplies, says DMN. With food service demand remaining somewhat quiet, the extra cream is going to bulk production. Butter stocks are growing and some contend that market tones may show little to no improvement until the March 1 "new butter" deadline.
Western butter plants are also seeing an increase in production. Inventories are heavier than needed and cream supplies are readily available. Retail sales are soft but manufacturers point to global demand as an outlet for reducing inventory. Food service channels in the west continue to feel the heavy impact of COVID. Drive up restaurant activity is growing and inquiries for bulk butter are "budding" says DMN, as buyers hope to fill their needs through third quarter.
Grade A nonfat dry milk finished at $1.20 per pound, up a penny on the week but 9 cents below a year ago, with 43 cars sold, highest since early October 2020.
Whey was unchanged for three successive sessions, then added a penny last Wednesday and 2 cents last Friday to close at 53 cents per pound, highest since Oct. 19, 2018, and 16.25 cents above a year ago, with four sales reported.
The Agriculture Department's latest commercial disappearance data shows November total cheese disappearance at 1.125 million pounds, down 1.2 percent from November 2019, second consecutive month of decline, according to HighGround Dairy, with exports down 15.8 percent.
Butter, at 219.8 million pounds, was up .1 percent, a normal seasonal trend, says HGD, and the strongest monthly disappearance of the year, but exports were down 3.2 percent.
Nonfat and skim milk powder disappearance hit 191.4 million pounds, up 4.2 percent from 2019, thanks to a 54.8 percent gain on domestic disappearance compensating for a 7.7 percent decline in exports.
Dry whey totaled 71.5 million pounds, down 5.4 percent, due to weak domestic sales, according to HGD. However, whey exports were up 35.7 percent.
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