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U.S. Milk Production to Continue Rising, Prices to Continue Falling

by Lee Mielke

Published: Friday, February 19, 2021

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

The Agriculture Department continued to raise its milk production forecasts in its latest World Agricultural Supply and Demand Estimates report issued Feb. 9, again citing higher projected cow numbers for 2021.

2020 production and marketings were estimated at 223.1 and 222 billion pounds, respectively, including preliminary December data, up 200 million pounds on production from the January estimate. If realized, 2020 production would be up 4.7 billion pounds, or 2.15 percent, from 2019.

2021 production and marketings were estimated at 227.4 and 226.3 billion pounds, respectively, up 700 million pounds on production. If realized, 2021 production would be up 4.3 billion pounds, or 1.9 percent, from 2020.

The 2021 Class III milk price average was reduced on a lower expected cheese price forecast and was projected at $16.60 per hundredweight, down 30 cents from last month's estimate, and compares to $18.16 in 2020 and $16.96 in 2019.

The Class IV milk price was also reduced, reflecting a lower butter price forecast, and is expected to average $13.70, down 40 cents from last month's estimate, and compares to a $13.49 average in 2020 and $16.30 in 2019.

The 2021 fat basis import forecast was raised on higher expected imports of cheese and butterfat products, while exports were raised on higher shipments of butterfat. On a skim-solids basis, the import forecast was unchanged while the export forecast was raised reflecting expectations of strong international demand.

This month's 2020-21 U.S. corn outlook is for higher exports and lower ending stocks. Exports were raised 50 million bushels, reflecting historically large corn purchases by China. With no other use changes, corn ending stocks were lowered 50 million bushels from last month. The season-average corn price received by producers was raised 10 cents to $4.30 per bushel, up 74 cents per bushel from the previous market year.

The soybean outlook is also for increased exports and lower ending stocks. Soybean exports were projected at 2.25 billion bushels, up 20 million from last month, reflecting record marketing-year exports through January and a slow start to Brazil's export season resulting from harvest delays. With crush unchanged, soybean ending stocks were reduced 20 million bushels to 120 million. If realized, soybean ending stocks would be down 77 percent from 2019-20, and the lowest since 2013-14, according to the USDA.

The U.S. season-average soybean price was forecast at $11.15 per bushel, unchanged from last month, while the soybean meal price was forecast at $400 per short ton, up $10.

Cotton supply and demand forecasts show slightly higher exports and lower ending stocks relative to last month. Production and domestic mill use was unchanged. The export forecast was raised 250,000 bales to 15.5 million based on a strong pace of shipments to date. Ending stocks were estimated at 4.3 million bales, equivalent to 24 percent of total disappearance.

In politics, the Senate on Feb. 5 passed a "roughed-out version" of a stimulus bill, but the Feb. 5 Dairy and Food Market Analyst newsletter says the Senate passed the bill through a special process called "budget reconciliation, which avoids the need for Republican cooperation."

"This bill established the top-line cost of the stimulus ($1.9 trillion), but left the actual work of writing the details of the bill to be accomplished in the next two weeks," said the DFMA. "We will wait with bated breath for any indication of further market intervention. In the last stimulus, dairy received approximately $1 billion of direct support, or .1 percent, of the $900 billion bill. If that ratio holds for this next stimulus, the government would allocate an additional $2.1 billion for dairy spending," according to the DFMA.

Meanwhile, Politico reported that House Democrats advanced a proposal last week providing more than $16 billion in relief for the food and agriculture industry. The House Agriculture Committee approved the measure along party lines, 25-23, after considering about a dozen amendments.

Politico says the legislation included $3.6 billion for USDA to support food supply chains scrambled by the pandemic, $1 billion for land grant institutions and other groups that assist farmers of color, an extension of the 15 percent bump in Supplemental Nutrition Assistance Program (SNAP) benefits for the rest of the fiscal year, and $500 million for rural hospitals and communities to expand access to COVID-19 vaccines and food assistance.

Cash dairy prices at the CME were mostly lower the second week of February. The 40-pound Cheddar blocks jockeyed a bit but closed last Friday at $1.5575 per pound, down 8.25 cents on the week and 26.25 cents below a year ago when they dropped 11 cents on the week.

The 500-pound Cheddar barrels held at $1.50 per pound for four successive sessions but lost a penny last Friday to close at $1.49 per pound, 9.50 cents below a year ago, and a closer-to-normal 6.75 cents below the blocks. There were 16 carloads of block traded on the week at the CME and 29 of barrel.

Milk remains widely available for cheese production in the Midwest, according to Dairy Market News. Spot milk prices remain discounted, however some higher prices were reported this week. Retail cheese demand remains steadfast, according to some, and numbers have improved from last year. And, as more cities relax COVID-19 restrictions, customers are beginning to open up again and more apt to place orders if cheese prices remain in or around the $1.50 to $1.60 range. Cheese market tones remain in question as block prices continue to slide toward barrel prices, but contacts say, "The narrower the price gap between blocks and barrels is, the better for a stable market."

Western cheese output is also active with plenty of available milk. Contacts report that inventories for many varieties are growing. Retail cheese demand has increased as block prices have scaled back and buyers in both domestic and international markets seem more willing therefore to take on cheese. Food service demand is still lackluster, even though restrictions on dining are easing. Restaurants that have a strong take out offering are more immune to the weaker market demand than traditional seated dining restaurants.

Spot butter saw some strength early in the week, slipped back, then shot higher last Thursday and Friday to close at $1.3950 per pound, up 12.75 cents on the week but 40.50 cents below a year ago. There were 11 sales reported on the week.

Midwest butter churning is running "wide open," says DMN, as has been the case since the fall, as cream availability is "notably ample." There were reports of weather-related transportation issues in the Midwest and Mideast but trucking for the most part was smooth from butter cooperators in the region. Cream multiples, at midweek, were similar to the previous week. Some contacts reported January numbers were lackluster, particularly due to food service demand, or lack thereof but retail sales continue to help make up for the ailing food service industry. DMN said, "New crop butter trades after the first of March tend to assist market tones, but storage reports and notably accessible cream across the regions have created growing concerns for short and longer term market tones."

Western butter makers are also actively churning due to abundant cream supplies. Butter inventories are heavy but manufacturers don't seem concerned with adding to their stocks. Some contacts expect a bump in price and demand when the new crop of butter must be offered to the market. Cream multiples are favorable for making butter in lieu of some other dairy products though ice cream production is picking up. Butter buyers are more interested in making buys at current prices, in some cases, to cover their needs for later in the year. Retail butter demand has perked up a bit with the low prices but food service butter demand continues to languish, according to DMN.

Grade A nonfat dry milk climbed to $1.13 per pound last Tuesday but closed last Friday at $1.1125, .75 cents lower on the week and 5.75 cents below a year ago. There were 16 sales reported, down from 60 the previous week.

The whey saw its Friday finish at 54.25 cents per pound, up .75 cents on the week and 17.25 cents above a year ago, with only two sales for the week.

In the week ending Jan. 30, 69,500 dairy cows were sent to slaughter, up 1,600 from the previous week and 3,300, or 4.7 percent, above a year ago.

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