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Shipping Crisis at Ports Creating Backlog in Export Channels

by Lee Mielke

Published: Friday, September 24, 2021

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

The ongoing shipping crisis is raising concern in the dairy industry. The Sept. 10 Dairy and Food Market Analyst (DFMA) reported that "conditions are worsening significantly." "Current anchorage time has risen to 8.5 days outside Southern California ports. Prior to the pandemic, wait times were near zero. There were 47 container ships waiting at anchor, which is near a record high. Other ports are also experiencing congestion with a growing number of ships waiting outside of Oakland (Calif.), in the Gulf and near Savannah, Ga."

Congestion in China has showed no significant signs of easing either, according to the DFMA, with the top-three ports in the country still backed up. "Costs also continue to climb. Shipping from Los Angeles to Shanghai were about $1,448 per 40 foot container this week, up 1 percent from last week and up 180 percent year over year."

DFMA analyst and editor, Matt Gould, speaking in the Sept. 20 "Dairy Radio Now" said, "The problems peaked in February or March and then improved somewhat, but now that we're headed into the holiday season, they're worsening again."

Our premier port for dairy exports is off the coast of California, according to Gould, and not only is there a record number of ships waiting to be unloaded, it's taking a record amount of time to do so. That limits the amount of cargo that can be loaded on those ships, he said, because they want to get back to China or whatever they're from as fast as possible. That is hampering U.S. exports.

"Our current market needs exports to balance," he warned, and manufacturers are trying to adjust. A record amount of cheese is being exported out of Gulf Coast ports, which traditionally have not been major ports for cheese. Gould said this is not going to be resolved this year and perhaps not until after second, well after the Chinese lunar new year.

The situation prompted the National Milk Producers Federation and the U.S. Dairy Export Council to join 75 other organizations to call on the Biden administration to take additional steps to alleviate the ports crisis. A joint letter stated, "Since early 2021, dairy and other agriculture exporters have been facing unprecedented challenges in securing shipping container space on ocean vessels while contending with an accumulation of exorbitant detention and demurrage fees. Foreign owned and operated ocean carriers have been driving this crisis by providing unpredictable and unreasonable timelines for exporters to load agricultural goods and by exacerbating pressure on supply chains by opting to return empty containers rather than allowing time for them to be loaded with Asian-bound goods for the vessel's return journey."

Over 70 percent of containers are leaving West Coast ports empty, an all-time record, according to the letter. "Delays and an intentional lack of transparency and flexibility from ocean carriers have cost American dairy exporters over $300 million through just the first half of the year, or 12 percent of total export value. In addition to this added cost, continued delays put at risk critical trading relationships with Asian importers as the U.S. increasingly risks becoming viewed as an unreliable supplier," the joint letter stated.

Dairy prices didn't see a lot of change the week of Sept. 13, as traders anticipated last Monday's August Milk Production report and last Tuesday's GDT. Block Cheddar started the week gaining 2.50 cents but headed south from there to a Friday finish at $1.7925 per pound, a quarter-cent higher but 83.50 cents below a year ago when they pole vaulted 46.25 cents to $2.6275. The surge was 1.25 cents shy of the record week to week gain recorded the week of May 11, 2020, when Uncle Sam was meddling in the market because of COVID.

The barrels closed last Friday at $1.51, up 3.25 cents on the week, 12 cents below a year ago, and 28.25 cents below the blocks. Four cars of block and 19 of barrel sold.

Restaurant employment dropped 41,500 jobs last month, ending a six-month growth streak amid the rise in new COVID-19 cases, according to the Bureau of Labor Statistics and published in the Sept. 3 "Restaurant Business." "Restaurants added about 1.03 million new jobs in the six months through July and the industry is still down about 1 million positions from pre-pandemic levels."

Meanwhile, cheesemakers told Dairy Market News that their operations remain strained by employee and trucker shortages. Workers are getting all the overtime they want and hiring bonuses and incentives are not yet filling the void. Spot milk was slightly pricier last week, with the holiday weekend in the rearview mirror, with some cheesemakers saying there were no spot milk offers. Prices were near or at $1 over Class III. But milk availability is expected to increase as Class I pipelines near filling, weather cools, and expected hearty amounts of high quality forage support milk output. Curd and barrel producers say demand is fairly strong, particularly due to fairs and outdoor events. Cheese sales are reportedly healthy, says DMN, though market tones are uncertain.

Retail cheese sales are holding steady in the West, while demand for cheese in food service slid lower this week. International demand remains strong but loads are continuing to back up in warehouses, as they face delays due to a shortage of truck drivers and limited available shipping supplies, and port congestion. Spot purchasers found less cheese available this week, according to DMN. Milk production has decreased, seasonally, though cheese inventories remain high.

Spot butter shot up to $1.8275 per pound last Tuesday, highest since May 21, but closed last Friday at $1.79, up a half-cent on the week and 19.25 cents above a year ago, with 22 sales reported on the week.

Reports on the impacts of staffing shortages are increasing, according to DMN, and butter producers are providing notable percentage decreases regarding inventories versus being fully staffed. Prices were generally steeper, but some mid to later week cream deals were at a bargain. Food service sales remain healthy, while retail demand is beginning to pick up. Fall demand increases are expected to affect retail sales in a more matter-of-fact way this year than last. Still, butter market tones are noted as "steady to slightly bullish," says DMN.

Cream is tighter in the West and butter production schedules are mixed. Inventories are ample. Food service orders are steady overall, but some contacts note that demand is beginning to falter in areas with COVID-related temporary school closures or where increasing case numbers or stringent public health precautions may be contributing to lower dine-in numbers at restaurants.

Retail sales are fairly level, but some grocers are placing larger orders in anticipation of strong customer demand for holiday cooking and baking later this year.

Grade A nonfat dry milk ended the week at $1.35 per pound, .75 cents lower than the previous Friday but 28 cents above a year ago, on nine cars were sold.

The Daily Dairy Report's Sarina Sharp wrote in the Sept. 10 Milk Producers Council newsletter that "In the absence of cheap spot milk, cheesemakers are fortifying vats with NDM. Despite the snarls in the global supply chain, exporters are moving big volumes of powder to Mexico and Asia. The fundamentals are friendly, but it may take something more to lift NDM prices. The last time U.S. prices were this high, powder stocks were much lower than they are today."

CME dry whey closed at 53.50 cents per pound, up a half-cent on the week and 18 cents above a year ago on two sales for the week.

Dairy product commercial disappearance remains strong. The latest data shows July total cheese disappearance at 1.16 billion pounds, up .8 percent from a year ago following a small June decline. Disappearance was supported on stronger export demand that overcame subtly weaker domestic disappearance, according to HighGround Dairy.

Butter disappearance, at 177.1 million pounds, was up 17.7 percent, strongest year over year gain since February, according to HGD, highest July disappearance on record and the highest disappearance of any month since February.

Nonfat dry milk totaled 236.9 million pounds, up 21.4 percent, following two months of decline. Exports were slightly weaker, offset by good domestic disappearance.

Dry whey disappearance amounted to 75.5 million pounds, down 6.6 percent, due to weaker domestic and weaker export disappearance, according to HGD.

In the week ending Sept. 4, 58,800 dairy cows were sent to slaughter, down 3,600 from the previous week, but 3,500, or 6.3 percent, above that week a year ago.

High beef prices are prompting dairy producers to take a second look at their low-production cows, says the DDR's Sarina Sharp.

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