USDA to Infuse School Food Box Program with Another $1 Billion
Published: Friday, September 25, 2020
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Week-ly."
More money is on the way. President Trump, speaking in Wisconsin last Thursday announced an additional $14 billion for "agricultural producers facing market disruptions and associated costs because of COVID-19." The package includes up to $1 billion for the Farmers to Families Food Box program, which has bene-fited the dairy industry and likely propelled last Friday's block cheese and butter skyward (details ahead). The aid will likely keep cheese prices strong and, in turn, milk prices, but will no doubt result in an oversupplied milk mar-ket.
Strong prices have already incentivized U.S. dairy farmers to fill their bulk tanks. Preliminary data in the August Milk Production report showed output at 18.6 billion pounds, up a bearish 1.8 percent from August 2019. Out-put in the top 24 producing states totaled 17.8 billion pounds, up 1.9 percent from 2019. Revisions added 90 million pounds to the original July 50-state total, now put at 18.735 billion, up 2 percent from July 2019, instead of the originally reported 1.5 percent increase.
August cow numbers totaled 9.36 million head in the 50 states, unchanged from July but 42,000 above a year ago. The July herd was revised up 8,000 head. Output per cow averaged 1,987 pounds, up 27 pounds from a year ago, or 1.4 percent.
Heat, fires and smoke didn't appear to affect Cali-fornia's August output, which was up 1.8 percent from a year ago, thanks to a 40-pound gain per cow offsetting 4,000 fewer cows milked. Wisconsin was off .3 percent on 10,000 fewer cows, although output per cow was up 10 pounds. Idaho was up 3.4 percent in August on 17,000 more cows and 15 pounds more per cow. Michigan was up 1.6 percent, on a 30-pound gain per cow and 1,000 more cows.
Dairy cow slaughter totaled 55,200 head in the week ending Sept. 5, up 1,100 from the previous week, but 2,100 head, or 3.7 percent, below a year ago.
Dairy farm margins were flat to slightly weaker over the first half of September, as rising feed costs weakened projected profitability with milk prices trending sideways, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC. The MW stated, "Milk prices continue stabilizing with nearby Class III futures at ele-vated levels with expectations that the extension of the Farmers to Families Food Box program will maintain domestic demand through year-end."
The MW warned that, with block Cheddar prices back above $2 per pound, "The U.S. is no longer competitive on the global export market at a time when milk production looks to increase heading into autumn. Demand for and strength in cheese continues to support Class III values relative to Class IV, which will likely maintain negative PPD's for domestic producers in the months ahead."
"The Big 10's decision to join other NCAA conferences in resuming their college football schedule this fall will be sup-portive for demand, although the market remains compromised by demand from foodservice outlets," the MW stated.
"A survey released by the National Restaurant Assn., says almost 100,000 restaurants, or about one in every six, have all but closed permanently since March. In addition, only 40 percent believe they will stay in business another six months without additional government assistance, which appears in doubt given the stalemate between congressional negotiators to work out a bipartisan compromise between the House and Senate. The loss of foodservice purchases has weighed disproportionately on demand for butter and cream, helping to explain some of the discrepancy in class pricing and the divergence in value among dairy products," the MW conclud-ed.
Speaking of demand, July cheese disappearance topped that of a year ago for the third consecutive month, according to HighGround Dairy's Lucas Fuess. Speaking in the Sept. 21 "Dairy Radio Now" broadcast, Fuess credited consumers flocking to grocery stores, rising food service demand, and the govern-ment's Food Box program.
Butter disappearance was down from a year ago, he said, "Contrary to butter trends since the beginning of the pandemic." He blamed shifts in consumer behavior and warned there's plenty of butter in storage and butter output remains strong, so he does not see any strong upticks in price through year's end.
Nonfat dry milk has been range-bound in price, he said, though exports have been very strong, driven primarily by sales to Southeast Asia while exports to Mexico remain subdued. He said there was a big collapse in domestic demand, driven by consumer trends and the higher availability of more reasonably priced raw milk, instead of powder, for fortifying cheese vats.
Looking globally, skim milk powder led, with cheese right behind, in driving last week's Global Dairy Trade auction's (GDT) weighted average up 3.6 per-cent, ending four consecutive sessions of decline.
Skim milk powder was up 8.4 percent, following a 1.8 per-cent gain on Sept. 1. GDT Cheddar was up 7.2 percent, after slipping .4 percent, and whole milk powder was up 3.2 percent, after losing 2 percent. Anhydrous milkfat was up 2 percent, after slipping .5 percent last time.
The declines were led by lactose, down 2.7 percent, after inching up .8 percent in the last event, and butter was down 1.4 percent, after a 1.2 percent slide last time.
StoneX Group equated the GDT 80 percent butterfat butter price to $1.4525 per pound, down 2.3 cents from the last event. CME butter closed last Friday at $1.5975. GDT Cheddar cheese equated to $1.6667 per pound, up 11.2 cents, but compares to last Friday's CME block Cheddar at $2.6275. GDT skim milk powder averaged $1.3104 per pound, up from $1.2080, and whole milk powder averaged $1.3540, up from $1.3080. CME Grade A nonfat dry milk closed last Friday at $1.07.
Checking prices, cash CME block Ched-dar gained a nickel last Monday, 11.25 cents last Wednesday, 7.25 cents last Thursday, and pole vaulted 22.75 cents last Friday on one trade, to close at $2.6275 per pound, up 46.25 cents on the week and 57.75 cents above a year ago. The blocks have gained 97.75 cents in four weeks.
The barrels finished at $1.6359, up 4 cents but 2 cents below a year ago. They set a new record spread last Monday, Wednesday and Friday, expanding it to 99.25 cents below the blocks. Nine cars of block sold on the week and 11 of barrel.
FC Stone speculated in their Sept. 15 "Early Morning Update" that a new cheese plant coming on line in late October in St. John's, Mich. may help bal-ance or normalize these types of spreads.
The Sept. 14 Daily Dairy reports says the plant will produce 800,000 pounds of Cheddar per day by next spring and will be "a significant increase in the nation's potential Ched-dar supply." It adds, "While more cheese is likely to weigh on national average Class III values, the facility will likely boost dairy producers' milk checks in the region, where there will be less discounted milk, and a greater share of producers' milk will be based on the Class III price. The new plant will also leave less skim milk for driers and less cream for other uses, which likely will lift Class IV prices at the margins," according to the DDR.
Dairy Market News reports, "After weeks and even months of cheese plants running very active schedules, some are drawing down production for various reasons." Some are scheduling days off for mainte-nance, others are simply cutting back to meet lighter, albeit still healthy, demand. Specialty cheesemakers are prepar-ing for fall demand. Some barrel producers suggest they have loads in inventory they could move, but inventory levels are not a current concern.
Cheese is in abundance in the West, according to DMN. However, supplies are "manageable." Barrels are more prevalent; thus, block prices are higher. Retail sales are steady, but food service demand only increased slightly. Contacts say takeout orders remain strong, particularly for piz-za.
Butter closed the week at $1.5975 per pound, 11.75 cents higher but 51.75 cents below a year ago. There were 69 sales reported, a whopping 46 last Tuesday alone, beating the previous single day record of 59 on Nov. 3, 2004, but that was when butter only traded three times per week.
DMN reports that retail butter orders are starting to bounce back, according to regional butter makers. Fall demand increases have begun, even as retail orders have remained above previous years' figures for most weeks since the onset of COVID-19. Food service has edged up week to week, as well, but still remains light compared to previous years. Market tones remain somewhat steady but current prices are well below previous years and enticing heavier buying for fall.
A few Western butter facilities prepared for evacuation but didn't need to. However, smoke and ash from the fires kept patrons away from outdoor eating at restaurants, further quelling that market outlet. Retail butter sales saw a slight slump last week due to people staying home to avoid the poor air quality.
Air quality was expected to improve with late week rain and cooler temperatures. However, DMN said, "Some rural towns are destroyed and thousands of residents displaced. Disruptions and challenges may be the new normal until conditions improve within the re-gion."
Grade A nonfat dry milk climbed to a close of $1.07 last Friday, up 3 cents on the week but 1.25 cents below a year ago, on 21 sales reported for the week.
Dry whey finished at 35.50 cents per pound, un-changed on the week but 4.25 cents below a year ago, with five sales reported at the CME.
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