Exports Badly Needed to Make Up for Decline in Restaurant Sales
Published: Friday, December 18, 2020
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
U.S. dairy exports reached a four-month high of 17 percent of U.S. milk production in October, according to the Dec. 4 Dairy and Food Market Analyst, up from 15.3 percent of milk solids exported in September and 14.9 percent one year earlier.
Topping the gains was dry whey, which totaled 53 million pounds, up 145 percent from October 2019. China took just over 29 million pounds of that total, up from just 2.6 million a year ago. HighGround Dairy reported that the U.S. also exported an all-time high amount of whey to Vietnam.
"October was an exceptional month for nonfat dry milk/skim milk powder," says HGD, totaling 169.3 million pounds, second-highest ever, up 8.6 percent from a year ago. But "it was not a result of any gains derived from the number one U.S. customer, Mexico," says HGD. "Instead, gains were reported to Southeast Asia for the 14th consecutive month."
Mexico may soon be back up to par, as the DFMA reports that the Peso has strengthened against the dollar, giving Mexican buyers more purchasing power.
U.S. fat exports reached the highest levels since August 2018, according to HGD, and "while Canada remained the top destination, the growth was derived from the Middle East, most notably Bahrain."
Butter exports only totaled 5.1 million pounds, but that's up 30.7 percent from a year ago, while cheese exports totaled 54.4 million, down 12.8 percent from a year ago.
The Dec. 7 Daily Dairy Report says South Korea's demand for both cheese and butter is building, and the U.S. dairy industry has a solid foothold in the Korean market, according to two recent Global Agricultural Information Network reports. Since 2000, the country's cheese imports have more than tripled, and 80 percent of South Korea's cheese needs are imported. The United States supplies nearly half, or 47 percent, of those needs, according to the DDR.
Exports will be badly needed in a troubled domestic market as more restaurants are shutting down again. The National Restaurant Assn. reports that since the COVID-19 pandemic began in March, 17 percent, or about 110,000 restaurants, have closed either permanently or long-term, and 10,000 have closed in the last three months alone. That has huge ramifications for the crop and livestock industries, including dairy, and that with the spring flush not too far away.
But the thinking is changing on Capitol Hill despite the current political logjam, according to StoneX Dairy Group broker Dave Kurzawski. Speaking in the Dec. 14 "Dairy Radio Now" broadcast, Kurzawski said there are increasing expectations that more government aid will be forthcoming, including renewed Food Box programs in 2021 because there are a lot of people unemployed.
"The U.S. government is going to look at this, much the same way they looked at it back in March and April," he said, "and they're going to say, we have to pull out the stops here and do something."
That will surely be needed for dairy, according to Kurzawski, because we already have spring flush like milk production in December in certain parts of the country.
Meanwhile, the USDA announced that it will purchase $110 million worth of butter and fluid milk in 2021, using Section 32 funds. $50 million will be spent on butter and $60 million for fluid milk.
The DFMA says, "This purchase could remove nearly half of the butter stock overhang and, at $2 per pound, the purchase works out to 25 million pounds of butter or about 4.5 days worth of U.S. consumption."
CME Cheddar block cheese climbed to $1.6425 per pound last Tuesday but closed last Friday at $1.6175, still up 3.25 cents on the week and 18 cents below a year ago when it fell 17 cents. The barrels saw a $1.4425 per pound close, 4.25 cents higher on the week, 25.25 cents below a year ago when they plunged 53 cents, and 17.5 cents below the blocks. Twenty-six cars of block were sold and 25 of barrel.
Milk availability is nearing the overwhelming mark in the Midwest, according to Dairy Market News. Cheese demand is mixed. Barrel producers say broker interest is intermittent. Curd makers are seeing notable slowdowns with more COVID restaurant/bar restrictions. Pizza cheese and specialty cheesemakers have seen steady to returning sales. Plant COVID staffing concerns remain.
Western cheese output remains active, as there are no issues getting milk, but processors are closely watching inventory. Demand from the pizza sector is strong. Retail and some international buyers are engaging more as prices have relaxed. Both are good signs for cheese, but food service demand is still a concern. With many sit-down restaurants restricted in capacity and schools in a mixture of in-person and virtual learning, institutional use is "less than normal." Fast food and carryout service are using healthy amounts of cheese, says DMN, but that does not make up the difference.
After jumping 12 cents the previous week, cash butter climbed to $1.5350 last Tuesday, highest since Sept. 22, but closed last Friday at $1.48, unchanged on the week and 48 cents below a year ago. Forty-nine cars traded hands on the week.
Central butter makers say cream is widely available and many warn that cream stocks could become overwhelming in upcoming weeks. COVID-19 is still affecting plant workers and staff, but absences were subsiding. Retail butter sales remain robust, but food service continues to remain under a "bearish raincloud, with more questions than answers regarding upcoming food service demand."
The abundance of milk is causing moderate bumps in Western cream for butter making, according to DMN. Ice cream demand has narrowed and is expected to coast through the remainder of the year, likely increasing surplus cream. Retail print butter sales are strong as stores restock, but sources note there is a generous amount of butter in inventory. Export demand is stable and the butter market undertone is "conditionally bullish in the near term," according to DMN.
Grade A nonfat dry milk closed last Friday at $1.1275 per pound last Monday, down 2.25 cents on the week and 13.75 cents below a year ago, with eight sales reported.
Dry whey hit 47 cents per pound last Thursday, highest since Jan. 18, 2019, but it closed last Friday at 46.75 cents per pound, a half-cent higher on the week and 13 cents above a year ago, on two sales for the week.
The Dec. 9 Daily Dairy Reports says "China has been scrambling to procure enough whey to feed its growing pig herd, which the country has been racing to repopulate after the herd was decimated by African swine flu. At the same time, a pull for dry whey from both animal and human applications in the United States has amplified pressure on the market."
Thanksgiving Week saw 45,200 dairy cows sent to slaughter, down 13,500 from the previous week, and 3,700, or 7.6 percent, below a year ago. The four-week rolling average was 55,100 head, down 4,225, or 7.1 percent, from 2019.
In politics, Joe Biden has picked Tom Vilsack as his secretary of agriculture. The former governor of Iowa occupied that post in the Obama administration and is currently chief executive officer of the U.S. Dairy Export Council.
The U.S. Trade Representative announced last week that it will initiate official consultations with Canada to examine the administration of its dairy Tariff Rate Quota (TRQ) obligations under the U.S. Mexico Canadian trade agreement.
The announcement was praised in a joint press release by the USDEC and National Milk. "The two organizations, with bipartisan backing from Congress, have long raised the alarm about the need to ensure the USMCA is fully enforced, due to Canada's history of undermining its trade commitments."
The press release stated that the "USMCA was designed to improve trade with Canada, while modifying some of Canada's trade-distorting dairy policies. We knew from day one that enforcement would be key to bringing the intended benefits home to America's dairy industry," according to NMPF and the USDEC.
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