Higher Corn, Soybeans Prices Could Slow Dairy Herd Expansion
Published: Friday, April 23, 2021
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
As I reported last week, the Agriculture Department raised its estimate on 2021 milk production in its latest World Agricultural Supply and Demand Estimates (WASDE) report issued April 9, based "primarily on increased cow numbers." Projected Class III and Class IV milk prices were also raised.
The 2020-21 U.S. corn outlook was for greater feed and residual use, increased corn used for ethanol production, larger exports and lower ending stocks.
The feed and residual use projection was raised 50 million bushels to 5.7 billion, based on corn stocks reported as of March 1, which indicated disappearance during the December to February quarter rose about 6 percent relative to a year ago.
Corn used to produce ethanol was raised 25 million bushels based on the most recent data from the Grain Crushings and Co-Products Production report, and the pace of weekly ethanol production in March as indicated by Energy Information Administration data.
Corn exports were increased 75 million bushels, based on export inspection data for March that was the largest monthly total on record, surpassing the previous high set in November 1989. The season-average farm price was unchanged at $4.30 per bushel, as reported prices through February indicate much of the crop was marketed at lower prices, says the WASDE.
U.S. soybean supply and use changes included higher exports, lower crush, residual use and seed use. Soybean exports were raised mainly reflecting record exports through the first half of the marketing year. Soybean crush was reduced on a lower domestic soybean meal disappearance forecast and a higher projected extraction rate.
Seed use was reduced in line with plantings for the 2021-22 crop indicated in the March 31 Prospective Plantings report. Residual use was reduced based on indications in the March 31 Grain Stocks report. Soybean ending stocks were projected at 120 million bushels, unchanged from last month's forecast.
The season-average soybean price was forecast at $11.25 per bushel, up 10 cents. The soybean oil price was projected at 45 cents per pound, up 4 cents, reflecting sharply higher prices in March. Higher soybean oil prices are expected to continue in coming months, warned the USDA, as additional renewable fuel capacity comes online. Soybean meal prices were unchanged at $400 per short ton.
The Agriculture Department's latest Crop Progress report shows that 4 percent of the U.S. corn crop was in the ground, as of the week ending April 11. That's 1 percent ahead of a year ago as well as the latest five-year average. The data are from 18 states that planted 92 percent of 2020 corn acreage.
In the week ending April 3, 60,000 dairy cows were sent to slaughter, down 5,900 from the previous week and 4,400, or 6.8 percent, less than that week a year ago.
The USDA's latest Livestock, Dairy, and Poultry Outlook, issued April 15, mirrored milk price and production projections in the April 9 WASDE. The outlook stated, however. that, based on information from the most recent Milk Production report, the U.S. milking herd is projected to average 9.46 million head in 2021, 15,000 higher than last month's forecast. The number of milk cows was forecast to remain steady at 9.46 million for each quarter of the year.
"Relatively low milk-feed ratios in the first part of the year signal limited opportunities for expansion of the milking herd in 2021," the outlook stated. "Milk production usually responds to changes in input prices with a lag of several months. Milk per cow is projected to average 24,070 pounds per head year-round, 5 pounds more than the previous forecast."
Drought in the West is sure to have an impact, particularly in California. The April 15 Daily Dairy Report warned, "State and federal officials have already warned farmers to expect water shortages this summer, and dairies in particularly parched areas of the state are already trucking in water and fallowing cropland."
Looking at U.S. dairy demand, February was not only a good month for dairy exports, the citizenry chewed through a lot of dairy products here at home.
Total cheese disappearance was up from a year ago for the second consecutive month and marked a record start to the year, according to analyst by HighGround Dairy (HGD). "February demand was virtually identical versus the prior month; domestic disappearance stronger yet again on a year over year basis."
Butter disappearance topped that of a year ago for the fourth consecutive month and marked the strongest year over year gain in at least five years.
Total nonfat dry milk disappearance increased for the fourth consecutive month, reports HGD, "led by exports that surged to the highest monthly volume on record even as domestic disappearance crashed lower."
Checking prices, CME block Cheddar cheese climbed to $1.86 per pound on April 12, highest since Jan. 14, but word of the end of the Food Box program sent waves into the markets. They fell to $1.74 last Thursday, only to rally to a Friday close of $1.78, down a nickel on the week but 76.75 cents above a year ago when they hit bottom at $1.0125 per pound.
The barrels got to $1.7650 last Monday, fell to $1.6575 last Thursday, but closed last Friday at $1.69, a quarter-cent lower on the week, 68.50 cents above a year ago, and 9 cents below the blocks. Sales totaled 18 cars of block and 30 of barrel.
Midwest cheese output is busier than it was this time last month, according to Dairy Market News. A number of producers who were running four- and five-day workweeks have added a day to their schedules in light of stronger demand and strengthening market prices. Some have remained active throughout most of the year and still report being behind on orders, says DMN. But, spot milk is tightening a bit though prices reported mid-week remained below Class III. With spring flush underway, contacts are unsure what to expect as warmer weather will assuredly bring lower overall milk output.
Western food service cheese demand has continued to grow, while retail cheese demand held steady. Some contacts reported improvements at ports with getting vessel space and shipping containers, making it possible to move exports more readily. DMN said, "The announcement of the cancellation of the Food Box program is causing manufacturers to closely monitor cheese markets, watching cheese futures for any signal of price direction and subsequent demand. With the uncertainty of what government purchases may look like, the market tone within cheese markets is more unsettled than what it had been a few weeks ago."
Spot butter made it to $1.9050 per pound on April 12, highest since June 10, 2020, but finished last Friday at $1.85, down 3 cents on the week though 66.25 cents above a year ago. Thirteen carloads found new homes on the week.
The StoneX Dairy Group stated in its April 12 Early Morning Update, "We lean bullish for butter. Longer-term strength is debatable, but for now we won't concern ourselves with fourth-quarter pricing. Re-opening demand coupled with strong global demand continues to drive market dynamics."
DMN reports that churning remains busy for now, but some butter producers suggest the time for active churning may be limited. Cream availability was notably tighter this week and has been tightening the past month. Ice cream producers are ramping up production ahead of their busy season and is keeping cream from the churns. Butter sales are steady to robust, particularly in food service, says DMN.
Western cream is still plentiful. While some cream is flowing eastward, limited tanker availability is a barrier for moving heavier volumes. Butter production is seasonally active. Inventories are stable. Week after week, food service demand continues to swell; some, but not all, market participants feel strongly that rebounding food service orders are the main force behind higher butter prices. Retail butter demand is stable to strong. Export demand is steady and some industry contacts report that port congestion issues seem to be improving.
Grade A nonfat dry milk closed last Friday at $1.2150 per pound, up a penny on the week, highest since Feb. 12, 2020, and 36 cents above a year ago, with 27 sales reported on the week.
CME dry whey climbed back to its record 66 cents per pound perch last Tuesday but added 1.50 cents last Friday and set a new CME record of 67.50 cents per pound, up 4.50 cents on the week and 28.50 cents above a year ago, on five sales.
Food Box Program to End
The Biden administration announced that it will end the Farmers to Families Food Box program at the end of May, but it appears the Dairy Donation program will remain a part of government assistance due to the COVID pandemic.
Speaking in the April 19 Dairy Radio Now broadcast, HGD's Lucas Fuess said several billion dollars were spent on the program since the beginning of the pandemic, but the aid will go in a different direction in terms of hunger initiatives, such as expansion of Food Stamp benefits and increasing food purchases through existing government food distribution programs.
Fuess charged that the Food Box program caused extreme volatility in cheese prices throughout most of 2020 as new rounds of the program were announced, and cheese prices skyrocketed to fulfill demand. Lessons have been learned by vendors, he said, and the program's termination was expected.
Initial details were released of the Dairy Donation program, a program funded in the second stimulus bill signed by President Trump in December 2020. Fuess said there are still questions that need answers, such as the reimbursement rate. However, "we do know that donated dairy products will be eligible for retroactive reimbursement back to December as USDA attempts to encourage donations over the next several weeks during the peak spring flush period."
StoneX director of dairy market insight, Nate Donnay wrote in his April 15 Udder Intelligence report that "it is not clear if the USDA plans to keep dairy purchases going through some other program or not." He suggests that Uncle Sam would need to buy an additional $550 million worth of dairy products to keep the market in balance this year.
Meanwhile, more than 400 dairy farmers signed on to a letter asking the National Milk Producers Federation and International Dairy Foods Assn. to work together to "fix the milk pricing debacle."
A press release from the Wisconsin-based American Dairy Coalition reported that the letter called on the two organizations to "work with them to fix the irreparable financial harm producers have suffered and stop the bleeding the current Federal Milk Pricing Formula has caused." The ADC said, "This group of farmers is working on suitable and fair solutions and is asking for a meeting with NMPF and IDFA leadership."
NMPF proclaimed that April 22 "Earth Day" is a "natural opportunity to highlight dairy's commitment to environmental stewardship. NMPF's Nicole Ayache, senior director for sustainability initiatives and leader of Environmental Stewardship and Workforce Development for the National Dairy FARM (Farmers Assuring Responsible Management) Program, stated, "Caring for our natural resources is every day for a dairy farmer. There's a lot of inherent dedication to taking care of the environment, because it's how you live your life, and where you live your life."
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