Dairy Margins Eroding Due to Sharply Higher Corn, Bean Prices
Published: Friday, May 14, 2021
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Dairy margins are still slipping. A small rise in the All-Milk price could not offset sharply rising feed costs. USDA's Ag Prices report shows the March milk feed ratio at 1.75, down from 1.78 in February, and 2.24 in March 2020.
The index is based on the current milk price in relationship to feed prices for a dairy ration of 51 percent corn, 8 percent soybeans and 41 percent alfalfa hay. One pound of milk could only purchase 1.75 pounds of dairy feed of that blend in March.
The U.S. All-Milk price averaged $17.40 per hundredweight, up 30 cents from February but 50 cents below the March 2020 average.
The national average corn price hit $4.89 per bushel, up 14 cents per bushel from February, which followed a 51-cent rise the month before, and was priced $1.21 per bushel above March 2020.
Soybeans averaged $13.20 per bushel, up 50 cents from February, which followed a $1.80 rise from January. The March soybean price was priced $4.73 per bushel above March 2020.
Alfalfa hay averaged $181 per ton, up $6 from February and $9 above a year ago.
Looking at the cow side of the ledger, the March cull price for beef and dairy combined averaged $67.10 per hundredweight, up $1.50 from February, 40 cents below March 2020, and $4.50 below the 2011 base average of $71.60 per hundredweight.
Meanwhile, the April 30 Daily Dairy Report says USDA's estimate of the 2020 corn harvest may have been overstated. That would reduce end-of-season stocks, according to the DDR. "May corn futures began the month at an already lofty $5.64 per bushel and finished the day at $7.40, a nearly eight-year high."
"Formidable exports have also helped to set the market ablaze," the DDR stated. "USDA's monthly balance sheets called for China to import 24 million metric tons (MMT) of corn this season, shattering the record of 7.6 MMT."
Speaking of exports, U.S. dairy products reached an all-time high in March. The gains were driven by sales to China and Mexico, according to HighGround Dairy, but were also helped by stronger trade with Southeast Asia.
"Most impressive," said HGD, "was the 52.7 million pounds of additional dairy products moving to China in the month. It was the strongest March on record into China, with more than half of the shipments in the form of whey products."
Dry whey exports totaled 52.7 million pounds, up 37.7 percent from March 2020, and up 32.8 percent year to date from 2020.
Nonfat dry milk exports climbed to a new record monthly high, despite the shipping challenges that existed. Nonfat/skim milk powder totaled 190.8 million pounds, up 38.8 percent, with YTD up 20.3 percent. Shipments to China grew by 12.3 million pounds and marked the highest monthly volume to China since May 2015, according to HGD, though Mexico remained the top destination and up 29 percent.
Cheese exports totaled 81.4 million pounds, up 10.7 percent, and the strongest March on record with volumes reaching nine-month highs. HGD says gains were recorded to Mexico for the first time since last August and cheese exports to Japan were the strongest since June.
Butter shipments totaled 9.2 million pounds, up 170.7 percent, and up 124 percent YTD, highest since June 2014. Demand was most notable to Saudi Arabia, says HGD.
Dairy fat weighed heavily in this week's Global Dairy Trade auction where the weighted average was down .7 percent, following the .1 percent slip on April 20. Traders brought 48.5 million pounds of product to market, down from 55.2 million in the last event, and the smallest amount since June 16, 2020.
Butter led the losses, plunging 12.1 percent, after slipping .6 percent in the last event. Anhydrous milkfat was down 4.2 percent, after falling 3.3 percent. Cheddar was down 4.5 percent, after inching 1.2 percent higher, and lactose was off 2 percent, following a 3.4 percent loss.
Buttermilk powder was up 14.4 percent. It did not trade last time. Skim milk powder was up 2 percent and whole milk powder inched up .7 percent, after a .4 percent rise last time.
StoneX says the GDT 80 percent butterfat butter price equates to $2.2282 per pound, down 31 cents, and compares to CME butter which closed last Friday at $1.77. GDT Cheddar, at $1.9388, was down 7.3 cents, and compares to last Friday's CME block Cheddar at $1.7475. GDT skim milk powder averaged $1.5572 per pound, up from $1.5265, and whole milk powder averaged $1.8664 per pound, up from $1.8583. CME Grade A nonfat dry milk closed last Friday at $1.3225 per pound.
Cash cheese prices start May heading lower. The Cheddar blocks crept to $1.8025 per pound last Wednesday but closed last Friday at $1.7475, down 5.25 cents on the week, though 44.25 cents above a year ago. The barrels got to $1.8450 last Wednesday, highest since Nov. 12, 2020, but closed at $1.7275, 10.75 cents lower on the week, 45.75 cents above a year ago, and a more typical 2 cents below the blocks. Nineteen cars of block sold on the week at the CME and 12 of barrel.
Midwest cheesemakers tell Dairy Market news that spot milk offers were lighter, but midweek prices were mostly at sub-class levels. Cheese output is busy, as flush season is near its peak and cheesemakers are taking advantage of available spot milk discounts before milk yields begin to decline with warming weather. Generally, orders are steady. Food service acquisitions are beginning to level off, but pizza cheese and process producers continue to say loads are moving. Cheese producers are giving mixed notes regarding cheese availability. Some say they are nearly oversold, while others have slowly growing inventories.
Western retail cheese demand was slightly lighter this week and food service demand has been leveling. Inventories of cheese remain mixed; blocks are available but barrels are noted as somewhat firm though some contacts suggest not as tight as in recent weeks. Cheese production continues to be strong, reflecting the abundance of milk in the region. There is some consternation regarding the barrel price continuing to hover over the block price. However, cheese producers report market prices are in a somewhat healthy position. An increase in interest from Chinese importers aided in some contacts viewing the market tones with a little more bullishness, as well, says DMN.
Nate Donnay, StoneX director of Dairy Market Insight, reminds us in his May 6 "Udder Intelligence" that "the Food Box program wraps up this month and the amount of U.S. milk moving through government programs will likely drop from 1.7 percent in May to .5 percent in June." Those purchases will have to be made elsewhere.
Butter fell to $1.7350 per pound last Wednesday, lowest since March 24, but rallied to close last Friday at $1.77, up 1.75 cents on the week and 48 cents above a year ago. Sixteen carloads found new homes on the week.
Central butter makers continue to report lackluster retail sales. Food service orders have picked up, but have steadied in recent weeks as pipelines filled up. Cream is tightening, but not tight, says DMN, and availability is reportedly more limited, particularly for churning, as ice cream production seasonally lifts.
Grade A nonfat dry milk hit $1.3575 per pound last Wednesday, highest since Oct. 17, 2014, but slipped to a Friday close at $1.3235, down .25 cents on the week but 49.75 cents above a year ago, with 28 sales reported for the week.
Dry whey closed the week 3.25 cents lower, at 62.75 cents per pound, still 23 cents above a year ago, with two sales reported on the week at the CME.
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