Higher Slaughter Rate Seen in U.S. Dairy Herd; Margins Drop in July
Published: Friday, August 20, 2021
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
In the week ending July 31, 58,500 dairy cows were sent to slaughter, up 900 from the previous week, and 6,500, or 12.5 percent, above that week a year ago.
StoneX stated in its Aug. 6 Early Morning Update that dairy cow slaughter is continuing to pick up and hold a premium to year-ago levels but is tracking with seasonal trends. Cull prices were holding above $140 per hundredweight.
"Contraction in the dairy herd, seasonally declining milk yields and increasing fluid milk demand from schools returning to session shows opportunity for Class III contracts to find renewed strength in prices," suggests StoneX.
Fluid milk sales continued to suffer in June, down 6.7 percent from June 2020, after falling 4.3 percent in May. Conventional sales were down 6.9 percent and organic sales were off 3.7 percent.
Dairy margins deteriorated in the second half of July as a sharp drop in milk prices more than offset feed price trends which were generally flat the past couple weeks, according to the latest Margin Watch from Chicago-based Commodity and Ingredient Hedging LLC.
"A bearish Milk Production report set the tone for milk prices as supply continues to increase faster than demand," the MW stated. The MW also cited data from the June Cold Storage report, and pointed out that the cheese drawdown from May, although less than a year ago, was four times the five-year average decline between May and June.
"This suggests that recovering foodservice and restaurant demand from relaxed COVID-19 restrictions recently may be helping to keep cheese inventories in check," the MW stated. "By contrast butter stocks increased. Butter supplies typically decline from May to June which would indicate weaker demand."
"Feed prices for corn and soybean meal have traded in narrow ranges as market participants await further direction from crop conditions and yield prospects."
Most CME dairy prices strengthened the second week of August but saw some gyrations. The Cheddar blocks closed "Friday the 13th" at $1.8125 per pound, up 17.75 cents on the week, highest since May 12, but .75 cents below a year ago.
The barrels climbed to $1.4275 last Tuesday, backed down to $1.41 last Wednesday, but closed last Friday at $1.45, up 14 cents on the week, highest in three weeks, but a nickel below a year ago. The spread widened to 37 cents last Wednesday but fell to 36.25 cents last Friday. There were nine sales of block and 17 of barrel on the week.
Midwest cheesemakers tell Dairy Market News that spot milk has tightened notably as milk is diverted into bottling for school reopening. Loads are also moving out of the region to the Southeast. Cheese sales are strong in the region and curd producers say outdoor events, such as fairs, have locked them up at least into September. Barrel producers say customer interest remains intact despite the lower market but availability has grown in recent months. Cheese plant managers report an uptick in nonfat dry milk fortification due to the lighter milk availability. The COVID Delta variant is also a growing concern among producers and their customers, says DMN.
Western cheese demand remains steady at both retail and food service. Export demand is also strong, with market prices favorable to international markets, especially Asian markets. The block barrels price gap is blamed on the greater availability of barrels as some producers have focused on barrel production due to a shortage of available block packaging. Producers are running busy schedules in the region, despite the seasonal decline in milk production.
CME butter hit $1.68 per pound last Monday but closed last Friday at $1.67, up 2.25 cents on the week and 18.50 cents above a year ago, with 13 sales on the week.
The USDA announced a $10 million solicitation for butter under Section 32. That would put 2021 purchases at just over $77 million. Meanwhile, DMN reports that cream offers are becoming fewer. Multiples are near their peak regarding fiscal sensibility for making butter and extra cream is no longer as available from the West. Butter sales are generally steady.
Plant managers are beginning to compare sales with those of 2019, as last year's figures are skewed due to the pandemic. Some relay that sales are slightly lower than 2019. Retail interest is slowly increasing but market tones are uncertain and the COVID variant has producers and their customers concerned, particularly in the food service sector.
Western cream availability is tightening though demand is lower from ice cream production. Butter output varies from steady to seasonally lower but healthy inventories are available. Retail sales are picking up and food service orders are level but, as COVID concerns climb and areas shift masking back to mandates, contacts fear it may have a deleterious effect on food service demand, says DMN.
Grade A nonfat dry milk closed last Friday at $1.27 per pound, up 1.50 cents on the week and 30.50 cents above a year ago. Eleven sales were reported on the week.
StoneX said, "Mexico is helping keep export volume alive and U.S. prices continue to offer a favorable advantage in export sales. Logistical issues continue to put a damper on domestic demand as stocks back up slightly."
Dry whey closed the week 2.25 cents lower, at 51.75 cents per pound, 19.25 cents above a year ago, on three sales for the week at the CME.
U.S. butter prices would likely be a lot lower if it weren't for Canada. The Aug. 10 Daily Dairy Report said, "In the first half of the year, Canada imported 25.3 million pounds of butter, 32 percent more than in 2020 and 13 percent more than 2017's record volumes. Through June, Canada has also imported nearly 8 million pounds of cream, a sevenfold increase from last year and 31 percent more than in 2017."
The DDR adds that since 2019, U.S. butter and cream exports north of the border have easily eclipsed shipments to the south. So far this year, Canada has accounted for 83 percent of U.S. cream exports and nearly 30 percent of butter shipments.
In politics, the International Dairy Foods Assn. reported that the European Commission will extend the implementation deadline for its new health certificate requirements to Jan. 15, 2022, "backing off threats to shut down U.S. dairy exports to EU member states as well as transshipments of U.S. dairy products through the European Union."
Lastly, the National Milk Producers Federation and U.S. Dairy Export Council gave a thumbs up to bipartisan legislation introduced by Reps. John Garamendi (D-Calif.) and Dusty Johnson (R-S.D.), the Ocean Shipping Reform Act.
"The dairy industry, as well as other exporters, has faced substantially increased costs to ship their goods overseas, challenges obtaining containers and other equipment to deliver their goods to ports and beyond, and often incur booking cancellations or delays for vessel space," according to a joint press release.
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