Ongoing Freight Issues Likely to Create Unprecedented Congestion
Published: Friday, September 3, 2021
The following is from Lee Mielke, author of a dairy market column known as "Mielke Market Weekly."
Either July butter consumption reversed June's 3.5-percent drop, or butter output took a dip because July 31 butter stocks were down from the previous month, the first time since November 2020, though they remained well above a year ago. That's, according to the Agriculture Department's latest Cold Storage report which showed the butter inventory at 397.4 million pounds, down 17.2 million pounds, or 4.2 percent, from June, but still a hefty 25.9 million pounds, or 7 percent, above July 2020.
One month does not make a trend but it is a positive. You'll recall that June butter output was up 7.8 percent from a year ago. We'll get a look at July output in the Sept. 3 Dairy Products report, which will give us another piece to the puzzle.
American-type cheese stocks climbed to 818.2 million pounds, up 8.6 million, or 1.1 percent, from June, after dropping 18.3 million pounds last month. American stocks were up 32.7 million pounds, or 4.2 percent, from a year ago.
The "other" cheese stocks climbed to 608.5 million pounds, up 5.6 million pounds, or .9 percent, from June, but a generous 22.9 million, or 3.9 percent, above a year ago.
The total cheese inventory hit 1.449 billion pounds, up 14.3 million pounds, or 1 percent, from June, and 57.7 million pounds, or 4.1 percent, above a year ago.
Looking internationally, China remains the elephant in the room when it comes to world dairy trade as imports in every major category continued to break records in July. Whole milk powder imports totaled 162.3 million pounds, up 98.4 percent from July 2020, and up 34.9 percent year to date.
HighGround Dairy (HGD) points out that New Zealand continues to claim the vast majority of this volume, with imports up 86 percent from a year ago. China did turn to other nations for product as well, such as the EU and Uruguay.
Skim milk powder imports hit 101.7 million pounds, up 33.4 percent from a year ago, and up 44.8 percent YTD. SMP imports jumped to the highest monthly volume noted since January, according to HGD, and were the strongest imports of any July on record. The EU claimed the biggest market share at 33 percent, followed by New Zealand with the steepest year over year volume increase of any country. The U.S. got a piece of the action, at just over 15 million pounds, up 98 percent from 2020.
Cheese imports totaled 34.6 million pounds, down 2.6 percent, but YTD were up 44.6 percent.
Butter imports amounted to 20.5 million pounds, up 43.7 percent from a year ago and up 23.8 percent YTD.
China continues to bring in whey for its recovering hog herd. Imports totaled 143.5 million pounds, up 2.5 percent, with YTD up 36.8 percent. Most came from the U.S., up 40 percent from a year ago, according to HGD.
HGD said the EU remains the favored region to fulfill China's fluid milk and cream needs, at a 69 percent market share in July. Volume was up 21 percent YoY.
While we're in China, the Aug. 20 Dairy and Food Market Analyst reported: "Outside of Shanghai and Ningbo Chinese ports, congestion has risen to record levels following the shuttering of a key terminal there. In response, freight rates from Shanghai to Los Angeles increased by an additional 6 percent this week. Rates are up 242 percent compared to a year earlier. It's a matter of time before the backlog begins to inundate West Coast ports. We are having an increasing number of conversations about the anticipated severity of shipping issues by dairy exporters in fourth quarter 2021."
Editor Matt Gould talked about it in the Aug. 30 "Dairy Radio Now" broadcast, reporting that "freight issues" include trucking, warehousing and ship capacity and said that as we get closer to the holidays and demand for transportation increases, we will see record levels of congestion like we've never seen before.
He reported that there's a near-record number of container ships waiting to be unloaded at West Coast ports and a typhoon, among other issues in China at the end of May-early June, caused a backlog. Now the delta variant is causing a backlog at the third most important port in the world. That will make it harder to get our dairy products onto ships for export, according to Gould, as costs escalate and become price-negative for U.S. dairy.
Meanwhile, New Zealand saw a vibrant export picture in July with large gains in most products. Cheese exports totaled 80 million pounds, up 36.2 percent from July 2020, with year-to-date exports up 22.5 percent. Cheese shipments recorded the largest gain over prior year, said HGD, "with China's expanding palate for the delicious, protein-filled snack." Japan and Chili followed.
Butter totaled 40.2 million pounds, up 24.3 percent, and YTD up 9.2 percent.
Whole milk powder totaled 257.9 million pounds, up 10.1 percent, with YTD down 11.08 percent. Most went to China, according to HGD, followed by Bangladesh.
Skim milk powder exports, at 49.3 million, were up 7.8 percent, and YTD up 15.1 percent however exports to China were down, ending four months of solid gains, said HGD, but the downturn was offset by increased exports to Southeast Asia.
More good news for New Zealand as StoneX Dairy reports "Milk production is starting strong in its new season. While still early, this is a good start towards our projections of volume being up 1.5-2.5 percent over last season's strong numbers (assuming weather stays normal). Total production two months into the season is up 4.5 percent while milk solids production is up 4.7 percent over last season at this time."
Australian dairy farmers, meanwhile, have relatively good weather, reasonable input costs, and favorable opening milk prices as its season kicks into gear, according to Dairy Market News (DMN). Analysts expect Australian milk output may grow for the 2021-22 milk season. However, higher beef prices may slow the rebuild of dairy herds. Currently, farmers face the challenge of finding enough trained workers, according to DMN. June milk output fell 1.1 percent from a year ago.
Back home, dairy product prices the last full week of August were mixed. The Cheddar blocks climbed to a Friday close at $1.75 per pound, up 5.75 cents on the week but 7.75 cents below a year ago when they jumped almost 18 cents.
The barrels made it to $1.4875 last Wednesday, then retreated and closed last Friday at $1.4025, down 7.5 cents on the week, lowest since Aug. 9, 2.75 cents below a year ago, and an expanded 34.75 cents below the barrels. Five cars of block traded hands on the week at the CME and nine of barrel.
StoneX "Early Morning Update" suggests, "With football season nearly upon us there is some thought that perhaps the combination of falling milk supply along with heavier pull from schools and pizza season might give us some upside risk over the coming weeks."
Midwestern cheesemakers tell DMN that spot milk availability continues to tighten and the spot milk discounts of early August are no more. Cheesemakers are selling milk back into bottling, according to a number of contacts. Cheese sales are mixed in the region. Retail Cheddar producers, along with pizza restaurant cheesemakers, are turning down orders. Staffing shortages continue to be a prominent issue, according to multiple contacts, and the price gap between blocks and barrels remains an inhibitor to bullishness on markets.
Western cheese sales held steady in retail and food service markets this week. International demand also remains strong, with Asian sales continuing. But, a shortage of truck drivers and limited availability of shipping supplies are causing warehouse inventories to build. Export loads are facing delays due to port congestion so some contacts are looking to alternative freight methods, such as the use of rail cars to deliver loads and increase warehouse space. Cheese markets are steady to lower and cheese production is mixed, as some plants report labor shortages are causing them to run reduced schedules, said DMN.
Reacting to July Cold Storage data, CME butter shot up to $1.715 per pound last Tuesday, highest since July 21, but saw a Friday finish at $1.7075, 4.5 cents higher on the week and 26 cents above a year ago. Nineteen sales were reported.
Restaurant Business Surging
Butter producers say food service demand has picked up despite delta variation concerns and restaurant business is reportedly surging. Butter plants report there was a little more cream available from the West this week but the Labor Day holiday may be playing a part in that. Butter inventories are in good shape for fall demand. Market tones are exhibiting more bulls than bears, said DMN, but there remains a general sense of longer-term uncertainty.
Cream was tighter in the West this week as farm milk production continues to decrease. Butter production is mixed throughout the region. Inventories are well-stocked though much is committed. Traders remain uneasy about the impact of the delta variant and the restrictions it has induced. Food service demand remains level however and retail sales are steady and showing quiet growth.
Grade A nonfat dry milk closed last Friday at $1.2925 per pound, up 4.25 cents on the week, highest since June 14, and 27.25 cents above a year ago, on four sales.
"The strength in the NFDM market continues to come from the EU," said StoneX, "and the big question is what happens over the next few weeks post Labor Day as folks return from holiday?"
Dry whey fell to a Friday close of 50 cents per pound, three cents lower on the week but 16 cents above a year ago. There was only one sale on the week at the CME.
The USDA's latest Crop Progress report shows 60 percent of the U.S. corn crop was rated good to excellent as of the week ending Aug. 8, down 2 percent from the previous week, and 4 percent below a year ago. Fifty-six percent of the soybean crop had a good to excellent rating, down 1 percent from the previous week, and 13 percent below a year ago.
StoneX said, "China is set to make up well over half of U.S. soybean exports once again in 2020-21, which it hasn't done since 2016-17 (but did in that season and each of the eight prior). As per usual, China and 'unknown' countries are accounting for the majority of forward sales heading into '21-22."
In the week ending Aug. 14, 60,100 dairy cows were sent to slaughter, up 600 from the previous week, and 6,600, or 12.3 percent, above that week a year ago.
Dairy Donation Program Announced
In politics, the USDA announced a $400 million Dairy Donation Program (DDP) this week. The DDP, established by USDA's Agricultural Marketing Service (AMS) in accordance with the Consolidated Appropriations Act of 2021, "aims to facilitate timely dairy product donations while reducing food waste."
The establishment of DDP is part of the $6 billion of pandemic assistance announced in March and follows last week's announcement of $350 million Pandemic Market Volatility Assistance Program for dairy farmers on Aug. 19.
It is the second part of an over $2 billion comprehensive package to help the dairy industry recover from the pandemic and improve or establish programs to make it more resilient to future challenges.
"Under the DDP, eligible dairy organizations will partner with non-profit feeding organizations that distribute food to individuals and families in need," said the USDA. "Those partnerships may apply for and receive reimbursements to cover some expenses related to eligible dairy product donations."
The National Milk Producers Federation praised Agriculture Secretary Tom Vilsack for "working hard to provide needed support to dairy farmers. This includes implementing the congressionally-enacted DDP which will foster partnerships between dairy organizations and food banks to help combat food insecurity and minimize food waste, as well as the Supplemental Dairy Margin Coverage program to reflect modest increases in farm milk production history."
NMPF also praised USDA's work to incorporate the premium-quality alfalfa price into the Dairy Margin Coverage program to "improve the DMC feed cost formula and enhance the dairy baseline ahead of the next farm bill, to the betterment of all farmers."
The International Dairy Foods Assn. (IDFA) also offered support for the DDP. Michael Dykes, president and CEO of IDFA, said: "IDFA applauds USDA for finalizing the Dairy Donation Program, making it possible for U.S. dairy companies to donate fresh, nutritious dairy products to nonprofit organizations reaching Americans struggling with hunger and food insecurity."
An IDFA press release stated: "Since the start of the COVID-19 pandemic, U.S. dairy producers and dairy foods companies have led efforts to feed the hungry and support struggling communities. With the DDP, USDA is providing our industry with one more tool to reach Americans in need. The dairy industry welcomes the opportunity to continue to partner with non-profits, charities and other organizations working to combat hunger and nutrition insecurity."
StoneX Dairy's Nate Donnay examined the latest government assistance in his Aug. 26 "Udder Intelligence": "We seem to go through decades-long cycles, increasing support to farmers, and then cutting support. We are currently in the increasing part of the cycle with numerous programs sending payments directly to farmers as well as subsidizing consumption. Eventually, the government tightens its belt and we end up with an oversupply, but right now we're putting new holes in the belt to let it out more."
Donnay probes government assistance to the dairy industry and asks if such assistance really helps and how much, or does it do more harm than good? It's food for thought for dairy farmers, processors and U.S. taxpayers.
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