Milk, Dairy and Grain Market Commentary By Sarina Sharp, Daily Dairy Report
The dairy trade checked out early and the markets coasted into the long holiday weekend. Class III and Class IV futures settled today not far from where they finished last Friday. Class III futures range from $16.71 to $18.24 per cwt. in 2021. Class IV contracts sit comfortably above $16. Those prices are generally disappointing for dairy producers, particularly as feed costs and other on-farm expenses rise. But they are not low enough to significantly slow milk output. The dairy herd is massive, and it’s likely to stay that way for a while.
Formidable milk production added up to a mountain of dairy products in May. Year-over-year comparisons are skewed by all the dumped milk and processing headaches the industry suffered a year ago. But the broader trends are clear. New cheese processing capacity has boosted Cheddar output, which tops that of the first five months of 2020 by 5.6%. Total cheese production bested May 2020 by 5%. Although butter output fell short of the unusually high volumes of the prior year in March and April, it remains historically high and exceeded May 2020 production by 7.6%. Driers ran hard in May, and combined production of nonfat dry milk (NDM) and skim milk powder reached 241 million pounds, the highest May total on record and 12.7% more than the prior year. Dry whey production remains in the doldrums.
Thankfully, exports have provided an outlet. Despite port backlogs, a container shortage, and a lack of truckers, dairy exports soared in May. The weak dollar and competitive pricing helped to keep product moving. U.S. NDM exports accelerated to an all-time high of 196 million pounds thanks to big shipments south of the border and to Southeast Asia. An uptick in milk powder exports to Algeria, where Europe typically dominates, suggests that European stocks are scant and the U.S. may continue to gain global marketshare. Dry whey exports were strong too, up an impressive 30% from May 2020. For the year to date, whey exports are running at their best pace since 2014. Cheese exports faltered, but butter sales climbed. So far this year the U.S. has sent slightly more butter abroad than it has taken in, marking its first major stretch as a net butter exporter since 2014.
Strong exports buoyed the powder markets all spring, but values retreated this week. Domestic buyers are quick to back off as asking prices climb, driving the market downward despite reliable demand. It’s hard to argue for higher prices with so much milk to go around. CME spot NDM slipped 0.75ȼ this week to $1.2575 per pound. Spot whey powder fell 2.75ȼ to 55ȼ. That’s a significant decline in a market that has helped to prop up Class III values for months. Despite modest dry whey production and booming exports for whey powder and NDM, stocks of both products grew in May.
Cheese and butter bounced back this week. CME spot butter rallied 2.25ȼ to $1.74. Barrels added a penny and reached $1.50. Blocks staged a more impressive comeback, rising 6.5ȼ to $1.555. Still, cheese is inexpensive, reflecting onerous output.
Referendum to Sunset Quota Program Fails
By Geoff Vanden Heuvel, Director of Regulatory and Economic Affairs
Late this afternoon, the California Department of Food Agriculture (CDFA) announced that the referendum proposing to sunset the Quota Implementation Plan on March 1, 2025 failed to achieve the necessary votes for adoption. CDFA reports that 78.56% of eligible milk producers voted in the election, clearing the requirement for a valid election. Voting in favor of the referendum were 49.25% of producers representing 54.47% of the total voting milk. Passage of the referendum required a “yes” vote from 65% of the voters producing 51% of the voting milk or 51% of the voters producing 65% of the voting milk. The Quota program in California will continue in its current form.