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July 16, 2021 MPC Friday Report Highlights

Updated: Jan 17, 2022


Milk, Dairy and Grain Market Commentary By Monica Ganley, Daily Dairy Report

Following last week’s rally, spot cheese markets buckled under the pressure of higher prices. After making one final upward effort on Tuesday, cheese prices deteriorated over the balance of the week, including a particularly precipitous loss on Thursday. Cheddar blocks ultimately gave up 11¢ versus last Friday to close the week at $1.615 per pound, with a modest seven loads trading hands. Meanwhile, barrels sacrificed 14¢, ending the week at $1.44 per pound, a 17.5¢ discount to blocks and the lowest price since late March. The spot losses weighed heavily on Class III milk futures with some contracts moving limit down on Thursday.

Manufacturers report that cheese demand, especially for Italian varieties, is robust and that spot milk for manufacturing is available and affordable. According to USDA’s Dairy Market News, spot milk for manufacturing uses can be procured for discounts as large as $6 per cwt to Class III prices. While cheese manufacturers would be keen to capitalize on the available milk, a plethora of issues are complicating operations and preventing additional output.

Firstly, continued scarcity of inputs, namely a lack of boxes for 640-lb. cheddar blocks are narrowing the production options for cheese manufacturers. Secondly, widespread labor shortages, affecting all corners of the dairy industry, are preventing cheese and other dairy product manufacturers from operating at full capacity. If processors are able to get product made, they are running into logistical issues including a dearth of truck drivers and port congestion. This has caused product to back up in warehouses, limiting storage space, and ultimately impinging on production schedules. These wrinkles will have to be ironed out before manufacturers can capitalize on the available milk supplies.

The tone in the whey markets was mixed this week. At the CME, spot dry whey resisted the weakness seen in the cheese market and despite a brief dip on Wednesday, stayed relatively strong, ending the week at 53.75¢ per pound, an increase of 3¢ versus last Friday. However, market participants report that prices are softening across the country as ample cheese manufacturing and diminishing export demand has created plenty of supply. Though higher protein products like whey protein concentrates and whey protein isolates continue to disproportionately attract the whey stream, dry whey production is reportedly sufficient to meet buyers’ needs.

In the Class IV complex, spot butter prices found some strength early in the week before slipping once again on Thursday and Friday. CME spot butter closed the week at $1.6775 per pound, just a quarter cent higher than last Friday. Cream supplies are lighter, particularly in Western states, but flat to slightly reduced demand has prevented tension from building in the market. Commercial disappearance of butter was higher in May than in April on an average daily basis, and remains elevated by historical standards, but sat 1% below the same month last year.

Even in the face of mounting inventories and slowing international interest, nonfat dry milk (NDM) markets continue to demonstrate surprising resilience. Condensed skim production is slowing seasonally with labor and transportation issues creating hiccups across the value chain. At the CME, spot NDM saw prices lose momentum over the majority of the week before finding renewed strength to rise 2.5¢ on Friday, closing the week at $1.2525 per pound, a quarter penny higher than last Friday.

Milk production is declining as seasonal fluctuations and heat related impacts weigh on output. Nevertheless, milk remains more than available to cover needs in most areas of the country. Class I sales are seasonally light though market participants are looking for the pull from educational institutions to perk up in the near future as the start of the new school year is around the corner. Heat related impacts on milk production have been felt heavily in many areas of the country, especially the Pacific Northwest, and though recent weeks have brought some respite, producers in the affected areas are once again bracing themselves for hot summer temperatures.


Fixing California: Achieving Water Abundance

By Geoff Vanden Heuvel, Director of Regulatory and Economic Affairs

This article, published last week, really caught my attention. We are in the midst of a very dry year in California. We are also in the early stages of implementing the Sustainable Groundwater Management Act (SGMA). From what I have seen so far, SGMA is about allocating pain – who has to cut water usage and when.

The article below outlines a different policy – a future for California that seeks to provide abundance instead of scarcity. The projects identified are real. The costs are large, but together they are affordable for California. What we need is the will to actually build things. Today’s Californians are living on the vision and investments of previous generations. We inherited this place and what the future looks like is going to depend in large measure on what we do over the next few years. We need to be good stewards of the environment and we need to provide for human flourishing. This article is worth the time to read.

Excerpt of “Fixing California: Achieving Water Abundance” – by Edward Ring

Abundance means redundancy, diversity, resiliency. The case for water abundance in California is compelling not merely so California’s residents can enjoy amenities that citizens of a developed, modern nation are entitled to expect. Water abundance also means Californians are better prepared for cataclysms.

This was well understood in the 1960s, when California’s pragmatic Governor Pat Brown, and his successor Ronald Reagan, presided over the construction of the California Water Project, which remains the most impressive system of water engineering ever built. But starting in the 1970s, when Jerry Brown (Pat’s son) first became governor of California, water infrastructure became less of a priority. For the last 40 years, apart from some investment in wastewater recycling, there has been no significant new project in California designed to increase the supply of water. Conservation, a commendable objective, bought Californians 40 years. In that time, the population has grown from 25 million to nearly 40 million, while the supply of fresh water for people and agriculture has remained fixed.

Coming up with projects to restore water abundance to California is relatively easy: Build a few more surface storage assets, most notably the proposed Sites and Temperance Flat reservoirs. Upgrade and increase the capacity of existing surface storage, such as the San Luis and Shasta reservoirs. Complete the transition to total wastewater recycling to potable standards in all of California’s major urban areas, and supplement that, especially in Southern California, with additional coastline desalination plants. Repair existing aqueducts and upgrade the Delta levees—and voilà, you’re done.

Even at California prices, this entire assortment of major civil engineering projects could be accomplished for around $50 billion. With some of the work financed through revenue bonds, the entire debt burden on the average California household would be under $100 per year.

2021-07-16 MPC Newsletter
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