Milk, Dairy and Grain Market Commentary By Sarina Sharp, Daily Dairy Report
Like a balloon with a pinhole, the dairy markets are slowly deflating. The summer setback lacks the drama of July 2020, when – flush with government largesse – the cheese market balloon grew and grew and grew until it burst spectacularly. Although this year’s losses have none of last year’s frenzy, the ink is just as red. Both Class III and Class IV futures posted double-digit declines once again this week. September and October Class III settled below $17 per cwt., at their lowest values so far in 2021. In Class IV, the September through November contracts plumbed life-ofcontract lows in the $15s. Given historically high costs for feed, fuel, freight, and labor, these values are extremely disappointing for dairy producers.
But it may be a while before lower prices translate to less milk. Dairy slaughter has accelerated relative to the 2020 pace. But as is always the case during the summer, the numbers aren’t all that high. Although slaughter volumes have eclipsed the prior year for the past six weeks, year-todate slaughter is still 0.2% behind the 2020 pace, and the dairy herd is 1.6% larger than it was a year ago. Dairy producers are clearly not culling cows at the pace required to significantly shrink the herd. And, given how many cows we are milking, it will take significant slaughter to bring production back down to a level that necessitates higher prices. Low prices are the best cure for low prices, but the healing process is often painful and achingly slow.
USDA’s Dairy Market News reports, “Milk volumes are plentiful enough for strong cheese production schedules.” But packaging issues continue to shift some milk out of blocks and into barrels. The proof is in the prices. Cheddar blocks closed today at $1.635 per pound, up a nickel this week and 8.25ȼ higher than where they began the month. In contrast, barrels fell 1.25ȼ this week to $1.39. They are down 11.25ȼ for the month and not far from the calendar-year lows. Demand is good, but output is strong.
Heavy production continues to weigh on the whey market as well. CME spot whey powder fell 3.5ȼ this week to 50.25ȼ. Spot dry whey finished July 5.75ȼ lower than where it began, trimming roughly 35ȼ from implied Class III values in the process. Demand for highprotein whey products remains impressive, but whey powder is piling up nonetheless.
Plentiful cream and wellstocked warehouses are dragging on butter values. This week CME spot butter probed five-month lows. It closed today at $1.6425, down 5.25ȼ from last Friday and nearly a dime lower than where it began the month.
Despite the summer heat, there is more than enough milk to keep driers busy. Demand is steady, but shipping issues are slowing the flow of product from manufacturers to end users at home and abroad. While foreign milk powder values took another step back this week, CME spot nonfat dry milk (NDM) rallied. It closed today at $1.2675, up 1.5ȼ this week and up just 0.75ȼ for the month.
Milk powder values could come under further pressure in the months to come if global demand falters. Dairy Market News notes that some Southeast Asian countries likely ordered extra skim milk powder (SMP) in the first half of the year, hoping to avoid shortages caused by shipping delays. But now, “inventories may be building to the point where buyers are willing to wait before making more purchases.” If that’s the case, a slowdown in demand could collide with growing supplies. Global milk output is high and rising. In May, milk production among the four largest dairy exporters other than the United States outpaced the prior year by 2.5%. Throw the U.S. in the mix, and output among the big five was 3.1% greater than in May 2020. That’s the largest year-over-year increase since late 2017, which does not bode well for prices in the coming year.
Water Tidbits
By Geoff Vanden Heuvel, Director of Regulatory and Economic Affairs
Evapotranspiration Results: One of the needs of a Groundwater Sustainability Agency in implementing their plans is to obtain water consumption data. Historically, water flow meters on individual wells have been the method by which groundwater extraction has been determined. However, water meters can tell you how much water was applied, but they do not tell you how much was consumed by the plant and how much returned to the ground. Over the past number of years remote sensing technology using satellite imagery has been improved to a point where the water consumed by plants can be accurately tracked by measuring the amount of evapotranspiration (Etc.) coming off the field. Once you know how much water the plant consumed, then you back out any surface water that was applied to the field and any precipitation that may have fallen and what you are left with is how much groundwater was consumed to grow that crop.
Pixley and Lower Tule Irrigation Districts did pioneering work on this technology with the IRTC program of Cal Poly for several years, even prior to the passage of SGMA. More recently these two districts hired Land IQ, a private company that has created an advanced commercial application of this technology to provide their districts with evapotranspiration derived water consumption data for all the acreage within their districts.
Pixley and Lower Tule recently shared the 2020 water consumption results for various farming/cropping operations in their districts (graph is pictured below). This is very interesting data. If there is a field that is double cropped, then you need to add the two crops Etc.’s together to get the total water consumed off that acre during 2020. So, a wheat crop consumed 1.62-acre feet and that would add to the consumption of a corn crop at 2.57 for a total consumed by that double cropped acre of 4.19-acre feet. You might also notice the Etc. reading from the dairy footprint, both open lot and free stall. One point to remember about the Etc. coming off of the dairy footprint is that in addition to groundwater supplies that are used on that dairy footprint, there is a lot of moisture that is imported to the dairy footprint in the feed that is delivered and consumed by the animals.
This drought has attracted a lot of media and political attention. Clearly there are impacts to water levels and wells as farmers turn to groundwater to provide the irrigation needed to grow their crops. The State Water Resources Board made news this week by announcing their intention to issue curtailment orders to junior surface water right holders. The State Board has regulated surface water through a permit program for decades. Part of that program is enforcing the water rights system in times of shortage. Clearly there are concerns about how these orders will impact certain farmers, but there is not enough water to go around and there is a priority system to deal with this circumstance. It is not unusual for California to have dry years. Yes, this is a particularly dry year. Let us hope the public and politicians learn from this that you must prepare in the wet years for the inevitable dry years.