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February 19, 2021 MPC Friday Report Highlights

Updated: Jan 18, 2022


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

With nearly three quarters of the United States blanketed by snow, weather has become a major protagonist in the dairy markets this week, wreaking havoc across the supply chain. Uncharacteristically cold weather has been a particular issue in Texas and eastern New Mexico where producers have been scrambling to protect their herds from the frigid temperatures. Impassable roads and plant shutdowns have forced producers in some areas to dispose of milk on the farm. Though it will take some time for the impacts of the weather to become fully appreciated, a reduction in milk production and increase in culling is likely to be borne out in the coming weeks.

Of course, winter weather complications didn’t end at the farmgate. Several processing facilities in the area were forced to shut down as energy supplies were diverted toward heating residences and essential services. Of those that were still operational, many were forced to work with reduced staffing as employees were unable to get to work. While plants outside the affected areas have attempted to absorb the milk that would have been typically processed by these plants, it is likely that a significant amount of milk had to be dumped over the course of the week.

Despite these complications, cheese manufacturers in the Midwest report that the market for spot milk has tightened somewhat. During the past week spot milk could be obtained for up to $6.50 under Class III prices – still a bargain by historical standards but not as cheap as in recent weeks. Manufacturers across the United States report that cheese demand has improved. While retail demand still reigns supreme, foodservice orders have ticked up as more restaurants have begun to open. An increase in demand would be welcome news considering that at 1.105 billion pounds, commercial disappearance of cheese in December was the lowest for that month since 2016.

A short week didn’t translate to a shortage of action in the spot Cheddar markets. After a lethargic start, with blocks and barrels unchanged on Tuesday, both products began to slide. Blocks gave up 2.75¢ on Wednesday, followed by another 2¢ to hit a weekly low of $1.51/lb. on Thursday. Friday breathed a bit of life into blocks, pushing them up 2.75¢ to close the week at $1.5375/lb., 2¢ lower than last week. In an active week during which 26 loads traded hands, barrels moved continuously lower after Tuesday, ultimately ending the week at $1.4125/lb., 7.75¢ lower than last Friday.

As the March 1 deadline for selling old crop butter rapidly approaches, the butter market seems to have found some traction. Foodservice demand is still depressed, according to market participants, but retail sales remain robust. Commercial disappearance of butter was up a surprising 5.2% year over year in December. Meanwhile, a USDA Section 32 solicitation for purchases of about 15 million pounds of butter between April and June also likely bolstered market sentiment, even as the announcement was aligned with expectations.

The situation remains precarious, however, as cream is readily available, and spot loads have become even more plentiful as facilities affected by winter weather try to rehome supplies. Churns have been working hard and while some concerns persist about inventory build, healthy demand seems to be stemming many of these issues. The CME spot butter market moved up convincingly this week, adding 15.5¢ to end the week at $1.55/lb., the highest price since last September. Even with the spot market gains this week, U.S. butter remains a steal compared to international product. Another strong performance for butter and anhydrous milkfat at Tuesday’s Global Dairy Trade event lifted prices for these products even higher.

After opening Tuesday’s spot session with a .25¢ gain, nonfat dry milk prices slid over the balance of the week, ultimately closing Friday’s trade at $1.0925/lb. 17 loads traded hands during the week. Even though some powder manufacturers have been affected by the inclement weather, production has remained robust. A shortage of containers continues to garner headlines and is interrupting the ability of exporters to move product abroad, even where interest from global buyers exists.

The whey markets once again flexed their muscles this week, with spot prices rising to 55¢/lb. on Wednesday and Thursday before retreating slightly on Friday to close the week at 54.75¢/lb., up half a penny from last Friday. Demand is reportedly healthy from both domestic and international sources though logistical challenges, namely the shortage of containers, continues to challenge the ability to exporters to actually get product moved.

Class III milk futures were able to make some gains on Tuesday, even as the spot cheddar markets were quiet on the day. However, these gains were largely erased over the remainder of the week with most nearby contracts giving up ground as spot cheese prices slid. Class IV milk futures performed similarly with Tuesday’s gains subsequently canceled out by losses later in the week. Despite spot butter’s strength, most nearby Class IV contract settled on Friday within a few cents of prior week levels.


New Immigration Legislation Introduced as NMPF Spotlights Ag Labor

By Jim Mulhern, President and CEO of National Milk Producers Federation

Democratic lawmakers in the House and Senate introduced new legislation this week to reform U.S. immigration policy. Rep. Linda Sanchez (D-CA) and Sen. Bob Menendez (D-NJ) introduced the U.S. Citizenship Act of 2021, the legislative version of the plan President Biden proposed in January. The bill takes a broad approach to immigration reform, touching on agriculture’s workforce by providing current undocumented workers a process for applying for a green card and addressing farmworkers’ terms of employment. But since the measure does not reform the H-2A visa program, dairy would still be left without access to a workable guestworker program.

In our statement on the proposed U.S. Citizenship Act, NMPF made clear that reforms must include changes to address dairy’s workforce needs, including legal protections for current workers and their families, and enabling dairy farmers to use a guest worker program. NMPF will continue its current legislative strategy to focus on moving the Farm Workforce Modernization Act through the House as quickly as possible in an effort to build momentum for Senate action. While NMPF will continue to pursue all avenues for ag labor reform legislation that address dairy’s needs, we regard the U.S. Citizenship Act as a marker measure rather than the sole vehicle for enacting immigration law improvements that will address these needs.

NMPF Continues Working to Increase Dairy Sector Access to PPP – Since the Paycheck Protection Program was created 11 months ago, NMPF has been working to ensure dairy cooperatives and producers have equitable access to the PPP, one of the COVID-19 relief efforts run by the Small Business Administration (SBA). Historically agriculture has not been able to access most SBA programs, which has led to various administrative and technical obstacles for our co-ops and producers, due to the agency’s lack of familiarity with agribusinesses. NMPF has been working closely with our champions in Congress and other ag stakeholder organizations to overcome these obstacles, with improvements to the PPP ranging from increased access for rural lenders to allowing sole proprietor, independent contractor, and self-employed farmers to use their gross income from their Schedule F tax form for determining their PPP loan amount.

In 2021, NMPF has been working to allow dairy producers who were not helped by the changes to PPP made in December’s coronavirus stimulus measure, but who also file a Schedule F tax form, to use their Schedule F gross income when calculating their PPP loan amount. We were pleased this week to see Sens. Tammy Baldwin (D-WI), John Thune (R-SD), and John Hoeven, (R-ND), along with Rep. Ron Kind (D-WI), lead other members of Congress in a bipartisan, bicameral message to SBA and the Treasury Department calling for clear guidance that all farmers and ranchers who file a Schedule F tax form – regardless of formal business structure – can use their Schedule F gross income. Although SBA has not yet issued such guidance, the message from Congress helps demonstrate broad support for the issue, which NMPF will use in our continued work to increase dairy’s access to the small business support.

USDA Describes 2021 Dairy Outlook as “Unsettled” – The rapid acceleration of milk production, combined with continued uncertainty about foodservice demand, has created an unsettled outlook for milk prices in the new year, according to the USDA’s annual update on dairy economics. The USDA forecast, delivered today at the agency’s annual outlook forum, is similar to our own take on how rising milk production and volatility in commercial demand – plus rising feed costs – will challenge dairy producers in 2021. The report, by USDA economist Shayle Shagam, notes that “Although the impacts of COVID-19 on the economy in general and on dairy demand specifically are expected to diminish over the course of the year, the timing of restriction removals and any government programs remain uncertain.” In the face of a nearly 2% expected growth rate in milk production, to 227.4 billion pounds, the USDA is forecasting the 2021 all-milk price to decline to $17.15 per cwt. The Class III price is expected to decline to $16.60, as projected weakness in cheese pries more than offsets strong whey prices. The Class IV price, which has been fairly weak since the onset of the pandemic, is expected to increase as stronger nonfat dry milk prices overcome a weaker butter price. The Class III price this year is forecast to average $16.60/cwt. while the Class IV price is expected to average $13.70/cwt.

2021-02-19 MPC Newsletter
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