Milk, Dairy and Grain Market Commentary By Monica Ganley, Daily Dairy Report
Class IV products continued to garner much attention in Chicago this week. Despite some moderation during Friday’s spot session, gains earlier in the week left prices higher than last Friday for both butter and nonfat dry milk (NDM), pushing Class IV milk values upward.
NDM saw the biggest gains during the spot trade this week. A .5¢ decline on Friday did little to counteract the substantive jumps seen on Tuesday and Wednesday. As a result, NDM finished the week at $1.5325 per pound, an increase of 7.25¢ versus last Friday. This represents the first time since 2014 that NDM prices have exceeded $1.50 per pound. 13 loads of product traded hands over the course of the week. Participants describe the NDM market as tight, even though loads of condensed skim are still available. USDA’s Dairy Market News reports that there is more product available in the West, but logistical challenges are preventing buyers from easily moving product from one region to another.
Butter markets are also contributing to the Class IV gains. Demand for butter has been robust as the holiday season approaches and buyers, concerned about being caught short due to labor and logistical issues, seem to have frontloaded orders. The outlook for butter demand over the rest of the holiday season is mixed but for the moment, product continues to move at a rapid clip. Strong butter demand pushed the CME up to $1.82 per pound on Wednesday, before giving up 4.5¢ during Friday’s trade. Ultimately, the CME spot butter price ended the week at $1.775 per pound, an increase of 5.5¢ compared to last Friday.
With the strength imbued by NDM and butter, Class IV futures markets appreciated over the week, with particularly strong gains on Wednesday and Thursday. Futures markets for Class III and Class IV milk are showing remarkable parity through much of 2022. In fact, as of Friday’s settlement, JAN22 through MAY22 Class IV contracts are higher than those of Class III.
The spot cheese markets slid lower during the first half of the week before finding traction and bouncing pack on Thursday. During Friday’s trade, barrels held steady at $1.79 per pound while blocks again lost ground, falling to $1.78 per pound and inverting the blockbarrel spread for the first time since June. Blocks finished the week 3¢ lower than last Friday while barrels were unchanged. Holiday demand has also perked up for cheese and processors indicate that given the availability of affordable spot milk, they would happily increase production if they thought they could reliably find enough labor to do so.
Whey markets continued to strengthen this week, adding value to Class III prices. Spot dry whey rose as high 60.5¢ per pound on Thursday before giving up a quarter cent to close the week at 60.25¢ per pound, up .75¢ from last Friday. Whey prices have not exceeded 60¢ per pound since June, when they were on the descent from their record setting rally. Somewhat lighter cheese production has reduced the available whey stream while demand remains robust from both domestic and international sources
Milk production is beginning to tick upward in most areas of the country with milk availability generally described as good. Class I demand has subsided from a few weeks ago, when the start of school bumped up demand from bottlers, but remains significantly elevated relative to prior year. Labor shortages are pervasive, and a lack of plant operators and truck drivers are creating challenges up and down the supply chain. At the ports, well documented congestion is interrupting dairy exports and causing a buildup of inventories. Yet even as challenges abound, demand for U.S. dairy products remains robust from both international and domestic buyers.
Greater Kaweah GSA Launches Groundwater Extraction Cap Discussion
By Geoff Vanden Heuvel, Director of Regulatory and Economic Affairs
At this month’s board meeting of the Greater Kaweah Groundwater Sustainability Agency (GKGSA), directors began discussions about establishing a cap on groundwater extraction for landowners. There are quite a few dairies in the GKGSA, so this action would be significant for the industry. You can see the structure of the draft cap policy in the slide below.
The cap applies to groundwater pumping only. The amount of “Native Groundwater Yield” available to every acre is currently calculated at 10 inches of water per year. The next amount of allowable pumping is broken into two tiers that will be defined as discussions unfold over the next several months. This amount of pumping is essentially continued overdraft, which is allowed under the Sustainable Groundwater Management Act (SGMA) for the ramp down period between now and 2040. The law requires that by then, “undesirable results” be eliminated, which overdraft is an important one.
At the board meeting, Eric Osterling, the general manager of GKGSA, indicated that the total amount of initial allowable groundwater production under the cap proposal would likely be in the range of 2-3 acre feet per acre. He also indicated that while the intention is to get the policies established and the mechanisms in place as soon as possible, the actual enforcement of the cap and the fees on pumping would start in October of 2022.
Observations The GKGSA has some distinct characteristics that make establishing a groundwater extraction cap uniquely challenging. First, the geographic footprint of the GKGSA is large. Land under the jurisdiction of GKGSA stretches from just below Lake Kaweah, east of Woodlake, all the way to lands just south of Hanford and another piece stretching nearly to Corcoran.
In addition to a large and spread out land mass, there are almost no water districts within the GKGSA. There are thousands of wells and hundreds of different landowners within the GKGSA, and groundwater conditions are not uniform throughout the GKGSA. They range from relatively shallow groundwater near the foothills, to areas where there is deep pumping from under the Corcoran clay. There is also a well field that pumps groundwater out of the GKGSA and moves it to lands in other subbasins.
Unlike other GSAs that were formed in conjunction with a water district, where landowners had an existing relationship with a water agency, those relationships do not exist in GKGSA. This was a completely new entity made up of the portion of the Kaweah Subbasin that was left over after MidKaweah and the East Kaweah GSAs were formed. The Mid-Kaweah GSA is made up of the cities of Visalia, Tulare and the Tulare Irrigation District, and the East Kaweah GSA is made up of the water districts along the foothills that have rights to the Friant CVP water supply with some of the groundwater-only lands located next to their districts included. The sponsor of the GKGSA was the Kaweah Delta Water Conservation District, which did and does provide a lot of support for the GKGSA but is not a water district and does not have the water supply relationship with all of the landowners in its jurisdiction. The administrative task of setting up a groundwater extraction cap is immense, and so far, the GKGSA has only one employee, the general manager.
There are also some encouraging things to note when it comes to ultimately establishing a sustainable situation in the GKGSA. The private ditch companies, which operate predominately in the area east of Visalia, have access to a lot of surface water and they are seriously looking at creating a water district structure that would allow broader participation by the lands that are not currently ditch company stockholders. Of course, this access will come with significant costs. On the west side of Visalia, a new organization called the Delta View Water Association has been formed. This group is managed by Johnny Gailey and has a membership already representing more than 40,000 acres. The purpose of this group is to advocate for policies and facilitate projects that will minimize the economic costs of achieving sustainability. This group is also exploring the possibility of becoming a water district.
The task ahead is daunting. This drought has accelerated GKGSA’s timetable for complying with SGMA. In retrospect, California should probably have begun its regulation of groundwater decades ago. But with innovation, cooperation, wisdom and the blessing and mercy of God, solid progress can be made. A very wet winter would help too.