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September 10, 2021 MPC Friday Report Highlights

Updated: Jan 17, 2022


Milk, Dairy and Grain Market Commentary By Sarina Sharp, Daily Dairy Report

Rejuvenated after a long weekend, the dairy markets got off to a very strong start. The Global Dairy Trade (GDT) auction kicked things off with bang. All products gained significant ground, led by a 7.3% jump in skim milk powder (SMP). That propelled CME spot nonfat dry milk (NDM) to $1.36 per pound, its highest perch since 2014. After a modest setback later in the week, spot NDM finished today at $1.3575, up 1.75ȼ since last Friday.

Although the heat has abated, there are fewer trucks lined up at the drier than there were a month ago. Bottlers are busy meeting school orders. Cheesemakers are running at their usual pace, as long as they can find the staff to do so. The expansion in U.S. cheese processing capacity has prompted a shift away from Class IV manufacturers, and it’s become more noticeable now that milk is less plentiful. Meanwhile, demand remains healthy. In the absence of cheap spot milk, cheesemakers are fortifying their vats with NDM. Despite the snarls in the global supply chain, exporters are moving big volumes of milk powder to Mexico and Asia. The fundamentals are friendly, but it may take something more to lift NDM prices from here. The last time that U.S. prices were this high, milk powder stocks were much lower than they are today.

Firm NDM prices buoyed the other protein powders, including dry whey. CME spot whey powder leapt 4.5ȼ to 53ȼ, a 9.3% increase in just four trading sessions. Whey output is high, driven by formidable cheese production. But demand appears up to the challenge, for now.

Spot cheese also climbed this week. Cheddar blocks rallied 5.5ȼ to $1.79. Barrels vaulted 8.5ȼ higher and closed at $1.4775. With both cheese and whey on the rise, Class III futures advanced as well. Fourth-quarter contracts added 28ȼ on average, thanks to a strong showing on Tuesday. But a Friday setback for barrels and Class III futures might give the bears the edge when the opening bell rings next week.

Spot butter continues to trade in a well-trod range from $1.60 to $1.80. It closed today at $1.785, down 1.25ȼ since last Friday. Butter appears to be simply marking time until the holiday baking season arrives. Demand is expected to be good, but stocks are heavy.

Class IV futures continued to climb this week. Fourth-quarter contracts added 26ȼ, on average, extending a substantial six-week rally. Since the end of July, October, November, and December Class IV futures have gained more than a dollar, and 2022 contracts are sharply higher as well. The futures promise $17 or better from November onward.

But bigger Class IV milk checks have yet to arrive, and costs are high. Beef prices are also lofty, prompting dairy producers to take a second look at their low-production cows. In the week ending August 28, they sent 62,379 dairy cows to slaughter, the highest total since March. Over the past 10 weeks, dairy cow slaughter has averaged 10.6% greater than during the same period in 2020. The dairy herd is shrinking, which is good news for milk prices.


Update on USDA’s Class I Pandemic Assistance Program

By Geoff Vanden Heuvel, Director of Regulatory and Economic Affairs

Three weeks ago, I wrote about Agriculture Secretary Vilsack’s announcement of a USDA compensation program designed to provide money to dairy producers who did not benefit from the huge rise in market cheese prices caused by USDA’s Farmers to Families Food Box Program, which required each food box to include cheese, but not butter.

The details of this new program have now been released. In the article I wrote on August 20, I stated the following: “But then USDA says they will only cover up to 5 million pounds annual production per producer and since this program is for 6 months only, the effective cap is 2.5 million pounds.”

I was not alone in interpreting the USDA announcement in that way. However, in a presentation USDA is giving to the handlers who will implement the program, its instructions make clear that the cap is 5 million pounds per entity for the six months, essentially doubling the maximum payout from what I thought it would be. For California producers who qualify and reach the cap, the maximum payment will be around $30,000 per entity instead of the $15,000 I estimated three weeks ago.

2021-09-10 MPC Newsletter
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