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Devastated dairy markets

Lee Mielke
Mielke Productions

U.S. milk prices are coming down. Dairy product prices have plunged to 11 year lows, all a result of the COVID-19 outbreak. The Agriculture Department announced the March Federal order Class III price at $16.25 per hundredweight, down 75 cents from February but still $1.21 above March 2019 and the highest March Class III since 2014. The three month average stands at $16.77, up from $14.30 a year ago, and compares to $13.87 in 2018 but that’s where the good news ends.

Class III futures have been pulled sharply lower with April 3 settlements putting the April price at $14.07; May, $12.18; June at $13.13, with a peak in November of just $14.95, a price that weeks ago hovered around $17.

The March Class IV price is $14.87, down $1.33 from February and 84 cents below a year ago and the lowest Class IV price since September 2018. Its three month average is at $15.91, up from $15.68 a year ago and $13.01 in 2018.

Help is available for farmers in the $2 trillion stimulus package dubbed the Coronavirus Aid, Relief, and Economic Security Act, but it’s to be seen how much of that will benefit dairy farmers.

Hemorrhaging continued in the dairy markets in the April Fool’s Day week, due to the COVID-19 epidemic. The Cheddar blocks saw nine consecutive days of decline and closed the first Friday of April at $1.15 per pound, down 44 cents on the week, on top of the 24.75 cents lost the previous week, and sunk to a low not seen since July 2009 and 51 cents below a year ago.

The barrels closed at $1.1375, 20.25 cents lower on the week, following a 16 cent drop the previous two weeks, and also hit the lowest level since July 2009 and 43.75 cents below a year ago.

Cheese contacts are hopeful for a quick turnaround to the COVID-19 situation, said Dairy Market News, as retail accounts have slowed along with ailing food service orders. Milk is plentiful in the Midwest and, at mid-week, only discounted prices were reported. Cheesemakers say milk handlers are calling regularly as plentiful milk is equating to a growing cheese supply. Cheese markets are “resolutely bearish due to precipitous drops on the CME,” DMN said.

Retail cheese sales in the west continue to be strong but were down from the previous week. Orders from food service and international buyers are stable to lower. Cheese outputs are steady but milk is abundant.

Butter’s meltdown also continued, closing the week at $1.28 per pound, down 20.75 cents on the week, after dropping 26.75 cents the previous week, 99 cents below a year ago and the lowest butter has been since October 2009.

Like many in the dairy industry, butter plant managers are facing a growing number of challenges due to COVID-19. Food service demand is bleak. Retail ordering is still firm, but with lighter restaurant and little to zero orders into educational institutions, butter inventories are growing. DMN said, “While ice cream manufacturers and other plants that normally take on cream are running skeleton crews or even closed, the onus of current cream inventories falls on butter makers. Butter market prices are precipitously declining at disquieting levels and markets are resolutely bearish.”

Western butter makers say offers for cream are abundant but they cannot take on more risk. Churning is active and producers are making more butter than can be sold in the near term so stocks are growing. Demand from food service is virtually non-existent, and while retail demand is higher than usual, it is slowing. Pricing April 3, down 5.75 cents on the week, 12.5 cents below a year ago, and the lowest it has been since November 2018.

CME dry whey was the exception in the falling markets; it held at 33 cents per pound for 11 consecutive sessions, 1.5 cents below a year ago.

How low prices will go is anybody’s guess. FC Stone’s Dave Kurzawski reminded us in his March 31 Early Morning Update that “The U.S. did away with the price support system in the 2014 farm bill and switched to a system where the government would buy dairy commodities and donate them to people in need when farm gate margins fell to low levels. However, that program was dropped in the 2018 farm bill. The $2 trillion aid package passed by Congress does allocate $450 million for purchases of commodities to be donated to food shelves and you can be sure dairy will be part of that, but we do not have a hard floor directly under U.S. prices,” Kurzawski warned.

Speaking in the April 6 Dairy Radio Now broadcast, Kurzawski admitted there isn’t much in the way of a silver lining to look for right now. “We’re in a state of flux in terms of understanding what demand really looks like. On one hand we have seen tremendous retail sales, even on fluid milk, but foodservice declines are huge.”

He added “dumping of milk is happening around the U.S.,” and while it’s disheartening to producers and the rest of us, he warned of the longer term consequences. “This is the time of year we normally make a lot of milk and dairy products and put them in coolers,” he said, and not doing that will have ramifications later in the year.

“If the U.S. economy gets humming again, and that is a wild card, but two, three, or four months down the road, we’re going to walk into a shortfall of inventory if we’re dumping milk today,” he said.

Dairy products have been flying off the shelves, along with toilet paper and hand sanitizer the past few weeks, in reaction to the COVID-19 outbreak. The March 27 Dairy and Food Market Analyst reported; “Just-released Nielsen scanner data for the week ending March 21 shows sales of butter were up 127%. Sales of cheese increased by 84%, fluid milk were up 53%, ice cream grew by 50%, and yogurt increased by 34%.”

But the massive gains haven’t continued, according to the DFMA; “Instead, we heard of companies canceling retail orders because ‘grocery store sales have started to look more normal.’ This was true across the dairy supply chain, including for companies in fluid milk, yogurt, butter and cheese. And with sales to restaurants approaching zero and no longer offset by record-setting retail sales, dairy manufacturers are left with some hard choices. Either cut production schedules, renegotiate contracts with suppliers, or build inventory, the DFMA stated.

The National Restaurant Association said on its website that “since March 1, the industry has lost more than 3 million jobs and $25 billion in sales, and roughly 50% of restaurant operators anticipate having to lay off more people in April,” due to COVID-19. Many restaurants will sadly close permanently, and so will many dairy operations. ❖


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