Milk, Dairy and Grain Market Commentary By Monica Ganley, Daily Dairy Report
Milk is gushing across the United States. USDA’s Milk Production report, released Monday, indicated that milk production in December reached 18.941 billion pounds, 3.1% more than the same month last year. Total production for the year is believed to have grown by 1.9%, after accounting for the leap day. A dramatic expansion in the national dairy herd drove much of the increase. Between June and December, U.S. producers added an astonishing 93,000 cows to the herd, bringing December’s cow numbers to the largest figure seen since 1995. Yields also had a hand in the surge, with U.S. milk per cow breaching 2,000 lbs. in December for the first time ever.
Milk production growth was strong across most of the United States in December, with the West and the Midwest posting particularly convincing figures. California alone increased production by 3.2% year-over-year, equivalent to an additional 110 million pounds. Each of the country’s top nine dairy states saw output expand by at least 1.2% for the month while only a smattering of states saw production declines. Among them, Florida and Vermont saw production contract by 5% and 3.1%, respectively, while Georgia, Utah, Oregon, and Washington all witnessed more modest drops. Favorable weather is generally believed to have helped support continued milk production growth across most of the country into January. Though frigid temperatures in the upper Midwest pushed back on production late in the month, the effect is likely to be short lived.
With plentiful milk and the pull from Class I users still underperforming prior years, there is more than enough available for manufacturing uses. In most parts of the country, spot milk can be picked up at a discount to class values. USDA reported this week that in the Midwest spot milk for cheese manufacturing could be acquired with discounts as large as $8.50 to the Class III price. However, even as spot milk remains abundant, there are some signals that the tide may be shifting with manufacturers increasingly reporting that spot loads are becoming less available.
Cheese manufacturers across the country have been running hard. Retail demand has held up in most parts of the country, but foodservice sales remain largely depressed. As a result, much of this production has been routed into storage. In USDA’s Cold Storage report, also released Monday, total cheese stocks at the end of the year amounted to 1.398 billion pounds. Between November and December, total cheese inventories grew by over 50 million pounds, nearly 10 times the average increase over this period during the previous five years. Three quarters of the rise was driven by growing American cheese stocks though other cheese styles saw inventories amass as well.
The Cheddar spot markets responded to the slack by moving downward over the course of the week. By Friday, spot block Cheddar prices had sacrificed 3.5¢ to finish the week at $1.575/lb., the lowest price since May 2020. Barrels demonstrated a bit more resilience. After moving modestly upward on Tuesday, the market once again slid backward, ultimately closing today’s spot session at $1.39/lb., a quarter cent lower than last week. While not a single load of blocks traded hands, 21 loads of barrels managed to move during the week.
Meanwhile, the butter markets featured a more dramatic descent. Also weighed down by excessive supply, CME spot butter markets gave up 15.75¢ since last Friday, closing the week at $1.245/lb. Churns across the country, but especially in the West, report that they are working furiously as they try to sop up available cream supplies. Retail interest is at least steady, and the food box program has helped to clear some product, but nevertheless inventories remain heavy. USDA reported that at 273.8 million pounds, butter stocks at the end of December were the strongest they had been at that time of year since 1992. Furthermore, given that any of this product that was manufactured prior to December 1 can only be sold at the CME until the end of February, the market is likely to struggle finding traction in the next couple weeks.
Dry products have posted mixed performance since Monday. Nonfat dry milk (NDM) spot prices descended to $1.1375/lb. on Tuesday before bouncing back to close the week at $1.1725/lb., unchanged versus last Friday. Even though product is purportedly plentiful, the buyers were also present in Chicago this week, with 37 loads of NDM moving. Dry whey, which has been bullish of late, stumbled on Tuesday for the first time this year, giving up 4.25¢. The move was short lived, however, and by the next day growth had resumed.
Yet, spot whey was unable to erase the entire loss, and by the time the market closed at 53.5¢/lb. on Friday, it remained half a penny lower than prior week. Milk futures incorporated the weakness of the spot markets, moving downward over the course of the week. Class III markets softened in particular, with most 2021 contracts losing value early in the week, recovering in the middle, and returning to the red on Friday. FEB21 and MAR21 Class III contracts settled $1.1 and 90¢ lower than last Friday, respectively. Class IV markets also saw values deteriorate with big declines early in the week and on Friday. Despite some recovery midweek, nearby contracts also finished down by about 50¢.
Quota Referendum Scheduled for March 4 - June 1, 2021 By Geoff Vanden Heuvel, Director of Regulatory and Economic Affairs
This week, California Department of Food and Agriculture (CDFA) Secretary Karen Ross ordered that a referendum be conducted on the petition submitted by the United Dairy Families of California (UDFC). The petition seeks to immediately change the Regional Quota Adjusters (RQAs) to equalize the Quota payout to $1.43 per cwt. statewide, followed by termination of the Quota program on March 1, 2025. The producer voting period will open March 4, 2021 and close June 1, 2021.
The issue of the Quota Implementation Plan (QIP) has been a topic of significant interest in the California producer community since late 2018 when the Federal Milk Marketing Order (FMMO) took over regulation of California’s dairy industry. Under the California State Milk Pooling Plan, Quota’s impact on a producer’s milk check was not as clear, but under the FMMO, the cost of Quota payments were daylighted, appearing as an assessment on a producer’s milk statement.
The Road to Referendum
An organized group of producers named STOP QIP emerged in late 2018 and began circulating a petition to eliminate the Quota program. They submitted their original petition on March 29, 2019 with 285 signatures. CDFA reviewed that petition and determined that the number of valid signatures was insufficient to move the petition forward.
At about the same time as this was going on, another group of producers organized, known as the United Dairy Families of California. Its stated purpose was to provide a forum for all California dairy families to discuss the future of Quota and to oppose any referendum that would eliminate Quota without compensation. UDFC organized a process that was endorsed by the three major cooperatives in California, the three established trade associations, and STOP QIP.
A team consisting of Dr. Marin Bozic from the University of Minnesota and market analyst Matt Gould was hired to conduct a five-phase process to address the Quota issue. The process kicked off with a “Think Tank” phase, where meetings were held throughout the state to solicit ideas for dealing with Quota. The next phase focused on producer feedback, where the ideas generated from the Think Tank phase were organized and presented for producer review and input. The third phase took ideas that had some level of producer support, further refining them for another round of producer feedback. The fourth phase narrowed down the ideas to the single proposal that garnered the most support in producer surveys. This final proposal was presented to the industry at the Farm Show in February of 2020. While the idea was submitted for consideration to Secretary Ross that day, CDFA told UDFC it would need to submit a petition with the required valid signatures for the proposal to be considered.
Meanwhile, STOP QIP had been circulating another petition that sought to terminate Chapter 3.5 of the Food and Agriculture Code, which contained the language that authorized the QIP. This petition had enough valid signatures and a hearing in front of an Administrative Hearings Judge was conducted on June 9 and 10, 2020. Another producer group named SAVE QIP also participated in this hearing. After the hearing, the Judge came back with a ruling that no referendum should be called as a result of the STOP QIP petition. STOP QIP also filed some lawsuits, which to date, have not been successful. UDFC gathered signatures for its petition and submitted it to CDFA on June 23, 2020. After verifying that a sufficient number of valid signatures had been submitted, CDFA held a Producer Review Board (PRB) meeting on August 27, 2020. The PRB recommended holding a hearing, which was then scheduled for September 30, 2020. The hearing was short, with no opposition to calling a referendum on the UDFC petition.
The Judge issued a recommended ruling on December 11, 2020 calling for a referendum, and this week, on January 25, 2021, the Secretary ordered a referendum to take place, scheduling it to run from March 4 through June 1, 2021. For the referendum to pass, 51% of eligible producers must vote. According to a CDFA letter to the Judge in October, there were 948 eligible Market Milk Producers in California. Obviously, this number changes a bit every month, but this means that about 485 producers will have to cast a vote regarding the referendum for it to be valid. Then of those who vote, 65% of the voters producing 51% of the voting milk OR 51% of the voters producing 65% of the voting milk must vote yes for the referendum to pass.
Based on my experience, getting 51% of dairy producers to vote has always been the challenge for any referendum in California. My guess is that it will be no different this time.
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