You’re busy milking cows, harvesting forages and finding things for the kids to do other than getting heifers ready for summer dairy cattle shows.

With that in mind, Progressive Dairy looks at issues in the news impacting you and your dairy business. In recognition of your time, we’ll attempt to summarize recent events or actions making dairy headlines and reported in our weekly digital newsletter, Progressive Dairy Extra. Then we’ll try to put that news into perspective and briefly describe how it might affect you.

Natzke dave
Editor / Progressive Dairy


What happened?

You’ve heard it so often you’re probably numb to the phrase: “dairy market volatility.” However, the scale of that price volatility over the past couple of months is unprecedented.

In a Northeast Dairy Management webinar, Phil Plourd, president of Blimling and Associates, detailed the change in the Chicago Mercantile Exchange (CME) cheddar block cheese price between April 17 and June 10, 2020. During that period – just 35 trading days on the CME – the price of a 40-pound block of cheddar moved from $1 per pound to a new record high of more than $2.58 per pound. That range covered the entire spread seen over a previous two-decade period, from a low of about $1 in early 2001 to the high in June 2020.

CME butter wasn’t exactly a slouch, moving from about $1.15 per pound in mid-April to about $1.95 per pound on June 10.


Even milk price forecasting was volatile, noted Dan Basse, president of AgResources Company. Speaking in a Professional Dairy Producers of Wisconsin (PDPW) Dairy Signal podcast June 11, he said the June 2020 USDA World Ag Supply and Demand Estimates (WASDE) report reflected the largest May-to-June change to the agency’s annual dairy price forecast in history. The USDA raised its 2020 Class III milk price forecast to $15.65 per hundredweight (cwt) in the June report, up $2.30 per cwt from its May forecast. The previous record change in the May-June Class III milk price forecast was just 85 cents per cwt.

Longer-term, the USDA raised the 2021 Class III price forecast to $15.10 per cwt, up 90 cents from the May report. Those prices are still low but substantially higher than the disastrous outlook just a month or two ago.

What’s next?

With the impact of cheese and butter on Federal Milk Marketing Order (FMMO) Class III and Class IV milk prices, Plourd said farmers should see much-improved milk checks for June milk. There will be some carryover into July. June 2020 Class III and Class IV FMMO prices are announced July 1. You should expect some major activity related to depooling and negative Producer Price Differentials (PPDs), however.

Late in the week of June 8-12, CME prices appeared to reach a plateau, with both cheese and butter coming off recent highs and pulling Class III and Class IV futures slightly with them.

Plourd expects cheddar blocks to moderate to $1.70 to $1.75 per pound. Basse forecasts that dairy markets will soften in late June/mid-July.

Bottom line

Both Plourd and Basse note there’s plenty of uncertainty ahead, anticipating potential supply and demand stressors that could apply downside price pressure. On the demand side, the eventual end of coronavirus-related USDA dairy product purchases for domestic feeding programs, China’s inability to meet trade agreement obligations and the slow pace of re-openings of restaurants and other foodservice outlets will have an impact. Abroad, rising prices are making U.S. products less competitive in global export markets.

On the supply side, dairy product inventories in cold storage continue to build, and more U.S. cheese processing capacity is coming online at plants in St. Johns, Michigan and Lake Norden, South Dakota, according to Marin Bozic, University of Minnesota dairy economist. The current elevated milk prices could be incentive for producers to increase output.

One other wild card: a potential second wave of the coronavirus poses a threat.

All of this points to the importance of learning about and implementing risk management tools.


What happened?

Retail dairy product sales gave only a hint of slowing as summer got underway, according to a report from the International Dairy Deli Bakery Association (IDDBA). Summarized from Information Resources Inc. (IRI) U.S. grocery store sales data for the week ending May 31, weekly retail dairy sales percentage gains have been up double digits over comparable weeks in 2019 for 12 consecutive weeks.

Year-over-year gains for the week ending May 31 were up almost 19% by value for the overall dairy category, driven by sales of cheese (up more than 27%) and butter (up almost 32%), while fluid milk sales maintained recent trends (up 11%). Yogurt, which has lagged all other dairy product categories in sales growth, posted its strongest year-over-year gains, with two consecutive weeks of +4% growth.

What’s next?

If you’re looking for clouds in a sunny report, sales for the week ending May 31 represented only the second time in the previous 12 weeks that sales growth slipped below 20% when compared to the similar week a year earlier. With restaurants slowly reopening and meal patterns adjusted to summer, the question is whether retail sales growth can maintain the current pace.

Bottom line

Why is that important? We’ve read and heard a great deal about the loss of the foodservice (restaurants and schools) business and its impact on dairy markets. However, retail sales have helped ease some of that pain and will be critical going forward.

In his Northeast Dairy Management webinar, Plourd touched on something that seems obvious but I had never seen quantified before. Citing a JP Morgan study, he noted that when it comes to actual food volume, we get more “bang for our buck” in grocery stores than we get for the same dollar spent in a restaurant. According to the study, food costs make up about 70% of the shelf price at a grocery store but only 30% of the menu price at a restaurant, since we’re paying for preparation, waiters and waitresses, white tablecloths and everything else that goes into the restaurant experience.

In terms of food volume, each 3% gain in grocery store spending offsets a 10% decline in restaurant sales. (The data covers all food and doesn’t necessarily represent specific data for dairy.)

There were times during the COVID-19 pandemic when restaurant sales were virtually zero, and only astronomically high retail sales increases could have made up for that loss. The IDDBA data showed March 2020 retail dairy sales were up an average of 35% compared to a month earlier, while April sales were up an average of 29%.

As the slow re-opening of restaurants continues, maintaining year-over-year grocery store sales of about 20% would help offset about 65% of lower restaurant sales. In an industry where cold storage inventories and the steady movement of volumes of perishable products are so critical to producer prices, grocery store sales are critical.


What happened?

U.S. dairy producers received nearly $667 million in direct payments through the Coronavirus Food Assistance Program (CFAP) as of June 15. Dairy applications processed by USDA Farm Service Agency (FSA) offices stood at 12,084.

What’s next?

To ensure the availability of funding throughout the application period, producers will receive 80% of their maximum total payment upon approval of the application. The remaining 20% portion of the payment, not to exceed the payment limit, will be paid at a later date as funds remain available.

If all payments are made, the total dairy payment would be equal to about $6.20 per cwt on first-quarter 2020 milk production. Applications will be accepted through Aug. 28, 2020.

Bottom line

The FSA began taking applications May 26. Since the start of the application period, the top 10 states for CFAP dairy payments were:

  • Wisconsin: $156.2 million; 2,975 applicants
  • California: $87.5 million; 538 applicants
  • New York: $79.1 million; 1,467 applicants
  • Pennsylvania: $38.6 million; 1,207 applicants
  • Michigan: $36.1 million; 510 applicants
  • Minnesota: $27.7 million; 1,012 applicants
  • Idaho: $25. 2 million; 198 applicants
  • Iowa: $20.7 million; 503 applicants
  • Washington: $20.1 million; 180 applicants
  • Texas: $18.2 million; 157 applicants

In addition to dairy, payments totaled $1.416 billion to livestock producers, $758.4 million to producers of non-specialty crops and $53.3 million to producers of specialty crops. Total payments through June 15 for all categories was just under $2.9 billion.

If you haven’t already, get your applications in before the money runs out. end mark