Update Highlights

June DMC margin announced on July 30

On July 30, the USDA announces milk and feed prices used to calculate the June 2021 Dairy Margin Coverage (DMC) program margin and potential indemnity payments. Check the Progressive Dairy website for a summary and analysis late Friday afternoon.

Natzke dave
Dave Natzke
Editor / Progressive Dairy

The May DMC milk income over feed cost margin was $6.89 per hundredweight (cwt), triggering indemnity payments on Tier I and Tier II milk insured at $7 per cwt and above. (Read: DMC margin below $7 for fourth straight month.)

DMC indemnity payments had been issued for every month through May and are likely to continue. According to Peter Vitaliano, chief economist for the National Milk Producers Federation (NMPF), the current futures-based price outlook indicates that the national all-milk price will not likely rise much more than a dollar per hundredweight above its May level through the end of 2021, while the DMC program’s feed cost calculation may not recede much from May. Together, these outlooks raise the prospect that DMC margins could stay below $9.50 per cwt for all of 2021.

August 2021 Class I base price falls below $17

The August Federal Milk Marketing Order (FMMO) Class I base price fell to a four-month low. At $16.90 per cwt, it’s down 52 cents from July 2021 and $2.88 less than August 2020.

Through August, the 2021 Class I base price averages $16.39 per cwt, about even with the same period in 2020 ($16.42 per cwt) and 2019 ($16.34 per cwt). Factoring into the “average of” calculations to set the Class I base price, both Class III and Class IV skim milk prices declined.

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April 2021 mailbox, all-milk price spread continues

April 2021 differences in two monthly milk prices announced by the USDA maintained more than a $1 per cwt spread. The monthly spread between the two averages grew to $1.17 per cwt, up from 99 cents in March.

Negative producer price differentials (PPDs) across all applicable FMMOs hit -$1.12 per cwt in April, compared to -48 cents per cwt in March. Read: PPDs took a small step back in April.

The USDA announcements of mailbox prices generally lag all-milk prices by a couple of months. Through the first four months of 2021, the USDA’s “mailbox” prices averaged about $1.24 per cwt less than average “all-milk” prices for the same months. During that four-month period, all-milk prices averaged $17.60 per cwt, while mailbox prices averaged $16.37 per cwt.

By month, the difference between the U.S. average mailbox price and the all-milk price was: January: -$1.38 per cwt, February: -$1.40 per cwt, March: -99 cents per cwt and April: -$1.17 per cwt.

The comparison carries multiple disclaimers. For more details, read: Pandemic impact shows up in milk ‘mailbox’ prices.

Based on the USDA data, the U.S. average difference between mailbox and all-milk prices grew to -$1.36 per cwt in 2020, compared to -73 cents per cwt in 2019 and -55 cents per cwt in 2018. With COVID-19 market disruptions resulting in FMMO depooling and negative PPDs, the difference between all-milk and mailbox prices was large in the second half of 2020. In October and November 2020, for example, the USDA mailbox price was -$2.22 per cwt and -$2.15 per cwt compared to the all-milk price for those months, respectively.

The difference in the all-milk price and the mailbox price represents an additional challenge: USDA risk management programs, including the DMC program, are based on the all-milk price. With the mailbox price below the all-milk price, producers are unable to protect against falling net prices impacted by such things as negative PPDs.

Semiannual dairy cow and heifer survey reflects growth

Like USDA’s monthly Milk Production reports, the agency’s semiannual estimate of dairy cows reflects continued growth in the size of the U.S. dairy herd during the first half of 2021. At the same time, crossbreeding with beef sires and reducing excess heifer inventories is cutting into the number of dairy replacement heifers.

As of July 1, 2021, the USDA estimated the number of dairy cows calving in the past year at 9.5 million head, up about 150,000 (2%) from July 1, 2020, and about 60,000 more than recorded on Jan. 1, 2021.

Dairy replacement heifers weighing more than 500 pounds were estimated at 4.1 million on July 1, 2021, up 100,000 head from a year earlier but down about 500,000 from Jan. 1, 2021.

Although U.S. dairy cow numbers remain at a 27-year high, the USDA’s June 2021 Milk Production report is the first signal the size of the nation’s herd may have peaked. Those reports show U.S. cow numbers grew every month between July 2020 and May 2021, adding 153,000 cows over that period and reaching a high of 9.508 million head.

Read: Has U.S. dairy herd peaked?

The semiannual USDA survey covers both beef and dairy cattle operations. The July report does not provide estimates for individual states.

Washington dairy worker overtime requirement kicks in

Dairy workers in Washington must receive overtime pay after working more than 40 hours in a work week under a new state law that took effect on July 25.

In a 2020 ruling in Martinez-Cuevas v. DeRuyter Brothers Dairy, the Washington State Supreme Court ruled for workers who challenged an ag worker overtime requirement exemption under the state's Minimum Wage Act. Following the ruling, the Washington State Legislature created a law removing the agricultural exemption.

Requirements for overtime pay for nondairy agricultural employees are phased in beginning on Jan. 1, 2022. Currently, agricultural workers, including piece-rate workers, must earn at least $13.69 an hour in 2021. Overtime pay must be at least 1.5 times the employee's regular rate of pay.

Things you might have missed

  • Positive aspects of the current U.S. dairy industry situation outlook include a 4.7% annual increase for total commercial use of milk in all products, domestic and export, during March-May, when measured on a milk equivalent of total solids basis. Read more analysis from NMPF’s Vitaliano in the July 2021 Dairy Market Report.

  • NMPF updated year-to-date estimated Cooperatives Working Together (CWT) program-assisted sales totals. Through late July, accepted offers on 2021 sales (including adjustments to previous sales reports) have reached about 30.8 million pounds of American-type cheeses, 11.4 million pounds of butter, 5.1 million pounds of anhydrous milkfat, 17.8 million pounds of whole milk powder and 8 million pounds of cream cheese. These sales are the equivalent of about 873 million pounds of milk on a milkfat basis. The amounts of dairy products and related milk volumes reflect current contracts for delivery, not completed export volumes. CWT pays export assistance to the bidders only when export and delivery of the product is verified by required documentation.

  • The USDA will provide approximately $16.6 million to organizations assisting socially disadvantaged farmers through the Outreach and Assistance for Socially Disadvantaged Farmers and Ranchers and Veteran Farmers and Ranchers Program. Eligible applicants include not-for-profit organizations, community-based organizations and a range of higher education institutions serving African American, American Indian, Alaska Native, Hispanic, Asian and Pacific Islander communities. The deadline for applications is Aug. 25. For details, click here.  end mark