Digest Highlights

1Q 2021 mailbox, all-milk prices maintain wider spread

First-quarter (1Q) 2021 differences in two monthly milk prices announced by the USDA maintained the wider spread that surfaced last year when the COVID-19 pandemic impacted milk marketing.

Natzke dave
Dave Natzke
Editor / Progressive Dairy

Through the first three months of 2021, the USDA’s “mailbox” prices averaged about $1.25 per hundredweight (cwt) less than average “all-milk” prices for the same months.

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 and March: -99 cents per cwt. During that three-month period, all-milk prices averaged $17.33 per cwt, while mailbox prices averaged $16.08 per cwt.

The USDA announcements of mailbox prices generally lag all-milk prices by a couple of months.

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

Advertisement

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 Federal Milk Marketing Order (FMMO) depooling and negative producer price differentials (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 Dairy Margin Coverage (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.

California QIP referendum falls short of passage

A referendum to sunset California’s Quota Implementation Plan (QIP) fell short of the necessary votes, leaving the program in place for the foreseeable future.

The referendum required several voting thresholds for passage: 51% of the state’s producers were required to vote, and passage of the referendum required a “yes” vote from 65% of the voters producing 51% of the voting milk or 51% of the voters producing 65% of the voting milk.

According to the California Department of Food and Agriculture (CDFA), nearly 79% (733) of the state’s dairy producers returned ballots. However, of those, 361 (49%) voted in favor of the referendum, while 372 (51%) opposed it. Producers voting in favor of the referendum represented about 55% of the total voting milk.

The referendum was held on a petition submitted last year by United Dairy Families of California. The producer-derived plan would have terminated the QIP effective March 1, 2025, and equalized regional quota adjusters such that the quota premium in all counties equaled $1.43 per cwt.

Under the current program, 38 cents per cwt is deducted from all milk, with producers holding quota receiving a payment of $1.70 per cwt.

Darigold plans $500 million protein and butter facility

Darigold Inc. will build a $450-$500 million protein and butter operation at Pasco, Washington. Pending an assessment of new state environmental regulations, initial site development is expected to start in early 2022 with full commercial production targeted for late 2023 or early 2024. Reported processing capacity was estimated at about 8 million pounds of milk per day

In addition to production of dairy proteins and butter, the specialized 400,000-square-foot facility will incorporate a variety of innovative technologies and conservation strategies designed to reduce greenhouse gas (GHG) emissions by 25% compared to the company’s existing baseline, or about 300,000 metric tons of CO2e per year.

Darigold will deploy anaerobic digestion technology as part of the on-site wastewater treatment strategy and use the extracted methane as a natural gas substitute. Machinery design will enable heat and energy recovery and reuse. In addition, the new infrastructure is designed to accommodate future electric vehicles.

Situated within the multimodal Port of Pasco on the Columbia River, it will have access to both rail and barge facilities and will slash the distance trucks travel for milk pickups and deliveries by 5 million miles annually.

Headquartered in Seattle, Darigold is the marketing and processing subsidiary of Northwest Dairy Association (NDA), which is owned by nearly 350 dairy farm families in Washington, Oregon, Idaho and Montana. Darigold operates 11 plants throughout the Northwest and handles approximately 10 billion pounds of milk annually, producing a full line of dairy-based products for retail, food service, commodity and specialty markets.

Global Dairy Trade index down again

The index of Global Dairy Trade (GDT) dairy product prices fell 3.6% in the latest auction, held July 6. The drop extended the trend of index declines that started in April and equaled a 3.6% decrease on March 16.

A price summary of individual product categories follows:

  • Skim milk powder was down 7% to $3,126 per metric ton (MT).
  • Butter was down 3.2% to $4,458 per MT.
  • Whole milk powder was down 3% to $3,864 per MT.
  • Cheddar cheese was down 9.2% to $3,949 per MT.
  • Anhydrous milk fat was down 0.6% to $5,632 per MT.

The next GDT auction is July 20.

Ag Economy Barometer dips

Results from the monthly Purdue University/CME Group Ag Economy Barometer survey indicate short- and long-term outlooks continue to weaken among U.S. farmers. Less optimism about current financial conditions – driven by labor shortages and rising production costs – translated into reduced plans for large-scale investment, although machinery purchasing decisions were less negatively impacted. Despite weakening perceptions about their farms’ financial performance, producers remain relatively bullish on farmland values.

The Ag Economy Barometer provides a monthly snapshot of farmer sentiment regarding the state of the agricultural economy. The monthly survey collects responses from 400 producers whose annual market value of production is equal to or exceeds $500,000. Minimum targets by enterprise are as follows: 53% corn/soybeans, 14% wheat, 3% cotton, 19% beef cattle, 5% dairy and 6% hogs. Latest survey results, released July 6, reflect ag producer outlooks as of June 21-25.

Things you might have missed

  • The $45 million expansion of a Kansas Dairy Ingredients (KDI) Cheese Company in southwest Kansas remains on schedule. Construction started in December of 2020 and is on target to receive milk in October of 2021. The facility, located at Hugoton, Kansas, will produce American, Italian and Hispanic-style cheeses and European-style cheese and butter. The privately owned company was established in 2012 and currently manufactures and markets ultrafiltered concentrated milk products.

  • Construction of the latest phase of expansion at an Agri-Mark plant located in Chateaugay, New York, is underway. The $30 million plant modernization project started in 2016. This phase of the project dedicates $16 million to building a new state-of-the-art cheese production room to improve plant efficiency.

  • Analysis of potential expansion of dairy processing capacity in Nebraska indicates a large butter facility at Grand Island would have the biggest impact to a local economy. Per-cow economic impacts were largest from construction of a cheese plant. According to the University of Nebraska study (The Economic Impact of Dairy Processing Expansion in Nebraska), growth of corn and soybean production in the state creates significant opportunity to expanded value-added agriculture, especially dairy. The study anticipates adding a regional cluster of dairy farms to supply the milk for each plant.

  • In a July 6 press release, the USDA’s Risk Management Agency (RMA) announced agricultural producers with crop insurance can hay, graze or chop cover crops for silage, haylage or baleage at any time and still receive 100% of the prevented planting payment. Previously, cover crops could only be hayed, grazed or chopped after Nov. 1, otherwise the prevented planting payment was reduced by 65%. To learn more about this policy change, visit RMA’s Prevented Planting webpage.

Coming up: June uniform prices, PPDs released next week

The next round of FMMO milk utilization, uniform price and producer price differentials are released the week of July 12, covering June milk marketings.

Affecting uniform prices and pooling behavior, the June Class I base price was $18.29, up $1.19 per cwt from May. Adding zone differentials, Class I prices will range from $19.22 per cwt in the Upper Midwest to $22.82 per cwt in Florida, with minor adjustments within each individual FMMO.

The June Class III milk price fell $1.75 to $17.21 per cwt, while the Class IV milk price rose slightly to $16.35 per cwt, a spread of 86 cents, the slimmest gap since February 2020.

Those milk class price relationships should reduce FMMO depooling incentives, although each FMMO has its own rules for “repooling” as Class III milk handlers jump back in the pool.

The June 2021 Class III price is $3.83 less than a year ago, when USDA food box purchases pushed cheese prices higher. Through the first half of 2021, the Class III milk price averaged $16.96 per cwt, up 87 cents from the same period in 2020.

The June 2021 Class IV price is $3.45 above a year ago and a 17-month high. The January-June 2021 Class IV average is $14.84 per cwt, up $1.06 from the same period a year earlier.  end mark