China weighs heavily on dairy and ag markets
Carla Wardin, Michigan Dairy Farmer
January 28, 2021
“We kind of laugh. It feels like it’s been Groundhog Day going all the way back to March 2020, since seemingly every few weeks we get some market-moving news. Quite frankly, over the past couple of weeks postelection, it’s been more of the same,” said Kyle Schrad, vice president, Global Dairy and Food Operations, StoneX Financial Inc.
Though Schrad was hoping for more market and economic clarity postelection, markets still remain volatile. However, he does have projections about the coming year on foreign and domestic activity.
The first elephant “The biggest thing to keep an eye on from the dairy perspective is Chinese purchases,” he said. “China is the elephant in the room.”
Schrad does have more of a bullish feeling about China due to the current equivalent import for food use versus equivalent imports for feed use, particularly proteins and dry whey.
The second elephant As for the domestic market, “The U.S. government and USDA has been the other big elephant in the room, as it caused a lot of the volatility,” he added.
With the new Biden administration, analysts initially thought the governmental Farmers to Family Food Box program was going to transition away from direct dairy purchase into directing funds more toward Supplemental Nutrition Assistance Program (SNAP) and Woman Infants and Children (WIC) payments. One of the reasons for this was the fear that the direct purchases caused too much of a market disruption and as a result, too much uncertainty. However, the most recent stimulus bill is still directing $1.5 billion toward the Food Box program.
“That’s thrown the market for a loop again . . . is this a political ploy, or because of COVID-19, or because of the long lines to pick up the boxes? What do they ultimately decide to do?
“I throw my hands up in the air,” Schrad said during “Navigating Markets for Procurement Success in 2021,” a webinar hosted by StoneX Group Inc.
The USDA has pre-announced they are planning to buy $60 million of fluid milk, $50 million of butter, and another $40 million of butter and $40 million of cheese. They are still developing the rules and reimbursement rates on a dairy donation program, which has the potential to have a big impact, particularly on butter prices.
“Most of this value has been announced,” Schrad said. “The USDA has put this out to give us the idea of what they’re going to spend. Through the year, more announcements — and clarity — should continue to come.”