Robin Schmahl
March 22, 2021
The outlook for milk prices during the month of February into the first half of March improved the price outlook for the year. Milk futures pushed higher supported by both rising cash prices and demand optimism. May through November Class III futures moved above $18.00 with June through December Class IV futures above $16.00. Cash prices were rising due to increasing demand from the restaurant industry as more restrictions were being lifted and traffic increased. The supply pipeline for restaurants was low as most consumers were eating meals at home or utilizing carry out or delivery services. Now, that restrictions for dining-in have been relieved, more orders were placed to supply reduced reserves. This resulted in a greater demand for butter and fresh cheese.
Butter has seen some strong international interest recently with monthly exports increasing substantially compared to a year earlier. World butter price was significantly higher than the U.S. price making it attractive to purchase. That may continue for a period of time due to the substantial slowing of butter exports last year.
On the other hand, cheese exports have been slowing for a few months with January exports down 9.9 % with November through January exports down 9.1%. One of the reasons for this is that it is a reaction to the high prices of cheese last year. To some, this may not make much sense as it has been some time since those high cheese prices, but to the export market, it has not been that long. One must understand that many times international buyers are purchasing for some month ahead of time. Shipments cannot be received in only a few days or even weeks in most cases. Of course, product can be, and sometimes is, shipped by air, but the majority of export purchases are made months in advance. That is why we saw strong cheese exports when prices were at record highs. That cheese was purchased when prices were lower. Now we are seeing the results of high prices as buyers stepped back for a period of time. This is now coming through the system showing up as reduced export demand when cheese prices are reasonable and competitive with world price. This will run its course and exports will again increase.
In the meantime, domestic demand will need to hold and increase in order to keep up with increasing milk production. For the first two months of this year, milk production has average 2.2 percent over the same period last year. This is very strong growth and one that is possible due to strong milk production per cow and increasing cow numbers.
Cow numbers in February totaled 9.458 million head. This is the highest amount of cows since the mid 1990’s. Cow numbers declined last year as a result of demand disruption and milk plants initiating significant restrictions on milk production. Some plants informed farms they needed to cut production by as much as 20% for a few months.
Cow numbers declined during the months of April, May and June as heavier culling took place. However, cow numbers quickly rebounded increasing steadily since July.
That puts the industry in position to be able to easily satisfy increasing demand that has been seen from the food service industry and well as increased government purchasing for food programs. The issue is whether there will be sufficient bottling and manufacturing capacity during spring flush to be able to handle the increased milk production. More plants will likely implement quotas in order to balance supply and demand during the period. The drastic measures of last year will not likely be needed, but I get the sense from dairy producers that even if quotas are implemented at their plants, they may not change anything and will just take a lower price for the milk produced over quota for the period of time. One thing became more evident last year was that restricting a cow’s lactation curve or increasing dry periods are not beneficial in the longer-term. This will keep milk production strong.
dairyherd.com
