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Dairy Market Report -- April 2021
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Dairy Market Report -- April 2021

Domestic dairy-product use is increasing with signs that the country is making another run at moving on from the COVID-19 pandemic. There are growing ranks of the vaccinated, gradual recovery of food service and staged resumption of in-person schooling. It’s all increasing milk-price forecasts for later this year.

But the positive developments are in a race with new virus variants and premature relaxation of behavioral measures to protect against transmission. U.S. dairy exports surged internationally in February. But dairy imports have decreased to multi-year reduced numbers as a percentage of domestic milk-solids production.

Still milk prices remain well less than a year ago and payments from the Dairy Margin Coverage Program remain significant. Increasing demand isn’t keeping pace with milk production. Stocks of major dairy products are increasing, making increased prices more the product of hope for brighter days than of market fundamentals. That makes effective risk management crucial.

Commercial use of dairy products increases

Domestic commercial use was positive – on a leap-year-adjusted basis – for most major dairy products and for milk in all products during December 2020-February 2021. Increased use was particularly notable for butter, yogurt and American-type cheese. Year-over-year growth in total consumption of milk in all products, total solids-basis milk equivalent, has exceeded domestic consumption growth for most months during the pandemic. Export gains have outpaced increases in domestic use.

Total consumption growth temporarily slipped to less than domestic growth during November through January. Export shipments were slowed by a container shortage and U.S. port congestion, but switched back again in February. Fluid-milk sales were more than a year earlier in December and just slightly ahead in February. But a decrease of almost 5 percent in January decreased consumption by about 1 percent for the three-month period. Domestic-consumption growth may begin to outpace total-consumption growth more consistently during the next few months.

U.S. dairy trade varies

U.S. dairy exports during December 2020 through February 2021 were mixed for many main product categories including cheese and dry ingredients, but were stronger for milkfat products. Those mixed changes balanced out to leave total exports as a percent of U.S. milk-solids production unchanged from a year earlier. But individual months are more volatile than the year-over-year figure. December was 14.5 percent and January was 14 percent. But February increased to 16.9 percent on significantly stronger exports that month of milk powders, whey products, butter and cheese.

U.S. dairy imports decreased from a year earlier for major product categories during December 2020 through February 2021. As a percentage of U.S. milk-solids production, imports have been decreasing fairly steadily from 4 percent in July 2019 to 2.5 percent this February, the smallest level by that measure since May 2014.

Milk production increases

As was widely expected, January U.S. milk-production growth was revised from 1.6 percent to 2.4 percent. Preliminary February production increased by 2 percent from a year earlier on a leap-year-adjusted basis. For individual states January production was revised, decreasing by more than 2 percentage points for Georgia and Florida. But it was increased by more than 2 percentage points for California and Kansas.

January U.S. growth in average milk production per cow was also increased, from 0.6 percent to 1.4 percent year-over-year. Preliminary February production per cow was 1.2 percent more than a year earlier. Milk-solids production increased a full percentage point faster than liquid-milk production during December 2020 through February 2021, according to U.S. Department of Agriculture data.

Dairy products strong

The disparity between rates of growth for American-type and Italian-type cheese was particularly extreme during the period December 2020 through February 2021. But the resurgence of food-service consumption should narrow that gap in the near future. The particularly strong growth of butter production is consistent with dry-skim-milk-product production growth during the period.

Dairy-product inventories stable

Cold-storage stocks of butter and cheese as well as manufacturer stocks of dry skim milk and dry whey continue to increase from the pandemic-month decreased points they all attained during the second half of 2020. But when measured by days of total commercial use in stock, all except butter have been relatively stable and in-line with long-term trends. Only butter stocks are clearly approaching the increased levels, by all measures, that they attained during the initial surge of the pandemic during spring 2020.

Dairy-product, Federal Order Class prices stable

Monthly survey prices of the key dairy products that establish Federal Order Class prices were mostly stable from February to March – except for butter and dry whey, which improved significantly in March. Despite butter’s recent growing production and stock situation, buyers seemed to focus more on strong retail sales and recent reports of increased food-service use. Class I prices decreased in March, while Class II and Class IV prices rose by $1 per hundredweight or more. That was considerably more than how much Class III prices improved at the same time but still left Class III prices at well more than them. Retail prices for major dairy products were mostly decreased in March from the month before.

Margin coverage decreases

The February margin under the Dairy Margin Coverage program was $0.92 per hundredweight less than January’s $6.22 per hundredweight. Of the decrease, $0.40 per hundredweight was due to a reduced milk price at $17.10 per hundredweight. The other $0.52 per hundredweight was generated by a greater feed-cost calculation. It was almost all due to an increased price for corn, slightly offset by a reduced soybean-meal price. The February payment for $9.50 per hundredweight Dairy Margin Coverage is therefore $3.28 per hundredweight. For the first two months this year the program has generated payments of more than $223 million at an annualized rate of $0.94 per hundredweight.

Looking Ahead

In the April update to its World Agricultural Supply and Demand Estimates forecasts, the USDA raised its estimate of milk production for 2021 from 227.3 billion pounds to 227.7 billion pounds, which would be 2 percent more than 2020 production. That’s primarily due to increased cow numbers. But it also increased the 2021 all-milk price forecast, from $17.75 per hundredweight to $18.40 per hundredweight due to “improving demand.” At the same time dairy futures translated into a 2021 all-milk price forecast of about $19.40 per hundredweight. Futures also indicated the February margin may be the smallest for the year, and that the margins going forward should rise to more than $9.50 per hundredweight about mid-year.

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