As I pen this article in late September, CME spot cheddar block prices rocketed up 22.75 cents – by far the largest daily advance on record. Blocks have rallied by more than $1 per pound from their mid-August low, recouping nearly 75% of the ground lost when block prices plummeted from their all-time high of $3 per pound.
Spot butter is up 6.75 cents. In mid-September, traders swabbed 46 loads of butter at the CME spot market, the highest count for a single session since 2004. Spot butter prices climbed 11.75 cents, pushing out of the narrow trading range that had prevailed for the past six weeks. CME spot nonfat dry milk followed suit climbing 3 cents to $1.07 – a six-month high.
The administration announced the second round of the Coronavirus Food Assistance Program (CFAP) to offset agricultural losses for commodities whose late-July prices were at least 5% lower than they were in mid-January. Dairy payments will be based on a 60-40 blend of December Class III and IV futures, resulting in payments of $1.20 per hundredweight for actual production in April through August and estimated production in September through December.
Producers have been riding a rough bronc for most of 2020. The all milk price fell by 31% from January to May, rebounding by 51% from May to July with the best guess that August all milk will decline by 30%.
As dairymen do when production controls were lifted and better prices loomed, July milk production increased by 1.5% year over year.
After record cheese inventories in April, stocks saw a drawn-down leaving inventories just 2.4% higher than last year. However, butter stocks were 13% higher than July 2019 levels and dry whey was 27% higher. Total disappearance however increased by 0.7% in the second quarter driven by export growth of 20% offsetting a 2.4% decline in domestic demand.
Best predictions are for milk production to increase through the second quarter at 1.5%. World production seems to also be on the rise for that same time period.
The fourth quarter Class III milk averaged $18.60 with November up the limit. First quarter 2021 Class III milk was all up, averaging $16.60. With the potential second wave of COVID-19, economic recession and a potential regime change in Washington, my crystal ball is pretty murky. The best advice is to use a risk management tool to protect at least half of your production. Each program has some merit. The point is to be proactive in managing risk.
Fred Hall is the dairy program specialist for Iowa State University Extension and Outreach. Reach him at 712-737-4230 or email@example.com.