Coronavirus remained the topic of the week, in the media and the markets, every market, including dairy, and there is no end in sight, though one wonders how much is reality and how much is hype.
Matt Gould, analyst and editor of the Dairy and Food Market Analyst newsletter, reported in the March 2 Dairy Radio Now broadcast that coronavirus has been the major headline for dairy since late January early February, and at first the industry didn’t think it would be affected much because it didn’t export a lot of dairy products to China due to the trade war and retaliatory tariffs.
That is not the case as China has virtually shut down its ports of entry, resulting in ramifications up the supply chain.
“There isn’t really a light at the end of the tunnel as to when this coronavirus turns around and China returns to normal trade,” Gould warned. “China still isn’t really back to work as somewhere around two thirds to three-quarters of China’s population is still not going to work,” he said.
The questions multiply as to how low dairy prices will go, how long will they stay there, and what kind of recovery will we see down the road. The ramifications will be around awhile even if the virus was halted immediately, Gould concluded.
Part of the story on slumping butter prices was told in the Agriculture Department’s latest Cold Storage report. Jan. 31 butter stocks stood at 242.7 million pounds, up a whopping 53 million pounds or 27.9% from December, 31.5 million or 14.9% above January 2019, and the seventh consecutive month stocks topped the year ago level.
American cheese totaled 778.6 million pounds, up 28.8 million pounds or 3.8% from December but 25 million pounds or 3.1% below a year ago. A revision added 6.1 million pounds to the original December American estimate.
Stocks in the “other” cheese category climbed to 551.3 million pounds, up 3.3 million pounds or 0.6% from December and 15 million or 2.8% above a year ago.
That put the total cheese inventory at 1.353 billion pounds, up 30.7 million pounds or 2.3% from December, but 16.5 million pounds or 1.2% below January 2019, and the fifth consecutive month total cheese stocks were below a year ago. The report was viewed as slightly bearish for butter and bearish for cheese. Most analysts viewed the report as bearish to the market.
HighGround Dairy says the report “adds to a fundamental story crafted in recent weeks that weighs both the cheese and butter markets. The COVID-19 coronavirus outspread, now spreading to different countries and continents, has forced all dairy commodity prices lower in recent weeks, and this report reaffirms growing cheese and butter stocks will further negatively affect prices.”
HGD warned that “strong American-style inventory growth over the past two months will likely push both American and total cheese higher versus prior year by February and will weigh on cheese markets throughout the spring.”
“This report confirmed expectations of ample butter availability and will keep prices at five-year lows throughout the next several weeks, barring any seasonal increase due Easter-Passover promotional demand,” says HGD.
Dairy farm bottom lines may be looking better but for many it was too little too late. The Feb. 21 Daily Dairy Report says financial pain drove dairy producers to exit the industry at a rapid clip last year.
USDA’s average annual count in the January Milk Production report showed there were 34,187 dairy herds licensed to sell milk in 2019. That’s 3,281 fewer than the 2018 average, a decline of 8.8%, according to the DDR.
“In 2019, the industry suffered the largest absolute drop in licensed dairy herds since 2004,” the DDR stated, “and the largest percentage decline since 1973. On-farm margins improved noticeably in late 2019, but as these figures show, many dairy producers ran out of equity or simply tired of the financial duress after several difficult years.”
The DDR stated that Wisconsin suffered the steepest losses. “On average, America’s Dairyland had 780 fewer herds in 2019 than in 2018. Pennsylvania saw a 470 herd decline this year in addition 2018’s 370 herd drop.”
In dairy politics, the Consortium for Common Food Names testified on Feb. 26 before the Office of the U.S. Trade Representative and urged the Trump Administration to “secure firm and explicit commitments with trading partners to assure the future use of specific generic food and beverage names targeted by European Union monopolization efforts, and to reject the use of geographical indicators as barriers to trade.”
“There is a persistent push by the EU and other European interests to dismantle competition and erect barriers to trade which must be more strongly combatted,” said CCFN Senior Director Shawna Morris in her testimony.
“Across all markets, but particularly those with which the United States has a free trade agreement or is in the process of pursuing a free trade agreement, we urge the Administration to secure explicit commitments from our trading partners that build upon the positive precedent established in the U.S.-Mexico-Canada Agreement whereby market access rights were clearly and definitively affirmed for a non-exhaustive list of common used product terms.”
In other trade news, Cooperatives Working Together member cooperatives accepted six offers of export assistance the last week of February to capture sales contracts for 44,092 pounds of Cheddar cheese, 70,548 pounds of cream cheese, and 1.323 million pounds of whole milk powder. The product will go to customers in Asia, Central and South America, and North Africa through May 2020.
CWT-assisted export sales for 2020 now total 2.780 million pounds of American-type cheeses, 407,855 pounds of butter (82% milkfat), 827,836 pounds of cream cheese and 4.630 million pounds of whole milk powder. The product is going to 12 countries and the equivalent of 75.1 million pounds of milk on a milkfat basis.