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Economic Update: Late surge boosts December dairy cow slaughter

Progressive Dairy Editor Dave Natzke Published on 26 January 2021

Update Highlights

In addition to USDA’s monthly Milk Production report estimate showing continued growth in the U.S. dairy herd, there was no shortage of market forces and government reports impacting dairy markets as January comes to a close. Coming up later this week, the USDA announces milk and feed price factors used to calculate the December 2020 Dairy Margin Coverage (DMC) margin.

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Late surge boosts December dairy cow slaughter

Information contained in USDA’s weekly and monthly cull dairy cow slaughter reports would seem in conflict a bit.

On a weekly basis, USDA Ag Marketing Service (AMS) reports indicate dairy cull cow slaughter declined from the comparable week a year earlier for 35 consecutive weeks, starting in early May 2020 and running through Jan. 9, 2021.

However, the USDA’s latest monthly Livestock Slaughter report estimated December 2020 cull dairy cow slaughter was higher than December 2019. December 2020’s dairy cull cow slaughter at federally inspected plants was estimated at 273,500 head, up about 44,100 head from November and 8,100 more than December 2019.

In an email to Progressive Dairy, Sherry Bertramsen, agricultural statistician with USDA’s National Ag Statistics Service, suggested an extra weekday in December 2020 and a surge in slaughter in the final days of the month pushed December 2020 cull dairy cow slaughter above the same month a year earlier.

Due to difference in how holidays fell in the work week and their impact on slaughter plant schedules, Bertramsen estimated about 38,000 head were slaughtered in the final days of 2020, compared to about 22,000 during Dec. 29-31, 2019.

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Nonetheless, with year-end numbers posted, 2020 U.S. dairy cull cow slaughter under federal inspection was down about 161,000 head from the year before. 2020 dairy cow slaughter was estimated at 3.063 million head, down from 3.224 million head in 2019.

Based on preliminary data, monthly cull dairy cow slaughter under federal inspection in 2020 was higher than the year before in only three months: January, April and December.

February 2021 Class I base: $15.54 per cwt

The Federal Milk Marketing Order (FMMO) Class I base price continues to be weak to start the new year. At $15.44 per hundredweight (cwt), the February 2021 Class I price is down $2.01 from February 2020, although it’s up 40 cents from January 2021.

Round 5 ‘food box’ spending clarified

There’s additional clarity on the USDA’s announcement of a fifth round of Farmers to Families Food Box Program contracts. Dairy markets have reacted.

While the initial USDA announcement, issued Jan. 4, said the agency would spend $1.5 billion worth of food for nationwide distribution through the program, analysis by numerous groups note the financial outlay is split into three waves of about $354 million: one each in February, March and April.

The renewal of contracts in waves two and three are dependent on contractor performance in prior waves. If all three waves are carried out, that would put total spending for the fifth round of the program at $1.1 billion.

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The USDA’s original announcement sent Chicago Mercantile Exchange (CME) cheddar block and barrel prices and Class III milk futures prices substantially higher. However, those prices have since returned to pre-announcement levels due to anticipation of substantially less cheese purchases for food box distribution.

USDA announces ‘Section 32’ contracts; SNAP benefit boosted

Separate from the Farmers to Families Food Box program, the USDA’s AMS awarded multiple bids for the delivery of butter and fluid milk for distribution through domestic feeding programs. The purchases are under the authority of Section 32 of the Agricultural Adjustment Act of 1935, which authorizes the USDA to buy surplus commodities to support prices, then distributing them through domestic nutrition programs. Contracts awarded on Jan. 25 covered:

  • 5.25 million pounds of salted butter in 1-pound packages, in prices ranging between about $1.71-$1.90 per pound, to be delivered between Feb. 16-March 31: Winning bids came from Challenge Dairy Products, Grassland Dairy Products and West Point Dairy Products.

  • About 98,400 gallons of 1%, 2% and whole milk in one-half gallon and gallon containers, for distribution between Feb. 22-March 31: Prices ranged between $1.55-$1.84 per half-gallon containers and $2.30-$3.06 per gallon container. Winning bids came from Dairy Farmers of America, Darigold, HP Hood and Smith Brothers Farms.

With the Biden administration now in office, the USDA announced a 15% expansion in the Supplemental Nutritional Assistance Program (SNAP) Pandemic Electronic Benefits Transfer (P-EBT) benefit to low-income families receiving nutrition assistance. The P-EBT benefit had been capped at about $5.86 per child per school day.

Dairy product inventories build

U.S. inventories of dairy products continue to build, according to the USDA’s monthly Cold Storage report, released Jan. 25 and representing inventory estimates as of Dec. 31, 2020.

Butter stocks were estimated at 273.8 million pounds, up 9% from November and up 44% compared with December 2019.

Total natural cheese stocks were estimated at about 1.398 billion pounds, up 4% from November and 6% from December 2019. Stocks of American cheese were estimated at 801.2 million pounds, with Swiss cheese at 19.8 million pounds and other cheese at 576.9 million pounds. The inventories of total and other cheeses are the highest on record.

Dairy margins started January flat but volatility was significant

Dairy income margins were largely flat over the first half of January, although significant volatility has been noted recently in milk prices, according to Commodity & Ingredient Hedging LLC. Initial excitement over the announcement of a fifth round of the Farmers to Families Food Box Program has since dissipated with further clarity on what contents will qualify for the new boxes.

Export demand also started to cool as November dairy product shipments fell below prior-year levels for the first time since mid-2019. Feed prices meanwhile continue to soar following a surprisingly bullish January World Ag Supply and Demand Estimates (WASDE) report from the USDA which made significant cuts to corn and soybean ending stocks.

NMPF: Things you might have missed

The new year has opened with a mix of bullish and bearish market indicators, as the dairy industry moves through another major surge of the coronavirus pandemic and the federal policy outlook is uncertain with a new administration and Congress in Washington. Peter Vitaliano, chief economist for the National Milk Producers Federation (NMPF), provided a mid-January update in NMPF’s monthly Dairy Market Report.

During these challenging times, U.S. consumers are finding comfort through dairy products. The NMPF summarized growth in dairy product retail sales volume and milk consumption by category in its latest Dairy Defined update.  end mark

Dave Natzke
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