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Risk management calendar: Wrapping up 2021 and looking ahead to a new year

Progressive Dairy Editor Dave Natzke Published on 23 December 2021

Progressive Dairy provides monthly online updates of important dates and reports affecting risk management decisions.

A look back at November

Declining cow numbers and stagnant milk production per cow held total U.S. milk production below year-ago levels in November. U.S. cow numbers declined for a sixth consecutive month, down 10,000 from the revised October estimate and are now down 122,000 head since peaking in May 2021. Overall monthly U.S. production per cow rose just 3 pounds compared to November 2020.

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Adding it all up, the USDA preliminary estimates for November 2021 showed U.S. milk production at 18.035 billion pounds, down 0.4% compared to November 2020; milk production in the 24 major dairy states totaled 17.255 billion pounds, down 0.1%.

Read: November 2021 milk production lower.

Less milk in forecast

In a continuing trend, the USDA’s World Ag Supply and Demand Estimates (WASDE) report reduced milk production forecasts and raised projected milk prices for both 2021 and 2022.

For 2021, the USDA forecasts milk production at 226.2 billion pounds, down 200 million pounds from last month’s estimate. If realized, 2021 production would be up about 1.1% from 2020.

Looking into next year, 2022 milk production was forecast at 227.7 billion pounds, down 400 million pounds from last month’s forecast. If realized, 2022 production would be up less than 0.7% from the 2021 forecast.

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With lower milk production, 2021 butter, cheese and whey price forecasts were raised from the previous month; the nonfat dry milk (NDM) price forecast was unchanged. The projected 2021 Class III price was raised 10 cents to $17.05 per hundredweight (cwt). The Class IV price forecast was raised a nickel to $16.05 per cwt. The 2021 all-milk price forecast was raised to $18.60 per cwt, up a dime.

For 2022, cheese, butter, NDM and whey price forecasts were all raised. Projected Class III and Class IV prices were raised 30-40 cents to $18.15 and $19 per cwt, respectively. The projected all milk price for 2022 was raised to $20.75 per cwt, up 50 cents from last month’s forecast.

Read: Weekly Digest: USDA milk production forecast reduced, price projections rise.

October U.S. dairy export value higher

Strength in cheese and butterfat exports was offset by weaker sales of milk powders and whey, resulting in a small year-over-year decline in U.S. dairy export volume (milk solids equivalent) in October, according to the U.S. Dairy Export Council (USDEC). However, shipments of higher-priced and higher-valued products boosted exports on a value basis. The bad news: U.S. port efficiency remains a challenge heading into the final two months of the year.

Read: October U.S. dairy export value higher.

Product inventories shrink

With less milk production, inventories of dairy products continued to tighten in November, according to the USDA’s monthly Cold Storage report, released Dec. 22 and representing inventory estimates as of Nov. 30, 2021.

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Butter stocks were estimated at 211.8 million pounds, down 24% from October and down 16% compared with November 2020.

Total natural cheese stocks were estimated at about 1.422 billion pounds, down 2% from October but up 5% from November 2020.

Stocks of American cheese were estimated at 835.2 million pounds, with Swiss cheese at 20.7 million pounds and other cheese at 565.7 million pounds. All were down 1%-3% from October but up from November 2020.

Dairy Margin Coverage program

The November Dairy Margin Coverage (DMC) program margin and potential indemnity payments are scheduled to be released on Dec. 30. Check the Progressive Dairy website for an update late that day. The December 2021 DMC program margin and potential indemnity payments will be released on Jan. 31, 2022.

As of Dec. 23, the USDA’s online DMC Decision Tool projected November and December DMC margins of $8.98 and $9.35 per cwt, respectively. At those margins, indemnity payments would be triggered at the $9.50 and $9 coverage levels for November and $9.50 coverage level for December.

Farther out, the DMC Decision Tool forecasts the 2022 margin to average $9.19 per cwt, with small indemnity payments triggered at the $9.50 coverage level in 10 months and at the $9 coverage level in four months.

The enrollment period for the 2022 DMC program year is open through Feb. 18, 2022.

Small and midsized producers eligible to make production history adjustments under the supplemental DMC program must do so before enrolling in DMC for 2022.

Other tools

Dairy Revenue Protection (Dairy-RP) and Livestock Gross Margin for Dairy (LGM-Dairy) are two federally subsidized risk management programs administered by USDA’s Risk Management Agency. Both Dairy-RP and LGM-Dairy and Dairy-RP are sold and delivered solely through private crop insurance agents.

Dairy-RP

Dairy-RP coverage availability will be impacted by the Martin Luther King federal holiday on Jan. 17, as well as on days when major USDA dairy reports that could impact markets, including Milk Production, Cold Storage and Dairy Product reports (see Calendar). Dairy-RP is also not available on days when applicable futures contracts move limit-up or limit-down.

Dairy-RP policies are available for the second quarter of 2022 through the second quarter of 2023 until March 15, 2022.

122221.natkze risk management calendar

Click here or on the calendar above to view it at full size in a new window.

According to analysis by American Farm Bureau Federation (AFBF) associate economist Daniel Munch, Dairy-RP indemnity payments were down from 2020 while program participation was up.

Read: Dairy risk management tools remain vital heading into 2022.

As of Nov. 22, 18,773 Dairy-RP policies were sold in 2021 compared to 15,022 policies sold in all of 2020. Largest increases in policies sold were in New York, Pennsylvania and California. Although milk prices were volatile throughout 2021, they were not as volatile as those experienced in 2020. Of policies sold through Nov. 22, 3,980 (19%) were indemnified, with payments estimated at $95 million.

Regardless of fewer indemnity payouts in 2021, uncertainty surrounding milk prices will keep Dairy-RP relevant to farmers looking to protect against unexpected price drops, Munch said.

LGM-Dairy

Sales periods for the LGM-Dairy program are open on a weekly basis. Unlike Dairy-RP, LGM-Dairy is available even if a sales period falls on the day of a USDA report.

Other resources

  • Zach Myers, risk education manager with Pennsylvania Center for Dairy Excellence (CDE), hosted a “Protecting Your Profits” webinar on Dec. 22. Listen to the recorded podcast here.

  • The Pennsylvania Association of Milk Dealers (PAMD) will host a free webinar, Jan. 20, 1-3 p.m. (Eastern time), featuring an overview of dairy market fundamentals and risk management strategies. The webinar is part of the educational programing requirement for the USDA Pandemic Market Volatility Assistance Program (PMVAP). Representatives of Pennsylvania’s Center for Dairy Excellence and Herbein and Company will discuss factors impacting producer milk checks. To join the webinar, click here, email Rob Fulton or call (717) 433-6813.
  • Crop Growers LLP is offering seven free regional dairy risk management seminars in the Northeast in January. The seminars feature Crop Growers’ livestock specialist Tristan Peterson, in conjunction with commodity merchandizers (StoneX/Total Farm Marketing) and Farm Credit East/AgChoice business consultants. Dates and locations are: Jan. 18, Mount Morris, New York; Jan. 19, Watertown and Auburn, New York; Jan. 25, South Burlington, Vermont; Jan. 26, Albany, New York, and Lewisburg, Pennsylvania; and Jan.27, Chambersburg, Pennsylvania. Specific times and locations and registration information is available here.  end mark
Dave Natzke
  • Dave Natzke

  • Editor
  • Progressive Dairy
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