IT’S BEEN A ROLLER COASTER when it comes to milk prices. During April 22 trading on the CME, Class III future contracts for May to December 2020 averaged a dismal $13.71 per cwt. By May 21, those same contracts rebounded $2.43 to reach a $16.14 average. Toss out the May contract from the mix and the remaining seven contracts netted $16.70.
WHY HAVE DAIRY MARKETS SHOT SKYWARD? “There are now a lot of people chasing spot deliveries that need to be delivered in the next six weeks,” said Nate Donnay of INTL FCStone Financial. “Food service sales continue to slowly improve as people venture out.”
“MEANWHILE, THE U.S. GOVERNMENT has stepped in with the first round of its Food Box Program, which was twice as big as previously expected,” stated Donnay. “Toss in a slowdown in milk production, thanks to milk handlers putting over-base programs into place in May, and you can see why dairy markets have gone skyward.”
COVID-19 HAS RESET FOOD SALES. In the 1950s and 1960s, 90% of food-related purchases were devoted toward an in-home meal. These days, less than 50% is being spent at home. Since March, home food purchases have gone way up and may hold at a number higher than 50%.
FLUID MILK, CEREAL, AND FROZEN PIZZA all experienced game-changing positive sales shifts due to the pandemic. The question remains: Will those changes in consumer buying patterns be sustainable?
PRIOR TO THE PANDEMIC, fluid milk sales were down 5% and then jumped 34% during the first two weeks of “stay-at-home” directives. Since then, fluid sales have held a new baseline, remaining up 10%.
ABOUT 30% OF BEVERAGE MILK gets poured on cereal, making the foods complementary products. Cereal sales had been sliding 1% to 3% annually. However, in early pandemic buying, cereal sales shot up 78% and then reached a new metric of being 17% above last year.
MOZZARELLA AND PIZZA ARE DULY LINKED. Prior to COVID-19, sales trudged along on a flat pattern. During early pandemic buying, frozen pizza sales soared 120% and have since held 39% above old patterns.
FOOD SERVICE STRUGGLED. Quick-serve restaurants, such as McDonald’s, saw sales slide 42% during the height of the pandemic. “Right now, they are down 20%,” said DMI’s Tom Gallagher. “On full-service restaurants, the transactions were down 80% at the height and are down 60% now.” That impacted butter as 60% of sales go to restaurants.
DAIRY FARMERS COULD EXPECT $6.18 PER CWT. payments from USDA’s Farm Service Agency (FSA) as a result of COVID-19 relief. Sign-ups began May 26 and checks could be issued as early as June 1.
PAYMENT CAPS STAND AT $250,000 for sole proprietorships, and LLCs, closely held corporations, and limited partnerships may receive up to $750,000. For more details, set up an appointment with FSA.
THOSE PAYMENTS WILL NOT MAKE DAIRY WHOLE as USDA projected that dairy farmers lost $8.2 billion, while other industry experts pegged the number closer to $10 billion. No matter the math, dairy was among the hardest hit U.S. agricultural commodities.
BRIEFLY: The March income over feed cost of $9.15 triggered a Dairy Margin Coverage (DMC) payment. It could be the first of many this year. DMI and Pizza Hut jointly announced they would give away 500,000 pizzas to the high school class of 2020 on “The Tonight Show” with Jimmy Fallon. Foremost Farms announced it would close its Chilton, Wis., cheese plant that specialized in Provolone and other Italian cheeses.
