September 24, 2019
Cold Storage, Milk Production & DMC
A series of reports have been released in recent days. However, the availability of fresh (under 30 days of age) block cheddar has still carried the greatest influence on prices. In Monday's cold storage report, this issue was highlighted once more. Total natural cheese was basically on par with last month's and last year's numbers, a rare occurrence. Normally drawdowns of cheese equate to roughly 26 million lbs in August. This year, they rose 700,000 lbs. A full view the numbers is shown in the table below.
After a closer look, you will notice that American cheese did not carry greater volumes. American cheese which would be the over-arching classification of cheddar blocks was lower than last month and lower than last August's volumes. With exception given to the 2016 and 2018 July spike in inventory, this year's drawdown pattern very much resembles the pace set in the last three years. How we proceed through September can vary. Current CME Spot Price action suggests that further tightening has occurred. That suggests further and normal seasonal drawdowns in American Cheese. The American Cheese Cold Storage chart below provides a great visual.
Milk production is already responding to higher prices. In last week's Milk Production report, July cow numbers were revised higher by 10,000 before the USDA made the 2,000 cow reduction to the August herd. As usual, cow productivity continued to climb over the previous year. In the end, milk production was reported 0.2% greater than August 2018. A full view of the numbers can be found below.
Anecdotally, many producers have reported small, low cost "expansions" in an effort to capitalize on price. Since many of these efforts take several months to deploy, it may still be a short time before this activity is realized in future milk production reports. In the meantime, price opportunity deserves attention. As has been the case, we recommend option and DRP strategies to manage current risk and provide flexibility for future volatility. Give us a call to sort through strategies appropriate to your situation.
Finally, the USDA extended the deadline to sign up for Dairy Margin Coverage (DMC, the old MPP program) from September 20th to this Friday, September 27th. With all of the changes made to this program in the 2018 Farm Bill, producers should strongly consider adding this tool to their portfolio of risk management. While it is not designed to be a one size fits all type of product, the new $9.50 margin coverage is tough to beat. If you have not already done so, reach out to FSA to secure this most affordable coverage.