Monday Morning Huddle
14 December 2020

Highlights From Last Week

Block and Barrel Weekly Averages Increase After Recent Bearish Declines

The CME block Cheddar price found slight strength throughout last week but dipped slightly on Friday. The weekly average price increased versus prior week for the first time since late October, following five consecutive weeks of sharp declines. 13 loads traded hands on Thursday as end user demand increased; it was the most trades in a single session since August. In the barrel market, prices inched higher throughout the week and settled at the highest price since November 13 on Friday. The 11 trades on Tuesday were the most in a single session since September 11. In both markets, the weekly price moves were starkly smaller versus steep declines seen in the past several weeks. USDA indicated that milk supplies were heavy, but cheesemakers were watching stocks closely to avoid overproducing, noting that market tones are more balanced after the bearish November.

USDA Announces Notable Section 32 Purchases

The USDA announced plans to purchase $60 million of fluid milk and $50 million of butter throughout 2021 for distribution to various food nutrition assistance programs. Purchases will be made under the authority of Section 32, one of several different programs that gives USDA authority to procure commodities for food and nutritional programs. While it is not abnormal to see Section 32 purchases, the nature of this announcement was larger than usual and included provisions for quarterly solicitations during 2021. It is HighGround’s belief that structuring a commodity procurement program in this manner is driven by feedback from the Farmers to Families Food Box program that drove substantial cheese price volatility throughout most of this year. By ending the Food Box program but continuing specific and targeted product procurement, USDA can attempt to support specific dairy product prices without upending the entire complex and creating unintended market disruptions.

Rumors Swirl About Additional USDA Food Box Rounds 

However, after the early week Section 32 announcement, rumors abounded that another round of the Farmers to Families Food Box program could be announced. This sent cheese and Class III futures markets higher throughout the week as the industry braced for a surge in cheese demand. No USDA announcement has been made yet, but the bullish move was maintained throughout the end of the week as uncertainty persisted. If an announcement does not materialize, futures will decline soon as overall cheese fundamentals remain bearish.

DC Leaders Fail to Reach Agreement on Further Government Stimulus

Perhaps of equal market significance are the current political negotiations regarding further government stimulus. An initial plan last week included $26 billion for nutrition and agricultural programs, but negotiators could not reach a deal to pass the deal. Over the weekend, negotiators announced plans to split the $908 billion plan into two bills; one would fund unemployment benefits, vaccine distribution, and other programs while a second would fund aid to state and local governments. Any additional funding that helps struggling Americans gain access to dairy products, plus any extension of unemployment benefits, would be encouraging factors for higher retail dairy demand into 2021. The original stimulus bill and government funding deadline was December 11, but Congress extended the deadline for one week as an agreement was elusive.

Last Week’s Reports & Analysis

Special Report: USDA Section 32 Purchase Announcement
On Friday, December 4, the USDA announced plans to purchase $60 million of fluid milk and $50 million of butter for distribution to various food nutrition assistance programs. Purchases will be made under the authority of… Full Report

October 2020 US Dairy Export & Import Volume Analysis
Demand for dairy proteins has remained strong on a global scale, helping to clear inventories as milk availability will only move higher for the next four months. The only losses year-to-date are on… Full Report

Reports This Week

Commercial Disappearance – Monday, December 14
GDT Auction – Tuesday, December 15
Weekly EU Dairy Commodity Prices – Wednesday, December 16
National Dairy Products Sales Report (NDPSR) – Wednesday, December 16
Milk Production (Nov ’20) – Thursday, December 17
USDA Dairy Market News Midpoint Prices – Thursday, December 17
USDA Weekly Dairy Cow Slaughter – Thursday, December 17
USDA Biweekly International Prices – Thursday, December 17
Cattle on Feed – Friday, December 18

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