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On Cows and Markets

By  E. W. Lang

Dumping an Estimated 1000 Tankers Daily - CA to NY

There are a couple abberations in this week's market activity. Crude oil went from $20 to $33 per barrel. Wheat gained some value today and has largely escaped the recent slaughter visited upon virtually every other commodity known to civilization.

At or near the top of commodity losses since the pre-COVID era is Class IV Milk that is made into butter and dry dairy products. Since January 20, April Class IV has gone from $18.07 per cwt. to $11.15 today. That's a 38% decrease in value over 10 weeks.

For reference, the S&P 500 lost 24% over the same time, while JETS, which is an airline fund, has lost 62% of its value. Shares in CUK (Carnival Cruise Lines) are down 80 percent, and are approaching the salvage value of all their oceangoing vessels.

For the week, block cheese was down 44 cents to $1.15. Barrels lost 20 to end at $1.14 per lb. Butter was down 21 to $1.28 per lb.

During 2000, blocks, barrels and butter all hit the old $1.00 support level and milk was at or below the $9.90 support price for several months. There was similar carnage on the dairy farm in 2009. Class III Futures for the rest of this year currently average $14.19 and Class IV currently averages $12.15 per cwt. Thus the question, "Where will be the bottom?"

This last week has seen warm milk being dumped from California to New York as soon as it came out of the cow - perhaps over 1000 tanker's weekend daily volume going forward. There are some cases where non-coop members are being told to dump production, and some cases where member producers who can easily get their milk into a lagoon are being asked to dump.

Dairy farmers, generally, are also being encouraged to feed less, slaughter more cows, dry off cows early, and produce less milk on each farm. These actions can lead to a little more milk from each of the remaining cows, however.

Total milk producion in the United States will be lower after 90 days of milk prices under the sub $12 pay price producers will likely get for April, May and June's production, after differentials for dumping. This assumes stable feed values such that income over feed cost stays well below $6 per cwt. Margins under $5 would clear excesses faster, be more effective and deliver greater comprehensive damage to nearly all dairies over 300 cows in milk, given the Dairy Margin Coverage support offered by the USDA. .

This situation is fluid both literally and figuratively, as orders for raw milk change with each passing hour. Virtually no milk is being bottled or processed for food service providers, and there is not enough financial incentive and/or processing capacity in the United States to even use the butterfat and just dump the skim. So will likely be the case as long as restaurants and schools are embargoed by ordinance.

The Turlock Video Auction today saw top Jersey fresh cows at $1200 per head for a pot load of 50 cows. Top Holstein fresh cows were $1675 for a half pot. Jersey springers topped at $1125 and Jersey crossbred springers topped at $1125 as well. Those are higher prices than many would expect, given current and future milk prices.

A cooperative in Wisconsin will cash out the last 10 years of patron equity if you quit milking and sell your cows at slaughter, or to producers who ship elsewhere.

Dairy Farmers of America (DFA) was the winning bidder for Dean Foods (DF). I am guessing this is going to erode some DFA patron equity, but was a worthy investment, assuming the $433M purchase price was something less than real estate plus salvage value of the acquired assets plus whatever DF owed DFA. At this moment in history, I can see little to no intrinsic value in the DF brand or model.

Feeder calves lost $13 per cwt. this week, hogs were down $18. Corn lost 15 cents per bushel and beans were down 26 cents.

Hay at Dyersville, Iowa, was weaker to down $20 per ton. Top was some show quality large squares at $300. Large rounds topped at $155 per ton.

I happened on to the Dean of Iowa Certified Public Accountants today. He has adding machine with a crank lever that you pull instead of pressing enter. He's been a farm accountant since 1950. We're both of the opinion that the current ag economy resembles the farm depression of the 1980s, except this one is more abrupt.

We talked about the human fallout, past and future, and agree that many, actually most, who liquidated 35 years ago found good jobs and a sense of purpose and value after the livestock, machinery, crippling debt and financial desperation were all dispersed.

Reader Comments
Comments posted do not express the viewpoint of Dairy Agenda Today or its staff members.

April, 6 2020
We could see this glut of milk coming last fall already. Deans bankruptcy, AND shutting down both March Madness and Easter has created the "leaving your cans on the milkstand" from 100 years ago. UGLY