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.