Dairy markets out of balance until food box program is fulfilled
A risk management analyst says food box program purchases of dairy products will continue to disrupt the balance of markets until contracts are fulfilled.
Mike North with Commodity Risk Management Group tells Brownfield, “We’ve got to bring that Class III, Class IV spread back together to bring this market back to what I’ll call more of a normal price point.”
He says last fall prices were also supported by government purchases, but it was to a much smaller extent.
“As it did then when the program comes to an end prices will respond accordingly and, as we saw then, things can move back lower quite abruptly.”
On July 1st, USDA announced its second round of food box program purchases which includes $288 million in dairy products.
Highground Dairy analysts expect more volatility to continue in the coming weeks and months as dairy demand remains tied to COVID-19 restrictions and changing consumer behavior. Analysts say if government demand for cheese, butter, and fluid milk remains strong over the coming weeks, it is very possible that extremely high cheese prices stick around for longer, and discounted futures prices will rise abruptly. As of July 1, the CME spot block cheddar price was $2.64 per pound, up nearly 60 percent from the highest futures price from May 1st settlements when vendors priced potential purchases.
Dairy farmers with $9.50 Dairy Margin Coverage Protection will receive a May payment from USDA as the milk to feed margin was at $5.37 for the month.
North says even with the higher future prices, producers likely will be paid in the $16 range when considering the Producer Price Differential (PPD).