Dairy industry resilient despite supply chain, COVID challenges

January 21, 2022

By Alyssa Mitchell

MADISON, Wis. — Nearly two years into a global pandemic, an aura of uncertainty continues to hang over the dairy market. But despite the ongoing challenges of COVID, employee shortages, and shipping and logistics headaches, dairy stakeholders continue to pivot and innovate to bring products to consumers domestically and abroad.

• Transportation woes

Shipping and logistics costs are skyrocketing, and analysts say there’s no relief in sight. Analysis from Blimling and Associates, Madison, Wisconsin, notes domestic shipping rates for road and rail rose 23% year-over-year in 2021, according to Cass Information Systems (see graphic on page 12). Analysts add that costs could increase by high-single-digit to mid-double-digit percentages in 2022.

Meanwhile, trucking rates finished 2021 at record highs, with spot reefer rates averaging $3.08 per mile and spot dry van rates reaching $2.99 per mile in December, Blimling notes. While long-term contract costs usually are more stable, DAT Solutions reported the average contract rate rose to an all-time high of $2.51 per mile in November. Further boosts are likely, with some trucking companies forecasting double-digit rate growth in 2022 as capacity remains tight.

Blimling says ocean shipping prices also could climb to new records in the coming year. Costs to move a 40-foot container between Shanghai and Los Angeles jumped from roughly $1,500 in 2019 to more than $4,700 in December 2021, and reports suggest they could rise even further in 2022. Some businesses are working to circumvent supply chain issues and avoid higher rates, implementing work-arounds like sourcing products closer to home and storing products in idle truck trailers.

In a recent episode of “The Dairy Download” podcast, powered by Blimling and the International Dairy Foods Association (IDFA), Blimling President Phil Plourd and Senior Economist and Research Specialist Kathleen Wolfley talked with
Derik Toy, director of supply chain at DairyAmerica, Fresno, California, and Mark Benson, chief procurement officer and vice president of government affairs and global responsibility at Leprino Foods, Denver, about how their companies are navigating these ongoing challenges.

Toy sits on the Agriculture Transportation Coalition (AgTC), which was founded in 1987 with the objective of assuring transportation service that allows U.S. ag exporters to be competitive in the international market. Although the group now handles many other issues of concern to ag exporters, ocean shipping issues continue to be a priority.

Toy notes DairyAmerica’s primary ports are in California — areas that recently have bore the brunt of congestion and delays.

“It’s a 6-hour drive to the port for me — so when things change, it’s a minimum of six hours for me to react,” he says.
One major issue domestic exporters are dealing with is that ships are leaving the port empty due to long turnaround times for on-boarding products. It’s more economical for these carriers to return to foreign ports and bring more products to U.S. shores than to experience delays here for bringing products overseas, analysts explain.

Toy says increased storage capacity for products at the ports would be helpful so the product can stay fresh as it waits for an opening.

Benson told Cheese Market News that more than 99% of Leprino Foods’ ocean shipments have been canceled or rebooked for a later date either once or twice, and in some cases, 10 times. (He notes in a typical year, this only happens about 10% of the time.) The timetable to restart the process of rebooking to ship later also is about 2-3 weeks in duration, he says, not to mention the delays and added costs and fees that go with that.

“One freight bill that typically would be around $5,000 reached $20,000 after all the fees, delays and charges were accounted for,” he says.

“Over 100 bookings this year have been canceled and rebooked 17 times. In some cases, this equates to a 5-month delay for customers depending on our products,” he adds.

Benson says Leprino has been exploring different and alternative ports to gain access and to alleviate stress and congestion at California ports.

“We’ve experienced some progress and mixed results,” he says. “Many others are doing the same — so in some cases, we just moved the problem to a different port.

“This has provided some improvements on reliability, but it also comes with added cost, extended lead times and added complexity,” he adds. “We are also now competing for new storage, dray and equipment capacity in these new port locations while other shippers expand their networks at the same time. So, there are definitely some cost trade-offs to pulling this lever and introducing additional flexibility
in the network.”

• Bright spots

Despite these challenges, U.S. dairy export numbers in 2021 continue to show improvements from 2020 levels. November U.S. dairy exports climbed 19% in volume (milk solids equivalent) and 32% in value compared to the same month in 2020, according to the U.S. Dairy Export Council.

Blimling notes domestic holiday spending in 2021 rose at the fastest pace in 17 years, overcoming challenges posed by inflation, the omicron variant and continuing logistics problems.

Consumers also spent a little more on dairy in December when compared to 2019 levels, Blimling adds. For the month, retail butter sales fell 7% versus 2020 but rose 7% from the same period two years ago. At the same time, sales of natural cheese decreased 1% year-over-year but climbed 10% on a two-year basis.

Per-capita dairy consumption in the United States also has been growing and is at the highest levels since 1960, notes the National Milk Producers Federation (NMPF).

“Now, with last year’s retail sales data available, we can see that 2020’s gains in grocery store purchases weren’t just a rechanneling of lost school and restaurant business toward at-home consumption, NMPF says, noting that by comparing 2021 with 2019, it’s clear that dairy’s gains are built to last, according to data from industry researcher Information Resources Inc.

Meanwhile, Congress and the Biden administration have introduced new legislation and other efforts to combat supply chain challenges.

A measure announced in December by the Biden administration aims to ease trucking capacity by streamlining CDL certification and putting younger drivers behind the wheel. In an effort to relieve U.S. port backlogs, fines also were announced earlier in 2021 for shipping containers left at port terminals for more than nine days, Blimling notes.

However, the penalties have had mixed results. While congestion has eased for imports, exports continue to struggle, with carriers departing U.S. ports with empty containers.

“It would be interesting to see either from a local port-by-port basis or on a national level, if we can somehow change the incentives around these empty containers,” Plourd says. “I don’t know what that looks like, whether it’s a program or legislation, but I do think that’s an area of intrigue. When you see 30%-35% of containers leaving the Los Angeles port empty — there’s good reason for that from a market perspective. But it would be good to reshape some of the incentives.”

Many stakeholders also support the bipartisan Ocean Shipping Reform Act of 2021. The bill, which has passed the House, would prohibit the carrier practice of sailing to Asia empty when U.S. agricultural exports await shipment.

“It has bipartisan co-sponsorship, which is growing, and should be introduced in the Senate and passed and signed into law,” Benson says.

However, “while this bill is a good start, so much more is needed,” he adds. “For example, most major ports around the world routinely operate 24/7. Only recently did the administration, and certain U.S. ports, agree to begin doing so temporarily. Given labor shortages and required training, however, this action is unlikely to provide any relief for at least six months. In addition to prohibiting foreign carriers from leaving the U.S. empty, the administration and Congress must work together to provide all our major ports and port workers with the infrastructure and environment to operate and meet demand.”

IDFA late last year convened a Supply Chain Task Force to develop policy recommendations to address the disruptions and work across the industry with partners from other sectors of the economy, the federal government, think tanks and others to bring actionable solutions to the table. The coalition currently is:

• Supporting passage of the Ocean Shipping Reform Act to alleviate demurrage fees at ports and reinforce the authority of the Federal Maritime Commission over carrier practices;

• Ensuring provisions of the DRIVE-SAFE Act are included in the bipartisan Infrastructure Investments and Jobs Act, including a pilot program for 18–20-year-olds to participate in an apprenticeship program that will allow them to drive between states, helping to get more truck drivers on the road; and

• Advocating for the reconciliation bill (Build Back Better bill) to increase the Federal Truck Gross Vehicle Weight limit from 80,000 pounds to 91,000 pounds on an additional sixth axel, helping to move more product.

• Future outlook

As solutions are sought and companies continue to pivot, most stakeholders don’t foresee the challenges easing anytime soon.

“I don’t know if it’s smart to assume we’re going to just find 80,000 truck drivers, or that some silver bullet of legislation will make everything better,” Plourd says, but companies will continue to adapt.

“I do think one overarching phenomenon is that we’ve gone from a very much ‘just in time’ inventory world pre-COVID, to now a ‘just in case’ inventory world as the pandemic continues. Storing inventory is costly, so it will be interesting to see what balance we strike between ‘just in time’ and ‘just in case’— and that’s going to take time as well.”

He adds that as in all things, markets work.

“At some point, we’re either going to price things so high that we’ll move less, or we’re going to encourage more supply of logistics. It’s all part of a process that is already happening every day. Price is always reshaping supply and demand dynamics.

“In a broader sense, we know we’re seeing massive investment in warehouse infrastructure across the United States,” he adds. “From an optimist perspective, you might believe that the worst of this is in the rearview mirror or close. COVID has had a remarkable ability to throw us new curve balls. And I do believe that people will learn. As painful as some of the challenges have been over the past 12-24 months, I think that U.S. dairy companies are going to emerge better for it — whether it’s having those alternative routings or different staging practices — both here and abroad. I think that we have learned a lot.”

Still, as challenges continue, Benson says Leprino Foods has observed some global customers changing their sourcing strategies from U.S.-based products to Europe due to the associated shipping delays.

“Longer term — without specific action, leadership and fundamental change — there are real risks of lost volume and future growth opportunities for dairy exports,” he says. “These risks are in key dairy markets that we have been developing and earning our way into for years.”

Benson notes today in the United States, approximately one day’s worth of U.S. milk production each week goes to exports, which results in approximately $6.5 billion per year.

“We risk losing this market share to other dairy-producing countries such as those in Europe or New Zealand,” he says.

Looking further ahead, it is anticipated that approximately an additional 25 billion pounds of milk will be produced in the United States by 2030, Benson adds.

“A good portion of that will need to be exported for our dairy farmers to grow. So, this impacts the entire U.S. dairy supply chain,” he says.

CMN

Purdue ag economists address COVID, inflation, trends in outlook

January 21, 2022

WEST LAFAYETTE, Ind. — The Purdue Agricultural Economics Report recently released its annual outlook issue, which identifies key factors that may affect the agricultural economy in the coming year. For 2022, Purdue ag economists cite inflation and COVID-19 uncertainty as key issues impacting food prices, general economy performance, farm costs and returns, farm financials and household economics.

In her dairy outlook, Agricultural Economics Professor Nicole Olynk Widmar sees pressures on food inflation continuing due to reduced cow numbers and production, as well as slowly recovering exports.

Last year’s dairy market concerns were fueled by COVID-19 associated closures, news of milk dumping and food away from home versus at-home consumption, she says. In 2021, the domestic use varied significantly across types of dairy products, with significant decreases reported for dry skim products and the largest increase in domestic use for the third quarter being reported in November for butter, up 10.1% year-over-year.

“While perhaps not headline leading specifically in 2021, fluid milk consumption trends remain a heavily debated aspect of milk demand and markets,” Widmar says, pointing to a USDA report on milk uses and consumption by children, teens and adults. She notes that despite a long-term general decrease, a more recent upward turn in total whole milk sales may be of interest, especially in light of recommendations for milkfat consumption by children by the American Academy of Pediatrics.

“We have found that households with children indeed bought dairy differently, buying not only higher total quantities of milk but also milk with higher fat content,” she says. “Nonetheless, debates continue surrounding milkfat consumption, and given the ongoing economic and political concerns surrounding school meals and milk provision, especially considering school closures (or the threats of school closures) due to the ongoing pandemic.”

The outlook for the general economy depends on the course of the COVID pandemic, according to Professor Emeritus Larry DeBoer. He notes the economy recovered rapidly this past year, with real gross domestic product (GDP) up 4.9%, the fastest growth in at least 20 years. Spending in 2021 was 54% higher than it was in 2019, mostly due to COVID relief programs, he adds.

High inflation was a surprise, DeBoer says, as the consumer price index increased 6.9% in the last year through November, the highest 12-month rate in almost 40 years. Food prices rose 6.1%.

Supposing consumption growth slows with the drop in federal COVID aid, DeBoer says the shift from goods to services consumption won’t get started until the second half of the year.

“The labor shortage should encourage investment in business equipment. Imports should grow more slowly as goods demand slows in the second half of the year. Exports should grow more rapidly as COVID fades,” he projects.

“Output growth will be constrained by low labor force participation and supply disruptions. Participation should begin to rise in the second half of the year, and supply problems should lessen with the shift to service consumption and new investment in manufacturing and transportation,” he adds. “Expect real GDP to grow more slowly next year than this, at 3.5% to 4%.”

However, if the pandemic gets worse and stays bad, DeBoer says, consumers could pull back, labor wouldn’t improve and supply disruptions could continue. Output growth in this scenario could be as low as 2% with inflation above 6%.

On the other hand, if the omicron variant burns itself out by spring, labor participation rises, consumers shift spending to services and supply pressure abates, he says, real GDP growth could be 5% with inflation under 4%.

Russell Hillberry, professor of agricultural economics, writes that U.S. trade policy, both from the past and current administration, has implications for the supply chain crisis and for the broader international trade system, which is important for export-oriented agriculture.

“The primary reason for the supply chain issues we see is that demand in the United States is growing faster than the ability of the supply chain to deliver the goods that consumers and other buyers desire,” he says. “A set of interlocking problems — COVID-related shutdowns in upstream countries, labor shortages (in the United States and elsewhere), high costs of freight and the unavailability of necessary inputs at various points in the supply chain — have hamstrung the ability of suppliers to meet surging demand.”

While surging demand is the primary reason for supply chain difficulties, he says trade policy also has contributed to the problem. Tariffs imposed by President Trump make imports more expensive and limit the availability of some goods altogether. And while President Biden has taken some administrative actions to address the supply chain, he has not undertaken a broad-based removal of these tariffs, Hillberry adds.

It seems clear that trade policy is not a key priority of the Biden administration, Hillberry suggests, but several other administration priorities affect, and are affected by, international trade.

“Some progress has been made with respect to restoring normal trade relations with Europe. But President Biden, like President Trump, appears ready to use unilateral trade policy, albeit with different goals,” he says. “Unilateral trade policy has domestic political appeal, but it risks undermining the international system that rewards U.S. agriculture so handsomely. Unilateral policies pursued over the last five years have also contributed to the current difficulties with the supply chain.”

To read the full outlook, visit https://ag.purdue.edu/commercialag/home/paer-publication/2022-01-purdue-agricultural-
economics-report-2022-annual-outlook-issue.

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California Milk Advisory Board announces changes to structure

January 21, 2022

TRACY, Calif. — The California Milk Advisory Board (CMAB) announced in its latest newsletter that upon its recommendation, the California Department of Food and Agriculture has approved several minor amendments to the Marketing Order for Research, Education and Promotion of Milk and Dairy Products in California to revise the structure of CMAB.

The minor amendments to the marketing order will take effect March 1 and include the following:

• Downsizing CMAB from 24 producer members to 18 producer members. The board says its recommendation to downsize the number of producer positions on CMAB was primarily driven by the reduction in the number of producers that has occurred over the years, and in recent years there has been an increase in the number of vacancies on CMAB.

• Reduction in the number of districts from 10 to seven. The board recommended this reduction by merging two adjacent districts in the northern San Joaquin Valley (districts 5 and 6) and by merging three adjacent districts in the southern San Joaquin Valley (districts 7, 8 and 9). The board concluded these mergers are appropriate because the respective districts are geographically concentrated and tend to have similar dairy issues.

• Reallocation of the 18 producer member positions on CMAB amongst the seven districts. In light of the reduction in the number of producer member positions on CMAB and in the number of districts, the board recommended a reallocation of the available positions among the resulting districts. The revised number of producer member positions allocated to each district is based in that district’s relative share of California’s milk producers by number.

• Adding authorization to use phase-in procedures to implement restructuring of CMAB. In order to facilitate the smooth implementation of the downsizing and redistricting of CMAB, the board recommended that the marketing order be amended to authorize the use of appropriate procedures, including extending the term length for some of the board members and forgoing this year’s regular nomination and preference voting processes.

• Elimination of term limits. The board concluded that term limits should be eliminated in light of the fact that it has become increasingly difficult to find a sufficient number of producers interested in filling all available producer positions on the board. Additionally, the board concluded that since nomination and preference voting processes now are being conducted by mail, it is not difficult for interested producers to seek appointment to the board, thus reducing the justification for having term limits.

The amendment language and a complete version of the revised marketing order can be viewed at www.cdfa.ca.gov/mkt/mkt/ordslaws.html.

CMN

Supreme Court blocks OSHA from enforcing COVID-19 ETS

January 14, 2022

WASHINGTON — The Supreme Court yesterday issued an unsigned order blocking the U.S. Occupational Safety and Health Administration (OSHA) from enforcing its Emergency Temporary Standard (ETS) that would have required roughly 84 million employees of large businesses to be vaccinated or tested weekly for COVID-19. The ETS had just taken effect Monday, Jan. 10.

The court’s opinion notes that neither OSHA nor Congress ever had imposed such a mandate, and many states, businesses and nonprofit organizations challenged OSHA’s rule in courts of appeals across the country. The Fifth Circuit initially entered a stay, which was later lifted by the Sixth Circuit, allowing the ETS to take effect. Applicants then sought emergency relief from the Supreme Court, arguing that OSHA’s mandate exceeds its statutory authority and is otherwise unlawful. Agreeing that the applicants are likely to prevail, the court granted the stay.

The court’s opinion notes that while OSHA may have the authority to regulate occupation-specific risks related to COVID-19 — such as in research labs working with the virus, or in particularly crowded or cramped environments — the danger present in such workplaces differs from the everyday risk of contracting COVID-19.

“Although Congress has indisputably given OSHA the power to regulate occupational dangers, it has not given that agency the power to regulate public health more broadly,” the opinion says. “Requiring the vaccination of 84 million Americans, selected simply because they work for employers with more than 100 employees, certainly falls into the latter category.”

A dissenting opinion was written by Justices Breyer, Sotomayor and Kagan, arguing that the court’s order “seriously misapplies the applicable legal standards” and therefore “stymies the federal government’s ability to counter the unparalleled threat that COVID-19 poses” to U.S. workers.

“If OSHA’s standard is far-reaching — applying to many millions of American workers — it no more than reflects the scope of the crisis,” the dissenting justices write. “The standard responds to a workplace health emergency unprecedented in the agency’s history: an infectious disease that has already killed hundreds of thousands and sickened millions; that is most easily transmitted in the shared indoor spaces that are the hallmark of American working life; and that spreads mostly without regard to differences in occupation or industry.”

In a separate opinion also issued yesterday, the Supreme Court upheld the federal government’s vaccination requirement for health care workers.

U.S. Secretary of Labor Marty Walsh responded to the OSHA ruling, saying it is a “major setback” to the health and safety of workers across the country.

“OSHA stands by the Vaccination and Testing Emergency Temporary Standard as the best way to protect the nation’s workforce from a deadly virus that is infecting more than 750,000 Americans each day and has taken the lives of nearly a million Americans,” Walsh says. “The commonsense standards established in the ETS remain critical, especially during the current surge, where unvaccinated people are 15-20 times more likely to die from COVID-19 than vaccinated people. OSHA will be evaluating all options to ensure workers are protected from this deadly virus.”

Meanwhile, many dairy industry groups expressed relief over the Supreme Court’s decision.

The International Dairy Foods Association (IDFA), which has engaged with the White House, OSHA and members of Congress on the ETS, has argued that the ETS puts an undue burden on the dairy processing industry.

“(Yesterday’s) decision by the Supreme Court is positive news for companies across the dairy industry struggling with significant supply chain and workforce challenges that could have been exacerbated by an enforceable OSHA ETS,” says Michael Dykes, president and CEO, IDFA. “From the beginning of the pandemic, dairy foods companies have prioritized the health and safety of their employees above all else, and IDFA is confident that our industry will continue its ongoing work to ensure the health and safety of its workforce. IDFA will continue to monitor and engage on issues like the OSHA ETS that negatively affect the ability of IDFA members to produce healthy, affordable, nutritious dairy products for people in the United States and around the world.”

The National Milk Producers Federation (NMPF) also says it is pleased with the Supreme Court’s decision on a stay of the ETS.

“NMPF has long been concerned about the practical application of the OSHA regulation at a time when testing supplies are scarce and food and agriculture supply chains are already disrupted by a lack of worker availability,” says Jim Mulhern, president and CEO, NMPF. “We have voiced those concerns in meetings and other communications to federal officials over the last several months. The court’s decision will bring relief to dairy employers who strive 24/7 to put nutritious products on consumer plates.”

Last week, NMPF joined several other food and agricultural groups in sending a letter to President Biden, urging his administration to accelerate efforts to ensure test kit and supply availability to industries that serve the nation’s critical infrastructure.

CMN

Partnership launched by founder of Stonyfield to assist NE dairies

January 14, 2022

LONDONDERRY, N.H. — Gary Hirshberg, Stonyfield co-founder and former longtime CEO, this week announced the launch of the Northeast Organic Family Farm Partnership, a first-of-its-kind partnership created to solve the crisis of disappearing family farms.

This announcement comes in response to cancellations over the last year of organic milk contracts for several Northeast organic farms. Last fall, 89 organic family farms across Maine, New Hampshire, Vermont and eastern New York received news that Horizon, owned by Danone North America, was terminating their purchase contracts, effective in early 2023. Subsequently, Maple Hill Creamery also has announced the cancellation of contracts for another 46 farms.

The new partnership — a collaboration of farmers, processors, activists and government agencies — is inviting consumers to sign a pledge to purchase one-fourth of their weekly dairy purchases from 35 brands that have committed to increase their purchases of Northeast organic family farmers’ milk and thus increase demand and market stability to help save the 135 at-risk farms so that all the region’s organic family farms can be more secure. The pledge and participating brands, which include Stonyfield, Organic Valley and a number of local and regional brands, are available at www.saveorganicfamilyfarms.org.

The partnership also is inviting grocers, restaurants, cafeterias and any outlets that sell dairy products to become licensed as Partners. Licensed Partners who have signed affidavits to grow their organic purchases will be entitled to display the Partnership Logo at the point of sale as well as online to enable easy identification by consumers.

In addition to Hirshberg, the partnership board includes: Peter Allison, Farm to Institution LLC (Vermont); Diane Bothfeld, Agency of Agriculture (Vermont); Leon and Abbie Corse, Vermont organic dairy farmers; Claire Eaton, Maine Department of Agriculture; Annie Watson, Maine Organic Milk Co. and dairy farmer; and Eric Ziehm, New York organic dairy farmer. Advisors include: Michael Brown, CROPP Cooperative (Maine); Rose Forrest, Sodexo Sustainability Coordinator (Rhode Island); Ed Maltby, Northeast Organic Dairy Producers Association (Massachusetts); Peter Miller, Miller Family Farm (Vermont); Britt Lundgren, Stonyfield Organic (New Hampshire); and Albert Straus, Straus Organic Creamery (California).

The Northeast Organic Family Farm Partnership encourages all stakeholders in the food system — consumers, large and small dairy processors, retailers, restaurants, school lunch programs, college cafeterias and the region’s hard-working organic family farmers — to support and safeguard the region’s organic family farmers and provide a stable long-term demand for them.

“The Northeast Organic Family Farm Partnership celebrates the fact that when it comes to supporting our region’s organic family farmers, it really does take a village,” Hirshberg says. “Everyone has a stake in the long-term financial health of these farms and farm families. The simple act of pledging to purchase one-quarter of dairy items from the brands, processors and farms who support these family farmers can help to ensure that these farms will remain healthy, vibrant, financially viable and environmentally and climate-positive parts of the Northeast region for generations to come.”

The United States, and especially the Northeast, has seen drastic reductions in the number of both farms and acreage over the last decade, the partnership says. From 2012 to 2021 alone, Vermont has lost more than 390 individual dairy farms as food production largely has shifted away from small families and into large agri-business operations. However, the partnership notes, organic family farmers are important contributors to a healthy environment and thriving rural life and are important players in the region’s food system. The partnership explains organic farms promote sustainability, sequester more soil carbon, decrease harmful environmental impacts and have been shown to be more profitable and produce healthier livestock and higher milk quality.

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USDA milk production forecast unchanged, price outlook mixed

January 14, 2022

WASHINGTON — The 2021 milk production estimate and the forecast for 2022 are unchanged from the previous month in USDA’s latest World Agricultural Supply and Demand Estimates report released Wednesday.

On a fat basis, the 2021 import estimate and the 2022 forecast are raised from last month on recent trade data and higher imports of cheese and butterfat products, while exports for 2021 and 2022 are reduced. On a skim-solids basis, the 2021 import estimate is raised on recent trade data and higher imports of cheese and milk proteins. The 2022 skim-solids basis import forecast also is raised. The 2021 skim-solids basis export estimate is raised on recent trade data, while the 2022 forecast is lowered on slower expected global demand for skim milk powder, USDA says.

Dairy product prices for 2021 are adjusted to include December data, USDA notes. Cheese and dry whey price forecasts are relatively steady from last month’s forecast. Butter is forecast slightly higher from last month, while nonfat dry milk (NDM) is forecast slightly lower.

Class III, Class IV and all milk price estimates for 2021 are raised on November data and a higher expected December price.

For 2022, cheese, butter, NDM and whey price forecasts are raised from last month on firm domestic demand and tight supplies, USDA says. Class III and Class IV prices for 2022 also are raised from the previous month. The 2022 all milk price forecast also is raised.

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Hindsight 2021: Year in Review
Dairy execs discuss ongoing challenges, outlook for 2022

January 7, 2022

MADISON, Wis. — Welcome to Cheese Market News’ “Hindsight 2021: Year in Review.” As we look back on another challenging year, we have invited a panel of industry executives to weigh in on some of the key issues companies are grappling with including the ongoing pandemic, supply chain snarls and labor obstacles, as well as what’s to come in 2022.

We thank our participants for taking the time in the midst of busy schedules to participate in this feature.

This year’s panelists are:

• Patrick Criteser, president and CEO, Tillamook County Creamery Association (TCCA), Tillamook, Oregon

• Tanner Ehmke, lead dairy economist, CoBank, Denver

• Barbara O’Brien, president and CEO, Dairy Management Inc., Rosemont, Illinois

• Jen Pino-Gallagher, director of Food and Agribusiness Practice, M3 Insurance, Madison, Wisconsin

• Scott Sexton, CEO, Dairy.com, Frisco, Texas

• Doug Wilke, CEO, Valley Queen Cheese, Milbank, South Dakota

Q: How do you believe U.S. dairy prices will track for key commodities in 2022? What will be the key factors affecting U.S. dairy prices over the course of 2022?

Ehmke: With the tightness in global milk supplies, Class III milk prices have strong fundamental footing to hold above $20 per hundredweight for the first half of 2022. Fundamental to the durability of those high prices are feed and other input costs. Even if feed costs moderate, high construction, labor, freight and energy costs will slow dairy producers’ herd expansion in response to higher milk prices. But if those costs fall, farmers will quickly capitalize on the opportunity and expand, which would lead to a corresponding drop in prices. That scenario, though, likely wouldn’t occur until the back half of 2022.

Sexton: Our market intelligence team at Blimling and Associates sees markets remaining firm in 2022. Milk production is the biggest factor. Simply put, with less milk production growth — or even declining output — there’s more room for upside price action.

Wilke: Proteins will stay strong but come down slightly from 2021 highs. Butter and milkfat are strong due to reduced imports and stagnating milk supplies. Seeing how shipping (especially exports) and other supply challenges for specific products play out will shape the year in a big way.

Q: What is your company/organization doing to ensure safety in the workplace in the midst of the coronavirus pandemic? Are you requiring vaccination or testing? What other safety measures have you implemented over the past year?

Criteser: Throughout the pandemic we have done our best to follow the science and adopt the advice of medical experts and credible health entities. We have strongly encouraged vaccinations and other COVID-19 mitigation efforts. As we are going on 20-plus months of the pandemic, we recognize the stress and fatigue that come along with it for all our employees — whether they are juggling work and life from home or coming into our operations each day. That’s why we place an emphasis on supporting the mental and physical well-being of all within the TCCA family. By taking actions such as waiving co-pays on mental health visits, providing reimbursement on fitness equipment and offering flexible work options, we have expanded our definition of “safety” beyond the basics to encompass the overall wellness of each individual.

O’Brien: Throughout the pandemic, Dairy Management Inc. (DMI) has prioritized employee health and workplace flexibility to ensure everyone can work safely, effectively and efficiently. We’ve offered the option to work remotely while instituting measures such as face coverings, social distancing and temperature checks in our office in compliance with federal and state public health guidance. We recognize that the pandemic has put additional stresses on working parents, caregivers and employees at all levels, so our leadership team, in partnership with HR and IT, has supported flexible schedules and working from home with policy changes, new technology and equipment.

Wilke: Today, we are not requiring masks (but are supplying masks for those who wish to wear them), and have encouraged vaccination by sharing local resources on scheduling vaccination appointments.
We continue to require temperature screenings when employees and visitors enter our facility and reinforce the policies we had in place even prior to COVID-19, like not coming to work while sick. Our 24/7 COVID-19 Hotline remains in place to field employee questions.

Pino-Gallagher: M3 has been a key resource for our clients, especially our dairy and food manufacturers who have had to overcome a myriad of unforeseen challenges since the beginning of the pandemic. We continuously provide insight into ongoing legislation and HR compliance, as well as risk management protocols that should be in place based on public health guidelines and our industrial hygienist’s recommendations for a given set of circumstances.

In addition to assisting our clients, M3’s priority is to maintain a safe and healthy work environment for all employees and external parties that interact with M3. Since the beginning of the pandemic, M3 has remained operable and has done so with zero cases of COVID-19 contracted due to our work environment. This has been achieved through a variety of safety measures including enabling remote work for individuals, especially when having cold, flu and COVID-19 symptoms; requiring employees that have been exposed to or contracted COVID-19 to follow CDC guidelines regarding quarantine and isolation; employing social distancing, mask use and hygiene practices; and holding on-site vaccination clinics, along many other protocols to keep our work spaces safe.

Sexton: Safety is obviously a priority. Like many we’ve been doing our best to balance work requirements against ever-shifting pandemic realities. There’s no playbook! But a lot of our team was already equipped to work remotely. Overall, our employees have been tremendously resilient and incredibly effective under unprecedented circumstances.

Q: As the industry continues to grapple with workforce shortages and hiring challenges, what are some strategies the industry can implement to attract new blood?

Criteser: The pressure to attract and retain talent is intense for businesses of all sizes and in all sectors. For TCCA, we see our culture as an important way to navigate the current marketplace dynamics. For example, as a farmer-owned co-op with a 112-year-old history, we ensure new employees meet our farmer-owners and tour their farms so they understand our legacy. Not only does this help to bridge the rural and urban divide between our farmers and employees, but it also helps to immerse our newest team members into our culture and heritage from the start. Additionally, as a growing organization, we rely on diverse perspectives to help drive our growth strategy. As such, we have comprehensive inclusion and diversity programs that foster an inclusive workplace and signal to people of all backgrounds that TCCA is a place they can thrive and be happy throughout their career.

Ehmke: Employers are going to have to be innovative to compete for scarce labor, especially if they are located in rural areas with a declining and aging workforce. Higher wages are obviously on the table. Workers will also likely be requesting more flexibility of work hours and an expansion of health care benefits and skills training.

O’Brien: As part of my new leadership vision and in communications with our senior staff, we identified four priorities that underpin everything we do, and one of those is to build a culture that attracts, develops and empowers future-ready talent. We recognized that succeeding in the next decade requires new abilities and skill sets, such as data science, biology, chemistry, engineering, agriculture technology and more. We’ll need to recruit differently to bring in these competencies.
Emerging workplace expectations require employers to build talent programming from best practices, and creating a strong employee value proposition (EVP) is one of them. The candidate experience starts at sourcing, and everyone involved in the recruitment process must be clear on the EVP and how it resonates personally with them. Job seekers are increasingly focused on purpose-driven work, coaching and professional development opportunities, and ongoing, real-time feedback.

The employee experience is just as critical — we focus on equity to improve employee performance, ensuring all team members feel informed, supported, acknowledged and considered. We are preparing our people to lead the future of dairy, so we aim to secure top talent by offering a top-tier employee experience.
DMI has a robust internship program where we annually attract top, young talent to our company. These students engage with professionals and contribute to our daily mission of growing sales and trust. In fact, some of our interns have returned to join our team full time.

Pino-Gallagher: Workforce shortages were a challenge for employers even before the pandemic, and, rightfully, hiring and retention are at the top of every processor’s labor list. Many of our clients have found success by collaborating with local tech colleges, revamping their benefits offerings and finding unique ways to provide flexible schedules in order to attract new talent. Some are providing transportation services to help workers who lack transportation to and from the dairy facility.

And, retaining a solid employee base is critical. Consider holding “stay” interviews. The exit interview has become ubiquitous, but by flipping this notion on its head and conducting “stay” interviews, leadership and human resources can inquire about the well-being and satisfaction of an employee far before they reach a point where they become disengaged.

Sexton: So many of us in the Dairy.com family are generally excited to have the privilege of playing a role, however small, in the modern miracle of bringing food from farm to plate. The food industry is vital. It’s dynamic. And it’s still got a big future. As an industry, I think we need to communicate that bigger sense of mission. Beyond that, we think accelerating technology development and deployment will help attract more people from more backgrounds into the industry. Agricultural technology and financial technology are hot fields, and our industry is moving to the center of that universe.

Wilke: There are no “one size fits all” solutions, because the challenges are complex ones. We’re doing our best to ensure we offer a premier employment package with competitive pay and benefits including Company Stock Profit Sharing, 401K match and PTO. We’re also evaluating our traditional 12-hour shift model to offer more flexibility to employees who need it. Most important for us has been remaining committed to investing in and developing our people, our culture and the viability of our business, which are the ultimate retention tools.

Q: As industries and consumers navigate the “new normal” during the pandemic, what do you see improving for business, what still is lagging behind and what might be changing for good?

Criteser: We are all in the daily process of both discovering and adjusting to what the marketplace is and will become in this COVID-impacted era. While none of us has a crystal ball, I believe building back with impact will create opportunities for companies throughout the dairy industry to work together. Making needed progress on important issues, such as improving sustainable supply chains, reducing food waste and mitigating environmental impacts is going to require partnership and collaboration among historical competitors.

Ehmke: Over time, workers who were sidelined during the pandemic will be coming back into the workforce. That will ease some of the tightness in the labor supply, but we won’t be going back to “normal.” The economy has been fundamentally altered by the pandemic. The needs for investments in technology and automation have never been greater. The pressure to automate will not be going away anytime soon.

O’Brien: DMI not only adapted to the realities of the pandemic, we used the disruption as an opportunity to become even:

• More consumer-centric with a focus on next-generation consumers;

• More efficient and collaborative;

• More determined to address head-on the challenges facing dairy;

• More focused on finding new ways to catalyze growth across the dairy category; and

• More aware of opportunities to showcase farmers as an essential part of the U.S. food system.

We saw success by creating cross-functional, outcomes-focused action teams that allowed us to deliver for our farmers, even in exceptional circumstances. In 2021, we continued use of cross-functional and cross-organizational “teaming” to bring that same kind of operational energy by pulling in the right thinking and expertise from across the checkoff to build on the work and drive even greater impact on shared outcomes.

Regardless of what happens, our mission will not change: We aim to create a world better nourished and sustainably fueled by U.S. dairy and dairy farmers. That’s how we’ll win now, next and in the future. This means we must continue:

• Building trust with consumers in a time when they are facing uncertainty and insecurity. We’re incorporating new insights so dairy shows up in ways that are timely and relevant as people navigate this new normal.

• Supporting parents and teachers with e-learning resources. When schools shut down, we repurposed our legacy in-school program, Fuel Up to Play 60, to create dynamic e-learning resources for educators, students and parents who found themselves in the role of “teacher’s helper.” This resource reached more than 34 million students, educators and parents.

• Reaching consumers in new and virtual ways, which is the focus of the “Reset Yourself with Dairy” program that uses a variety of media channels and marketing strategies, including gaming, social media influencers and digital content, to engage with Gen Z.

• Growing sales across foodservice channels to meet consumers’ evolving behavior and match supply with demand through initiatives such as contactless delivery, new products and promotions.

• Strengthening U.S. dairy’s position in a global food system by reinforcing our commitment to sustainable nutrition — with a focus on environmental sustainability and the essential role of dairy in the diet. An example of this us the checkoff-led effort heading into the recent United Nations Food Systems Summit and COP26 (26th Conference of Parties to the United Nations Framework Convention on Climate Change).

Pino-Gallagher: The holistic awareness of the employee is here to stay, which is an improvement for businesses looking to hire and retain talent. Understanding the multiple stresses that might cause an employee to become disengaged, arrive late for a shift or leave a company altogether are now top of mind for most business leaders. Awareness of an employee’s mental health, I believe, is also an approach that will continue to be present in businesses.

Sexton: I think remote work cuts across all of those possibilities. On the one hand, remote work allows you to hire anyone, just about anywhere. That can be a radical improvement. But do companies have the right technology infrastructure to support teamwork, training and systems monitoring? Can people readily manage their supply chains and keep an eye on plant operations from miles away? We are not likely going back to a world where everyone is side by side on-site. We’re betting that technology is going to be a big part of the answers.

Wilke:

• Improving/staying strong: The challenges of the past two years have only strengthened our longstanding partnerships and reinforced our desire to be a part of the growth taking place across the industry.

• Lagging: We’ve seen significant lags in recovery across the supply chain, from equipment lead times to labor and availability for export shipping. Legislative efforts are in the works, but we haven’t found an immediate fix that will serve our customers long term.

• Changing for good: Being pushed to embrace technology has shown us we can stay connected even when we’re not in the same meeting rooms or even the same zip code. And — gone are the days of powering through a cough or other symptoms of illness at work. We’ve really emphasized existing policies that prohibit coming to work when you’re not feeling well. We know our people and our business are better for both changes.

Q: What supply chain issues have most impacted the dairy industry over the past year? Have you seen or do you foresee any resolution of these issues in the near future?

Ehmke: The lack of truck drivers has impacted all aspects of the dairy supply chain from farm to port. While some freight rates have come down recently with port congestion having eased somewhat, the shortage of truck drivers will be a problem that persists through 2022 unless major changes to how drivers are compensated are addressed.

Pino-Gallagher: A dairy processor can’t be in business without a consistent supply of milk and inputs from other critical suppliers. Likewise, insurance is a critical part of their supply chain. Some of the most critical supply chain issues in insurance to impact the dairy industry include increased premiums and reduced limits for property, general liability and cyber insurance. While a myriad of issues have led to this “hard market,” catastrophic claims throughout the country due to wildfires, hurricanes and the derecho in 2020 top the list. Dairy processors with good claim histories, proper fire sprinklers that meet or exceed NFPA (National Fire Protection Association) standards and property IT controls like multi-factor authentication will fare much better than their peers who haven’t made those capital expenditures.

Sexton: Transportation easily tops the list. It’s been the biggest headache for many industries, but it’s especially complicated for dairy companies because they move a lot of highly perishable products. People we trust don’t think we’ll solve the driver shortage anytime soon. To us, that means a bigger role for technology that creates efficiency and reduces labor.

Wilke: Supply chain challenges have impacted virtually every part of our business. From PPE (personal protective equipment) to chemicals to the boxes and liners required to package our cheese, and now additional supply chain issues bringing prolonged shipping delays, it’s clear the impacts of the pandemic are far from over. We’re anticipating inflationary cost increases to continue in 2022.

Q: How has sustainability become an integral part of the dairy industry in production, processing and overall messaging? What changes or innovations do you see in this area for the next year?

Criteser: Consumers’ expectations of dairy are climbing — they expect brands to not only be good-tasting, but also good for the community and good for the planet. To that end, in 2021 we announced a series of new packaging goals including a commitment that 100% of our packaging solutions will be recyclable, reusable or compostable by 2030. We have put plans in action to deliver on this commitment in 2022 and beyond. We believe the dairy industry has a responsibility and an opportunity to demonstrate the ways that dairy producers and processors are good stewards of the land, communities and people. Because we live our stewardship commitments each day, we are recognized as a Certified B Corporation (B Corp) — a distinction earned by demonstrating exceptional social and environmental performance, transparency and accountability.

O’Brien: The checkoff operates using marketplace-backed research that shows it starts with the consumer, for whom sustainability and the health of the planet are influencing purchase decisions.

As a sector, we believe dairy can be, and is well on its way to becoming, an environmental solution. From farm to retail, the U.S. dairy community has a longstanding commitment to environmental stewardship. We announced the 2050 Environmental Stewardship Goals and Net Zero Initiative in October of 2020. This is a commitment that is endorsed by a significant percentage of the U.S. milk supply and that brings together the sector with outside partners to identify new solutions, technologies and practices that will advance progress and open new revenue streams.

By 2050, U.S. dairy commits to being carbon neutral or better, optimize water use while maximizing recycling and improving water quality.

As farmers continue to invest in their farms, partnerships in agriculture and with global, multilateral companies bring expertise, leadership and financial support to match farmer contributions.

Along our sustainability journey, we reserve the right to learn and get smarter. It’s about continuous improvement and capturing what’s next and modeling and scaling that. Most important, it’s about building on the good work farmers have historically done and continue to do.

Pino-Gallagher: Here is what we are hearing from our clients: Customers are driving the sustainability message up through the supply chain and requiring more transparency and specifics around the sustainability goals and actions of their suppliers. From energy usage to packaging to water conservation efforts — customers are asking to know how sustainability touches every part of the operation.

Sexton: Here’s a safe prediction: Sustainability will be a bigger issue in 2022 than it was in 2021 and will be bigger again in 2023. It’s becoming central to the conversation. There are a lot of moving pieces, though. Are we talking about monitoring and reducing methane emissions? Trading carbon credits? Cutting food miles? The good news is that in many areas, driving toward sustainability improvements also makes business sense. And from a Dairy.com perspective, this is another area where we see supply chain technology and managed services playing a bigger and bigger role.

Wilke: As an industry, we’ll need to continue adapting and accommodating for consumer desires for transparency, and committing to make improvements at every stage — from the farm to the finished product. At Valley Queen, we’re digging deeper by engaging our employees and dairy producers in sustainability and stewardship conversations.

Q: In addition to the topics already addressed, what key issues will impact the dairy industry in 2022?

Criteser: We can assume that the headwinds facing the dairy industry today will not vanish at the flip of a calendar page — and in some cases may even exacerbate. But, at TCCA we are staying focused on what has driven our growth so far: our farmers, our culture and our partners. Our board is made up of our farmer-owners who are guided less by the do’s and don’ts of traditional corporate boards and more by common sense. This allows us to move swiftly, yet with intention. Unlike many companies that focus on quarterly earnings, our farmers operate with the next generation in mind.

Ehmke: Trade policy and tariffs may resurface in 2022. The U.S. has a trade disadvantage into key importing regions across Asia. But as inflation becomes of greater concern globally, tariffs may be back on the table for negotiation as a way to lower costs into importing countries. The bright side is that the U.S. might have a window of opportunity to lower trade barriers and increase market share abroad.

O’Brien: It’s important to remember that dairy is a powerhouse category and continues to grow. The 2020 per capita data is testament to dairy’s continued growth over time with an all-time-high consumption of 653 pounds per person. Dairy also is present in 94% of U.S. households.

That said, we need to continue to expand the science and practice-based proof of both our positive nutrition and wellness and environmental impacts so we can shift the narrative and unequivocally prove dairy’s benefits — with science, third-party influential voices and innovation. The long-term answer for dairy is innovation — in our products and the benefits they provide, as well as in packaging and processing and through farm technology and practices. That’s the key for U.S. dairy to remain relevant and to compete to meet people’s changing tastes and expectations and ongoing desire for variety and products that reflect their values.

We continue to see aggressive growth and investment in plant-based and cellular alternatives, but let’s keep in mind the explosion we’ve seen in the beverage segment overall the last several decades. The beverage options are endless. And frankly, water and coffee have gained significantly more of dairy’s share than we’ve seen in all alternatives combined.
The reality is people are consuming dairy in different forms. For some who aren’t consuming fluid milk, they are enjoying dairy in many other ways, which goes back to the importance of innovation. Dairy has what it takes to not only survive but thrive in this ever-changing environment.

Pino-Gallagher: If I had to pick one topic that could impact every dairy processor, from small to large, it would be the topic of cyber security. Cybercrimes of all types are on the rise — from theft and embezzlement to data hacking and ransomware. I predict that leadership in the dairy sector will spend time and resources to educate their teams and harden their defenses against cyber attacks.

Sexton: Volatility is always lurking. We are dealing with so much uncertainty in so many areas. You can come up with plausible scenarios that say prices are going to be a lot higher. You can come up with plausible scenarios that say prices are going to be a lot lower. If the past two years are any indication, we could see both sharply higher and dramatically lower within a span of months. That argues for having solid risk management programs and protocols in place.

Wilke: The major impact of export shipping capabilities and inflationary costs in energy, labor and supplies cannot be overstated. COVID-19 variants could continue to impact business and society. Building comprehensive, true-to-culture employee recruitment and retention plans are more important than ever.

CMN

Panel finds Canada violated trade commitments in USCMA

January 7, 2022

WASHINGTON — A panel this week ruled in favor of the United States in the first dispute settlement panel proceeding ever brought under the United States-Mexico-Canada Agreement (USMCA). U.S. Trade Representative Katherine Tai on Tuesday announced that a USMCA panel agreed with the United States that Canada is breeching its USMCA commitments by reserving most of the in-quota quantity in its dairy tariff-rate quotas (TRQs) for the exclusive use of Canadian processors.

“Enforcing our trade agreements and making sure they benefit American workers and farmers is a top priority for the Biden-Harris administration,” Tai says. “That is why this administration filed the first-ever panel request under the USMCA. This historic win will help eliminate unjustified trade restrictions on American dairy products and will ensure that the U.S. dairy industry and its workers get the full benefit of the USMCA to market and sell U.S. products to Canadian consumers.”

Under the USMCA, Canada has the right to maintain 14 TRQs on specific dairy products, including milk, cheeses, yogurt, powders and others. In notices to importers that Canada published in June and October 2020 and May 2021 for dairy TRQs, Canada set aside and reserved a percentage of the quota for processors and so-called “further processors,” contrary to Canada’s USMCA commitments. USTR argued that as a result of this restriction, Canada has been undermining the value of its dairy TRQs for U.S. farmers and exporters since entry into force of the USMCA by limiting access to in-quota quantities negotiated under the agreement.

The United States requested that a panel be established on May 24, 2021, under Chapter 31 of the USMCA. The USMCA panel agreed with the United States that Canada’s allocation of dairy TRQs, specifically the set-aside of a percentage of each dairy TRQ exclusively for Canadian processors, is inconsistent with Canada’s commitment in Article 3.A.2.11(b) of the USMCA not to “limit access to an allocation of processors.” The panel additionally found that the agreement makes no distinction between initial processors and “further processors,” and that therefore, the restriction in Article 3.A.2.11(b) applies to all processors, including specific subsets.

The panel issued its final report to the parties on Dec. 20. Under USMCA rules, Canada has 45 days from the date of the final report to comply with the panel’s findings.

From January through October 2021, the United States exported $478 million worth of dairy products to Canada, which is the third largest export destination for U.S. dairy products.

The National Milk Producers Federation (NMPF) and the U.S. Dairy Export Council (USDEC) applauded this week’s decision and urged Canada to comply swiftly with the panel’s ruling.

“The United States and Canada negotiated specific market access terms covering a wide variety of dairy products, but instead of playing by those mutually agreed upon rules, Canada ignored its commitments. As a result, U.S. dairy farmers and exporters have been unable to make full use of USMCA’s benefits,” says Jim Mulhern, president and CEO, NMPF. “America’s dairy farmers appreciate the Biden administration’s dedication to preserving dairy export opportunities and the many members of Congress that have also stressed the importance of aggressive enforcement of dairy access rights in our trade agreements.”

USDEC also thanked Tai for launching the dispute settlement process and congressional leaders for strongly supporting the need to uphold USMCA’s dairy provisions.

“We expect Canada to abide by its trade commitments so that the American dairy industry can fully access the Canadian markets just as USMCA promised,” says Krysta Harden, president and CEO, USDEC. “While this is an essential victory, it is one step in a much longer journey. Our work to uphold the full benefits of USMCA continues, as we strive to reduce supply chain disruptions for our exports and ensure Mexico’s adherence to the dairy provisions of the USMCA, among other key matters.”

Edge Dairy Farmer Cooperative, one of the largest dairy co-ops in the country, also applauded the work of U.S. trade officials in making the case that Canada is unfairly limiting export opportunities for America’s dairy farmers and processors.

“When NAFTA was renegotiated and the USMCA was implemented, we were hopeful the new agreement would bring opportunities to our dairy farmer members, but that is only possible if both sides play by the rules. We are pleased to see that dispute settlement mechanisms put into place through the agreement are working and hope that our trusted trading partner and neighbor will right the ship and come into compliance,” says Edge President Brody Stapel.

U.S. and international dairy processor organizations joined the farmer groups in praising the findings of the USMCA dispute panel. In a joint statement, the International Dairy Foods Association (IDFA), the International Cheese Council of Canada (ICCC), the Dairy Companies Association of New Zealand (DCANZ) and Eucolait say the effect of Canada’s TRQ administration and allocation has been to limit and distort the market access Canada has granted partners under its agreements.

“IDFA applauds the U.S. government’s commitment to ensuring Canada’s dairy trade obligations are upheld,” says Michael Dykes, president and CEO of IDFA. “IDFA is pleased to join our global dairy industry partners (this week) in welcoming the USMCA panel’s findings and promoting Canadian dairy policy accountability.”

This week’s announcement comes as welcome news to global dairy associations that support Canada being held to its international obligations and commitments, the joint statement adds. As major dairy-producing regions, the respective industries of the United States, New Zealand and the European Union, as well as Canadian importers, each have highlighted concerns with Canada’s import policies for dairy products, including Canada’s skewed TRQ administration.

“The ICCC welcomes the panel’s findings and looks forward to Canada living up to all the obligations it has committed to in the USMCA,” says Patrick Pelliccione, ICCC chairman. “Our members and associate members — small and medium-sized Canadian enterprises — look forward to TRQ policies that will ultimately reduce costs for Canadian consumers, deliver the stability and fairness that has been lacking in the existing system and allow importers to continue providing Canadians’ favorite cheeses at affordable prices.”

The impacted dairy associations encourage U.S. and Canadian governments to work collaboratively toward an outcome that provides impacted industries with fair and equitable TRQ administration that facilitates greater market certainty. The associations note they also are awaiting the outcomes of Canada’s TRQ administration and allocation review, started in 2019, which has been on hold since early 2020.

For a copy of the panel report, visit https://ustr.gov/sites/default/files/enforcement/USMCA/Canada%20Dairy%20TRQ%20Final%20Panel%20Report.pdf.

CMN

CME spot cheese, butter prices surge to start off the new year

January 7, 2022

By Alyssa Mitchell

MADISON, Wis. — Market participants are reeling this week as cheese and butter prices at the Chicago Mercantile Exchange (CME) have soared to highs not seen for the past couple of years. Analysts say the support comes from tightening milk supplies as well as a U.S. market that still is lagging behind international prices.

CME Cheddar blocks reached $2.065 on Wednesday, a level not seen since November 2020. Cheddar barrels also have been on upward trajectory, settling at $1.8725 Thursday.

Meanwhile, CME butter this week reached its highest price level since 2017, settling at $2.7425 per pound on Thursday. (For Friday’s prices and this week’s averages, visit our website at www.cheesemarketnews.com/markets/dailymarkets.html)

USDA’s Dairy Market News reports butter churners say cream availability has resolutely slimmed down and with a quickness following the holiday weeks. Multiples have climbed roughly 10 points week to week in some cases, and haulers are tight as well.

Butter churning is expected to slow if this trend continues, which is likely while cream cheese producers and other cream end users play catch-up, thereby siphoning from the cream pool, Dairy Market News says.

“Bulk butter is very tight. Some contacts say domestic butterfat values are increasing rapidly, as they begin to gain on international values” Dairy Market News adds.

Indeed, despite the strength at the CME, international cheese prices continue to be at a premium to U.S. prices. At Tuesday’s Global Dairy Trade auction in New Zealand, Cheddar averaged $2.49 per pound. Butter averaged $2.66 per pound, a level surpassed by U.S. butter just this week.

Dairy Market News also reports cheese supplies in the primary Western European cheese-producing countries continue to be tight, supporting price strength.

Mike McCully, owner of The McCully Group LLC, South Bend, Indiana, says in the United States, cream supplies have been abnormally tight, which has helped push butter prices past $2.70 per pound.

“It is hard to think prices can sustain this level as demand should erode quickly,” he says. “For cheese, export demand is reportedly strong for the first quarter, and with higher global prices, U.S. cheese finally joined the party for higher dairy prices.”

Dave Kurzawski, team leader of dairy risk management consulting with StoneX, Chicago, says “it seems like someone turned up the dial on the chaotic nature of the pandemic.”

“Today’s market is all about fat,” Kurzawski adds. “Supply is tight and demand is good for cream, and it’s coming out in the wash on the butter market — our most visible price index for fat. The price of cheese and Class III (milk) is rising in sympathy.”

He notes that ultimately it is mostly a supply story.

“Milk was tilted toward cheese in the third quarter of 2021, which really shorted butter as milk production collapsed,” Kurzawski says. “It looks like the fourth quarter was a little more balanced with cheese production finally slowing down, but butter production likely stayed below last year. Demand has been better than expected, but it isn’t crazy good with retail still down. But weak production and good demand has pulled stocks down (as expected), and stocks will likely stay 15%-20% below last year in the first half of 2022.”

(For further analysis on the CME spot market, see guest column from HighGround Dairy’s Lucas Fuess.)

CMN

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