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Hello and welcome to Parler to play a weekly podcast from African sites dedicated to offering listeners enlightening discussion and actionable intelligence about dairy markets. I’m your host, Katie Burgess, and we’re excited to have you along today. If you enjoy the show. Please like us. Subscribe and tell a friend or two as we kick things off, let’s timestamp the episode.

00;00;27;11 – 00;00;47;27

It’s about noon central time on Wednesday, June 26th, and to take a look at market today, we’ve got black cheddar cheese closing at 188 per pound. That’s up $0.02 from last week. Barrels finished at 190 per pound, down $0.04 from a week ago. Butter is at 309 down $0.02. And nonfat dry milk is trading at one 18.5 per pound.

00;00;47;29 – 00;01;06;25

That’s down half a cent on the week. And looking at the grain market nearby, corn is at 426 a bushel. That’s down nearly $0.25 from a week ago, while soybeans are at 1172, down $0.02. Now. Let’s get to the show. These markets have been volatile here as of late. Last three futures have been up and down, up and down, back up against some.

00;01;06;25 – 00;01;28;03

Today it seems like the market’s just trying to figure out where it’s going to land. And we’ve had a few big dairy reports out over the past few days. And a big grain report coming up on Friday. So to help us make sense of it all, we’ve got a great group of panelists along today. Not one but two representatives from the Chicago office Brian Fletcher, who works with commercial customers, and Ryan Jackman, who works with dairy producers.

00;01;28;03 – 00;01;34;13

And joining us from Platteville, Wisconsin, we’ve got Brandon Weigel representing grain and feed market. How is everyone doing today?

00;01;34;17 – 00;01;37;22

Doing great. Doing great. Katie, thanks for having us doing well.

00;01;37;22 – 00;01;55;14

So guys, let’s run through these reports. Let’s do it in chronological order. So the first report we got of this recent streak was that USDA milk production report dropped last Friday right after markets had closed. So Ryan, can you give us an update on what it showed and what you think it might mean for the market?

00;01;55;20 – 00;02;18;07

At first glance, U.S. milk production was down 9% year over year. And I think without any hard core analysis, that’s a sizable number. Less is less. And Bill likes to say versus our expectations came off as neutral coming out of what was a very tough fiscal year in 2023. So maybe not a huge surprise in regards to what we were expecting.

00;02;18;07 – 00;02;41;04

But I do think US milk production is indeed 0.9% as we’re coming out within that, were there any signs of improvement? And I know the headline number is 0.9% zero. But in terms of the various regions in the US, has there been a rebound or is there signs that the worst might be behind us in certain areas? I guess in my own eyes you see a lot of the same.

00;02;41;04 – 00;02;56;18

You know, Midwest and Moody’s continue to show small signs of growth. We generally look at that pocket of the country as a little more insulated. When you think about how we’re set up with big land based growing a lot of your own feed, I tend to find a little bit more premium in milk when you’re in those regions.

00;02;56;18 – 00;03;13;03

So feeling a little strength there. But when you go look around the rest of the country from the Pacific Northwest, the southwest and California, the declines continue to be in play. You can make the case. Maybe you start to see a little rebound in the southwest, but again, still making less milk in those regions. Those are the areas we know that have struggled.

00;03;13;04 – 00;03;28;26

I think the hardest coming out of last year from a margin standpoint, take into account whether you’re taking on water, talked a lot about bird flu and it starting certainly in the southwest. So to me, I think I saw a lot of what was expected. Maybe a little bit of surprise to me, honestly, was to see the north east down 0.8%.

00;03;28;26 – 00;03;58;18

Yeah, that’s a region similar to the Midwest. We’re pretty insulated with a land base, a lot of class for exposure. So I’d say from profitability standpoint, they’re kind of in it to see a decline there. That actually was the thing that maybe got my attention a bit coming out of that region. Another question with the prospect of milk production looking forward, I know a big topic within just our teams, and I’m sure you with your customers, is looking at today’s margin of revenue over costs and then the forward looking margin.

00;03;58;18 – 00;04;20;08

Does that change the idea of where milk production can go from here, or is the idea that we’re probably going to be operating under a deficit year over year milk production for quite some time. So I think when you truly just look at the margin standpoint, and it’s been a talking point here now for the last, you know, maybe month or so when you look at milk over feed, right?

00;04;20;08 – 00;04;39;11

Don’t take into account operating costs or interest rates. We’re talking about a relationship. If I use even class three and four as a blend that is starting to get into top or top five all time, right? That spread is very healthy. That shouldn’t for profit bill. Now there are things like higher operating costs and higher interest rates that can dig into that.

00;04;39;11 – 00;05;06;06

You also got something this year where cattle prices are pretty much all time highs. So in short, yes, the margin matrix is not only good starting to look very very good. So in short, in any other year you’d say, oh it’s going to turn the spigot of that opportunity will bring milk. What’s very different in our eyes this year is we all know the heifer situation in the US is something we’ve not seen in like over 20 years in regards to we don’t have a lot of replacements on hand.

00;05;06;06 – 00;05;28;27

And to back that data, we’ve got heifers trading at all time highs or some version of very close to that. So price is backing the idea that these animals are not widely available. The beef price continues to incentivize dairies to breed to beef. You’re going to start keeping those animals around. You’re doubling down on dairy. And I don’t think we’re quite into a curve where that’s the most obvious thing to do.

00;05;28;27 – 00;05;42;26

And so it’s a really interesting situation. But you’re right, you should look at the curve and say, here comes the milk. But I think we all agree there’s a big asterisks next to it this year in regards to our heifer. Supplies are very, very small and the market is still incentivizing us to make these.

00;05;42;28 – 00;05;59;01

I feel like to me, the animals thing is really the piece to watch that if you look at dairy cow month over month growth since the end of January, we have actually been adding cows in three out of four of those months. But a lot of it seems to be happening on lighter slaughter rates that people are keeping their current milk cows.

00;05;59;01 – 00;06;16;22

They’re on for longer. Because to your point, Ryan, we don’t have those heifers out there. And, you know, as we think about milk production for later this year, I know our average model is showing some return to slight growth. But to your point, these margins are looking pretty good. And normally you’d expect to see, you know, 2 or 3% growth at these numbers.

00;06;16;22 – 00;06;27;03

And I think our forecast goes up to like 2/10 of a percent. So you know still pretty light performance just based on if you don’t have heifers out there to build the herd, there’s a limit to how much milk you can actually be making.

00;06;27;03 – 00;06;41;20

In something interesting to talk about dairy cow slaughter. It’s been running really, really low now for the last few months. We can make sense of that because, you know, we know the replacements are time that cost a lot. But in conversation with a lot of dairies, these animals that are being held back, you can only do that so long.

00;06;41;20 – 00;06;56;16

You’re just kicking the can down the road. And so in a lot of dairies I’m talking about, there’s this perception that somewhere in here there’s a window probably this summer, early fall, where you could start to see a lot of animals have to go to slaughter because you can only hang on to. So you’re not going to keep that animal for another year.

00;06;56;16 – 00;07;13;05

That’s not getting bred. Maybe you’ve kept your here for a few more months, squeeze a bit more milk on there so not to spook the market. Not much more about tighter milk, but the slaughter thing is an interesting one. That almost feels like a trend. Can’t long term continue because you guys will have to get back to regular core rates at some point.

00;07;13;06 – 00;07;30;22

Yeah, it’s just it’s a weird scenario right now, a different set up then. You know, we can remember seeing any time in recent past. Thanks for that overview, Ryan. So now Brian, I want to talk to you next. I know you were watching that cold storage report when it dropped pretty closely from USDA yesterday. What were the big takeaways out of the cold storage numbers?

00;07;30;22 – 00;08;07;29

Well, I’ll start in each case. Katie. What our team was anticipating the storage numbers to be and what they actually came out to be was much lower. So starting with butter, we were estimating these butter stocks to be around 389 million. And what was disclosed yesterday was 380 million. So 9 million pounds under the expectation, I would say, though in general on a year over year basis, we’re still made tends to be the end of the inventory building season, and we’re ending that inventory building season in 22 million pounds ahead of where we were this time last year.

00;08;08;01 – 00;08;26;05

You know, in general, going into the summer months when we traditionally start pulling stocks down, we’re entering that season into with a lot more at hand. So in general, I would say at face value, it was under expectations. Is it a number. You know, that’s really going to have a paradigm shift in the market? I don’t think so.

00;08;26;05 – 00;08;55;16

Today. Spot butter and the forward curve each moved higher relatively about the same amount. The general structure of the butter market right now is a flat curve. So even though prices moved up the general say merchandizing incentive or inventory incentive right now, it actually says that if you have uncommitted inventory, then your best return in the marketplace is actually selling it, because the forward curve isn’t incentivizing you to store it for a higher price down the road.

00;08;55;16 – 00;09;17;27

And so as we move forward throughout the week, I don’t know that the general trading activity is going to, you know, really turn around too much. Maybe it will bring some more activity into the market that puts a higher forward curve in. I just don’t know that this number, you know, at least what I think is we have a lot more in storage this year and we’re going into the summer months.

00;09;17;27 – 00;09;36;26

And so I think in general, it should be putting some of the extreme fears at ease to a certain degree within that, if we look over to the cheese side this one time, there’s a lot of questions here with cheese. If you were to look at the total cheese stocks on a chart, we tend to be building stocks from April to May.

00;09;36;26 – 00;10;04;04

And that is not what is being demonstrated in this report. So on a year over year basis, we had a drawdown of 4.2%, generally where we’re adding about 5 million pounds. During that change. So that’s a counter seasonal move, if you will. And then within that American cheese numbers, which is generally what we’re focused on in terms of what setting the price of cheddar, it was definitely along the lines of those general trends when we were looking at that.

00;10;04;04 – 00;10;22;27

In general, it was a much lower number than what we were thinking it to be. And there’s two different elements, I think, from the demand side that are likely playing into it. And the first would be my guess is we’re likely to see pretty strong exports in the months of May, and that is a trend that’s been established through the first four months of this year.

00;10;22;27 – 00;10;50;19

Generally, when exports are contracted on spot basis, others are contracted on a forward basis. So I imagine when our prices were much lower in April, there were some say Q2 exports that were booked. And that probably is playing into this drawdown simultaneously. On the demand side of the equation, right around the transition from April to May, we were seeing the lowest price promotional activity in the cheese market in over three years.

00;10;50;19 – 00;11;12;05

So at this point, I don’t know that we can say it’s exclusively an export story. We’re seeing demand on the domestic side and also the export side that are likely contributing to this drawdown when we’re typically building, you know, out of the two, if were to say, you know, is this bullish, is this bearish? I do think on the butter side it’s more of a neutral type thing.

00;11;12;05 – 00;11;31;17

I know the knee jerk reaction higher is higher today. On the cheese side, I think we need to go investigate to see if I mean, if you look at this on a chart, it definitely sticks out and it looks much lower than five year averages, way lower than where we were last year. And you know, at face value there, it’s a generally supportive number.

00;11;31;20 – 00;11;46;03

I feel like that’s always the hard things of trying to figure out what to make of the reports that, you know, the data at this point is almost a month old, hey, cold storage data. And we know that during the month of May, the cheese market, you know, really soared, kind of suggesting that stocks probably got tighter.

00;11;46;03 – 00;12;05;26

As we switch from an environment typically, like you said, with butter especially typically we’re building stocks during the first half of the year, and then those stocks have to hold us through some points later in the year when demand picks up seasonally and and milk production is a little bit softer.

00;12;06;03 – 00;12;25;29

Absolutely. And just to add on to the cheese side, you know that may time period like you were highlighting. I mean that was a transition month with the market the end of April. We’re near the lows of the market over the course of May. We made, you know, prices increased by about $0.50. So I think a lot of that price move is being justified by this report.

00;12;25;29 – 00;12;53;04

I think fundamentally the resistance we’re running into now is we’re in a much higher price environment. So moving forward now, we’re we’re neck and neck in competition with EU for cheese prices. So and can you anticipate this type of drawdown to continue? I personally think that things will start to shift, especially in the June cold storage because we’re just not facing the fundamentals that we were, you know, at that moment in time for sure.

00;12;53;04 – 00;13;04;05

I think that demand question is really going to be the big one that drive us during the second half of the year. How do we hold up, given that we just did see some pretty good demand, but how long can it hold on for? And exports definitely seem like they could be under pressure.

00;13;04;09 – 00;13;22;29

Absolutely. And flat to curious on the international front. You know we’ve got our story for why we got here, which is record exports and us to tick it up. But we’ve also watched international markets move at about the same time. To your point. So I’m curious on two for one with the current price relationship, U.S. versus EU. We’ve looked at that more.

00;13;23;00 – 00;13;42;01

It’s kind of barrel us a lot. Seems like a decent tell. What is that spread today and what might it infer if we were to be export friendly, maybe where we need to be to do that and then to are you hearing any demand notes out of Europe? Again, we’ve seen the prices move. I’m kind of curious. The feel there as it feels like things are heating up here a little bit.

00;13;42;04 – 00;14;08;25

Well, to focus on the first element, I would consider the US prices relative to EU right now at parity. And how that’s different is in the first quarter of this year, the US prices were 30 or 40 cent discount. You know, in terms of export competitiveness it doesn’t mean we won’t be exporting. It’s just we won’t be the first phone call from a lot of the regions that we are getting into, a lot of the Asian countries and so on.

00;14;08;25 – 00;14;31;04

North America, where the US market really logistically caters to, I would imagine we’ll still continue to export. But the peripheral demand, I would imagine, you know, it’s a bit of a price war right now between the two regions when you kind of focus on the EU side of things. You’re right. I mean, when the US market was at 150, the EU market was 175, 180.

00;14;31;04 – 00;14;56;23

Now we’re all kind of neck and neck right around this 190 to 195 area. So in general, with that, the floor has definitely risen to say that because we’re running into export competition, that means we need to go back down to 150, I would say is absolutely not the case. It means that if we go down to one, 71, 71, 80, we’re likely going to be exporting quite considerably again.

00;14;56;23 – 00;15;24;26

So in the general sense, out of the EU market right now isn’t that it’s stable. They have increased. But we’ve they’ve also run into resistance now that prices have increased. But in general they’re not falling straight back down either. They’ve largely consolidating. So it does feel like going into the northern hemisphere summer, if you will. Prices have responded by going higher, which, you know, I think in general is trying to buy time just to see how we go through throughout the summer.

00;15;24;29 – 00;15;52;09

I know in general, wet weather in the US is supposed to be hotter than normal. I don’t know, there’s some risk premium on because of that. But you know, in general where we’re all kind of neck and neck right now, which I would say that doesn’t tend to bode well for US exports. I mean, the record amounts that we’ve seen through the data through April this year, I have to say that the reason we did that was because we were a clear price advantage in the international market.

00;15;52;09 – 00;16;03;21

Now, it doesn’t mean we won’t export. It’s just I have a hard time thinking that the magnitude of the increases is going to continue. Now that we’re basically at parity to the rest of the world.

00;16;03;23 – 00;16;21;28

Thanks, guys. And so last but not least, I do want to talk about the grain markets, because as the dairy markets have been exciting this week, the grain markets have been as well. We’ve got December corn making new life of contract lows. And speaking my report spring in this time of year, the weather report is always top of mind.

00;16;21;29 – 00;16;26;14

Can you give us an update on what you’ve been seeing as you talk to growers here across the Corn Belt?

00;16;26;15 – 00;16;47;14

Yeah, absolutely. Katie. Thank you. So I think as we look across the Midwest as a whole, we’ve been seeing pretty excess rainfall, right? I mean, if we look through the entirety of the Corn Belt, people have been getting more rainfall than probably what is ideal in some areas, especially if you look down through like western Minnesota, western Iowa, you get into south south central Wisconsin, Illinois.

00;16;47;14 – 00;17;05;10

It seems like folks have been a little bit more pleased with the rainfall. They’re getting there. You know, I know in our area, southwest Wisconsin, we’ve been getting plenty, but it’s not too much yet. Right? You get down into western Iowa specifically. They had a lot of flooding issues here in the last five days, and that has caused some, you know, damage.

00;17;05;10 – 00;17;23;12

It’s really hard to know to what extent there’s going to be yield losses and production losses in those areas that are under a heavy rainfall and have had flooding issues, but there will likely be some yield losses there. So if we look at things across the whole, we’ve really eliminated any drought concerns that we had just 3 or 4 short months ago across the Corn Belt.

00;17;23;12 – 00;17;39;09

I don’t know, Ryan, what have you kind of been hearing out in Michigan in terms of how things are looking out that way with crops? Yeah. all things considered, I get back to my neck of woods. We are off to the start. Yeah, we got rolling some version of a bumper. First crop on alfalfa corn is off to a really nice start.

00;17;39;09 – 00;17;50;19

We almost lean toward the idea of being a little too wet, which I know is a lot of the story. Seems like you’re hearing around versus drought. No, but I can say personally, we’re reset. We’re off to a very healthy start in regards to the crops we’re growing.

00;17;50;19 – 00;18;01;16

So, Brennan, the big acreage report on Friday, we get a quarterly grain stocks report as well. But I know that acreage is the one that everyone waits for. What are the things that you’re going to be looking at right when that report drops? Yeah.

00;18;01;16 – 00;18;17;21

So as we go into that report, we can look back at history and say, okay, what tends to happen as we look at this planet acreage report as compared to the planning intentions report that we get at the end of March. Historically, on average, we tend to see a little bit of an increase in corn acres and a decrease in soybean acreage as well this year.

00;18;17;21 – 00;18;35;29

Going into it, the average analyst estimate is that we actually see an increase in both corn bean and wheat acres. So if you look at okay, well, where is this extra acreage all of a sudden coming from, you’re likely to see a little bit of a decrease in cotton acres. If you look back to that March 31st planting intentions report, cotton was really the big winner.

00;18;35;29 – 00;18;53;19

As we looked at all the commodities in terms of adding acreage. As we’ve really come through the start of the growing season, we know that the cotton crop down in the southwest, south part of the country has been having some struggles, and there’s going to likely be some acres that are transitioned out of cotton back into one of these other crops over the course of the last few months.

00;18;53;19 – 00;19;15;25

So I would be maybe looking for a little bit of an increase in corn acres. We haven’t heard a whole lot this spring, despite kind of the late planting in some areas, the delayed planting acres being switched out of corn and soybeans as things got late. There was certainly some cases where that was happening. But, you know, by and large, things seem to be relatively stable from an acreage expectation standpoint.

00;19;15;25 – 00;19;35;28

So going into this thing, you know, these USDA reports are always super hard to get. And guess walking into them. We can look back at history and say, okay, here’s what tends to happen. But as we really prepare for, we need to be making sure that we’re going about managing these feed costs as we look at it from a dairy perspective, like you said, Katie, we are making new contract lows here on this corn market.

00;19;35;28 – 00;19;45;28

We continue to grind this thing lower. Managed money is unlikely to add too much more aggressively to this short position ahead of this report. And until they have a little bit more certainty around acres.

00;19;46;01 – 00;20;05;08

Thanks, Brandon. That’s a really good summary. Now I know what I’ll be looking for when the report drops at 11 on Friday. Well, that’s it for today’s show. Big thanks to our panelists, Brian Ryan and Brandon appreciated the conversation. And to our listeners, if you’re a dairy or livestock producer and you’d like to work with Everythig, remember that insurance transfer season is quickly coming to a close.

00;20;05;08 – 00;20;24;21

It’s that one time of year when you can transfer your dairy or livestock insurance policies to a new agent, and all the paperwork needs to be signed by June 30th. We’d be delighted to help you manage your risk, so please reach out at Insights at Ever Dot egg to learn more and get connected with an agent. Finally, big thanks to our Outbreak Insights team for the production support and thanks to you, our listeners.

00;20;24;25 – 00;20;35;09