By E. W. Lang
Barrel cheese lost 26 cents and ended the week at
$1.65 per lb., eight cents lower than it was two weeks ago when the abrupt run
up, and equally abrupt fall, in cheese price began.
Block cheddar cheese lost 15 cents to close at
$2.05 per lb. That's five cents higher than two week ago.
Conventional wisdom is that a cheese processing
problem at one facility created a brief but significant cheese shortage, and
subsequently drove up milk prices for five days - from $18 to $19.70 per cwt.
Price resistance and manufacturing changes then prompted milk prices to drop
back to $18.67 today. I'm over simplifying what came to pass, but this seems to
be largely why the surprise run up and retreat in price was so dramatic and
brief.
Butter lost 11 cents per lb., and closed out this
week's trading at $2.11 per lb. That's a couple cents off of a two year low.
Class III milk, for the week, lost five cents in
September, 54 cents in October and, strangely, gained four to 17 cents in 12 of
the 13 subsequent trading months. This followed gains last week of $1.48 in
October and 99 cents in November.
Average price for 4Q19 Class III Milk Futures is $18.25 per cwt., a
gain of 23 cents since last Friday, if that makes sense. Calendar 2020 averages
$17 plus small change, up small change from last week.
On Wednesday, one day after milk had been over
$19.50 and one day before milk closed under $18.50 per cwt., parlor free-stall
cows topped at $2300 at Premier Livestock Auction in Withee, Wisconsin. That
was a couple hundred up from a week earlier when milk was $18.25 on sale day.
USDA has granted a seven day extension to sign up
for the Dairy Margin Coverage program, commonly known as government milk
subsidies.
Three dairy/livestock facilities were liquidated
at public auction a couple weeks ago in southern Iowa. A 1600 cow dairy on 40
acres sold for $130,000. A 700 cow dairy on 101A sold for $81,000. A heifer
facility on 35A sold for $63,000. Each of these properties had 18 to 37 bids
and were absolute sales. I think the 1600 cow dairy was new in 2000. The sale
prices reflect the remaining land value after removal of all structures and
biting an unknown amount to address any environmental surprises.
Anecdotal information indicates that many dairy
farm suppliers are serving as default lenders with burdensome accounts
receivable, many doubtful. These
include, but are not limited to, frozen semen suppliers, hay and corn chopper
folk, manure pumping people, Doctors of Veterinary Medicine, milking machine
service/pipeline soap providers, and feed suppliers, of course.
As such, a significant number of ag businesses
will be out of business once the bad dairy accounts are zeroed out at some
point in time. Also, with fewer dairy farms, fewer service and sales entities
will be needed. Business is a cruel endeavor.
Ambitious, creative people, however, will find
faster, better and cheaper ways to deliver goods and services to the remaining
milk producers who operate both near and far.
Ahead lie opportunities for some new people to
get in and get started, just as some existing suppliers are wrung out by the
waves of creative destruction. Waves that have, thus far, only visited economic
destruction to the dairy industry.