Read the latest issue of The Dairy Bar, a bi-weekly report from IDFA partner Blimling and Associates, Inc., a dairy research and consulting firm based in Madison, Wisconsin. The Dairy Bar features spotlight data, key policy updates, and a one-minute video that covers timely topics for the dairy industry.
September 9, 2020: The Dairy Bar: USDA Spending Special; Budgeting for 2021; and the Monthly Minute on Nonfat Dry Milk!
Quick Bites: Budgeting in a Volatile World
- It’s that time of year … time to craft and submit 2021 budgets. Planning and budgeting is always a tough exercise. It’s even more challenging this time around given an ongoing pandemic, changing consumption patterns and global economic uncertainty.
- Historic volatility in the dairy markets in 2020 is likely not helping build confidence, either. That’s particularly true for those in the business of buying and/or selling cheese. Year-to-date through the end of August, the 30-day historic volatility for cheese was averaging 41% - more than double any of the past ten years. The butter market has been through the ringer this year, too. Historic 30-day volatility for butter was averaging 41% year-to-date, up from about 20% over the past ten years.
- How does that compare to other markets? So far this year, cheese and butter prices have been more volatile than the S&P 500, corn and coffee, though not nearly as wild as the crude oil market, which has been trending around +200%.
- Barring unforeseen and massive supply chain disruptions, it seems unlikely that 2021 will be quite as volatile as the current year. But that bar is set pretty high. Given the ongoing uncertainty, it seems likely that market participants will take a more conservative approach to 2021 budgets and perhaps lean on futures as a price gauge more so than in years past.
Today's Special
- USDA is spending a lot of extra money so far this year. Between May 15 and early September, the agency invoiced more than 85 million boxes through the Farmers to Families Food Box program, spending roughly $3 billion in the process. And there’s more money coming, with President Trump announcing that the government will provide another billion dollars to the program. Though the breakdown of how that money will be spent is still up in the air, a billion dollars can buy a lot dairy and other agricultural goods.
- In the first two rounds of the Farmers to Families Food Box program, USDA spent nearly $260 million on “dairy product” boxes and more than $93 million on fluid milk. That means that between the first two rounds, roughly 15% of USDA’s dollars went to dairy-specific boxes alone. Assuming USDA holds that ratio for the next billion dollars, we can expect more than $150 million in dairy-specific purchases. But dairy-related expenditures extend beyond that, with additional dollars used to put cheese and other dairy products into “combination boxes” featuring a mixture of agricultural goods (+$460 million between May and August).
- USDA is doling out the dollars via the Section 32 program, too. Since the beginning of the pandemic in the U.S., the agency purchased nearly $94 million in dairy products ranging from fluid milk to cheese to butter – and the spending isn’t done yet. In early September, USDA announced solicitations for roughly 4 million pounds of cheddar and Swiss cheese and nearly 3 million pounds of butter for early 2021 delivery.
- USDA may not close the purse strings anytime soon with millions of lives still upended by the ever-present pandemic. The August unemployment rate was running at around 8% - down from the pandemic’s peak, yet many wage earners are struggling to make ends meet. And with the election less than 55 days away, expect politics to stay in play. For more information on USDA purchases, contact Joe Scimeca, SVP of Regulatory & Scientific Affairs, jscimeca@idfa.org.